<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1996
REGISTRATION NO. 333-4455
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
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. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement contains a proxy statement to be used in
connection with a special meeting of shareholders of Security Capital Pacific
Trust (the "PTR Proxy Statement") and an information statement to be used in
connection with a special meeting of shareholders of Security Capital Atlantic
Incorporated (the "Atlantic Information Statement"). This Registration
Statement also includes a form of a prospectus of Homestead Village
Incorporated ("Homestead") to be included as a part of each of the PTR Proxy
Statement and the Atlantic Information Statement, relating to the securities
of Homestead to be issued in connection with the transactions described in
this Registration Statement.
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[PTR LETTERHEAD]
To the Shareholders of Security Capital Pacific Trust ("PTR"):
You are invited to attend a special meeting of PTR shareholders to be held
in El Paso, Texas on Thursday, September 12, 1996 at 10:00 a.m. local time.
At the meeting you will be asked to consider and vote upon a proposed Merger
and Distribution Agreement which contemplates (i) the contribution, through a
series of merger transactions, by PTR of its Homestead Village properties to a
newly formed company, Homestead Village Incorporated ("Homestead"), in
exchange for shares of Homestead common stock, (ii) the receipt of warrants to
purchase shares of Homestead common stock in exchange for the agreement of PTR
to finance, through convertible mortgage loans to Homestead, the acquisition
and development of certain properties being contributed by PTR to Homestead
and (iii) the distribution, pro rata, of all of the Homestead common stock and
warrants PTR receives to PTR shareholders. You will also be asked to consider
and vote upon an amendment to PTR's Declaration of Trust necessary to
facilitate the transaction. If the foregoing proposals are approved, each
holder of PTR common shares will (1) retain his or her existing PTR common
shares and (2) receive shares of Homestead common stock and warrants to
purchase shares of Homestead common stock. The transaction and certain related
matters are described in detail in the accompanying Proxy Statement and
Prospectus. Please review it carefully.
After careful consideration, the PTR Board of Trustees, by unanimous vote of
trustees who are not officers of PTR or directors, officers or employees of
PTR's largest shareholder, Security Capital Group Incorporated, or its
affiliates, has approved the transaction and recommends that all shareholders
vote for its approval. The affirmative vote of holders of two-thirds of the
outstanding common shares of PTR will be necessary for approval of the
transaction and the amendment to PTR's Declaration of Trust. The approval of
the amendment to PTR's Declaration of Trust is a condition to the consummation
of the transaction.
Please complete, sign and date your enclosed proxy card and return it to us
in the accompanying envelope as soon as possible. Failure to return your proxy
card or to vote in person at the special meeting will have the effect of a
vote against the transaction. Returning your completed proxy card will not
limit your right to vote in person if you attend the special meeting.
If you have any questions regarding the proposed transaction, please call
Georgeson & Company, Inc., our proxy solicitation and information agent, at
(800) 223-2064.
Very truly yours,
C. Ronald Blankenship
Chairman
YOUR PROXY IS IMPORTANT--PLEASE RESPOND PROMPTLY
<PAGE>
[PTR LETTERHEAD]
Notice is Hereby Given that a special meeting of shareholders of Security
Capital Pacific Trust ("PTR") will be held on Thursday, September 12, 1996,
commencing at 10:00 a.m., local time, at PTR's executive offices at 7777
Market Center Avenue, El Paso, Texas, for the following purposes:
1. To consider and vote upon the approval of a Merger and Distribution
Agreement dated as of May 21, 1996 (the "Merger Agreement"), among PTR,
Homestead Village Incorporated, a Maryland corporation ("Homestead"),
Security Capital Atlantic Incorporated, a Maryland corporation
("ATLANTIC"), and Security Capital Group Incorporated, a Maryland
corporation ("SCG"), pursuant to which, among other matters, (i) PTR,
ATLANTIC and SCG would contribute, through a series of merger transactions,
all of their respective assets related to the Homestead Village properties
in exchange for shares of Homestead common stock, (ii) PTR and ATLANTIC
would agree to finance, through convertible mortgage loans, the acquisition
and development of certain properties being contributed by them in exchange
for warrants to purchase shares of Homestead common stock, (iii) SCG would
agree to finance the acquisition and development of certain Homestead
Village properties in exchange for warrants to purchase shares of Homestead
common stock and (iv) PTR and ATLANTIC would distribute such Homestead
securities pro rata to their respective shareholders, all as more fully
described in the accompanying Proxy Statement and Prospectus;
2. To consider and vote upon an amendment to PTR's Restated Declaration
of Trust necessary in order to consummate the transactions contemplated by
the Merger Agreement; and
3. To transact any other business that may properly come before the
special meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is set forth as Annex I to the Proxy
Statement and Prospectus attached hereto and is incorporated herein by
reference.
The Board of Trustees of PTR has fixed the close of business on August 12,
1996 as the record date for the determination of shareholders entitled to
notice of and to vote at the special meeting. The affirmative vote of the
holders of two-thirds of the outstanding common shares of PTR entitled to vote
at the special meeting is necessary to approve and adopt the proposals set
forth above. Holders of common shares of PTR are not entitled to dissenters'
rights under Maryland law in connection with the transaction.
Whether or not you plan to attend the special meeting, please fill in, date
and sign the proxy card furnished herewith and mail it promptly in the
enclosed pre-addressed envelope, which requires no postage if mailed in the
United States.
By Order of the Board of Trustees,
Jeffrey A. Klopf
Secretary
El Paso, Texas
August , 1996
<PAGE>
SUBJECT TO COMPLETION DATED AUGUST 6, 1996
SECURITY CAPITAL PACIFIC TRUST
PROXY STATEMENT
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HOMESTEAD VILLAGE INCORPORATED
PROSPECTUS
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This Proxy Statement and Prospectus relates to (i) a proposed transaction
pursuant to which Security Capital Pacific Trust ("PTR"), Security Capital
Atlantic Incorporated ("ATLANTIC") and Security Capital Group Incorporated
("SCG") will each contribute, through a series of merger transactions (the
"Mergers"), their Homestead Village(R) extended-stay lodging assets to
Homestead Village Incorporated ("Homestead") in exchange for Homestead common
stock, par value $0.01 per share ("Homestead Common Stock"), all as
contemplated by the terms of a Merger and Distribution Agreement dated as of
May 21, 1996 (the "Merger Agreement"); (ii) the receipt of warrants, each to
purchase one share of Homestead Common Stock, at an exercise price of $10.00
per share ("Homestead Warrants" and, together with the Homestead Common Stock,
the "Homestead Securities"), by PTR and ATLANTIC in exchange for the agreement
of PTR and ATLANTIC to finance the acquisition and development of certain
properties being contributed by them to Homestead through convertible mortgage
loans to Homestead; (iii) the receipt of Homestead Warrants by SCG in exchange
for the agreement of SCG to provide certain financing to Homestead; (iv) the
subsequent distribution by PTR and ATLANTIC of such Homestead Securities to
their respective shareholders (the "Distribution"); and (v) the approval of an
amendment to PTR's Restated Declaration of Trust, as amended (the "PTR
Declaration of Trust"), necessary to consummate the transactions contemplated
by the Merger Agreement (collectively, the "Transaction"). The Distribution
will result in a taxable dividend to shareholders of PTR. See "The
Transaction--Federal Income Tax Consequences."
PTR is soliciting proxies from its shareholders for use at a Special Meeting
of Shareholders of PTR scheduled to be held on September 12, 1996 and at any
adjournment or postponement thereof (the "PTR Special Meeting") to consider the
matters described above. A copy of the Merger Agreement is attached to this
Proxy Statement and Prospectus as Annex I and is incorporated herein by
reference. SCG owns approximately 37.8% of the outstanding PTR common shares of
beneficial interest, $1.00 par value per share ("PTR Common Shares"), and it
has agreed, subject to certain conditions, to vote all of its PTR Common Shares
in favor of the Merger Agreement.
This Proxy Statement and Prospectus constitutes both the proxy statement of
PTR relating to the solicitation of proxies by the PTR Board of Trustees (the
"PTR Board") for use at the PTR Special Meeting, and the Prospectus of
Homestead (the "Homestead Prospectus") with respect to 9,485,727 shares of
Homestead Common Stock and Homestead Warrants to purchase 6,363,789 shares of
Homestead Common Stock to be distributed to the shareholders of PTR. The amount
of Homestead Securities to be received by each PTR shareholder in the
Distribution will depend on the number of PTR Common Shares outstanding on the
record date to be established for the Distribution (the "Distribution Record
Date"). Based on the number of PTR Common Shares outstanding on August 1, 1996,
each PTR shareholder would receive 0.131033 shares of Homestead Common Stock
and 0.087907 Homestead Warrants for each PTR Common Share held. Cash will be
paid in lieu of any fractional shares of Homestead Common Stock and fractional
Homestead Warrants. Thus, a PTR shareholder who owns 100 PTR Common Shares on
the Distribution Record Date would receive 13 shares of Homestead Common Stock,
eight Homestead Warrants plus cash for fractional shares and warrants. To the
extent that any Series A Preferred Shares (as defined herein) are converted
into PTR Common Shares or outstanding options to acquire PTR Common Shares are
exercised prior to the Distribution Record Date, there would be a proportionate
reduction in the amount of Homestead Securities to be received by each PTR
shareholder. Information concerning Homestead is set forth in the Homestead
Prospectus attached hereto and is incorporated herein by reference. This Proxy
Statement and Prospectus and the enclosed form of proxy are first being sent to
shareholders of PTR on or about August , 1996. A shareholder who returns a
signed proxy may revoke it at any time prior to its exercise.
SEE "RISK FACTORS" AT PAGE 15 OF THIS PROXY STATEMENT AND PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING THE
TRANSACTION.
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THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT AND 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 PROXY STATEMENT AND 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 Proxy Statement and Prospectus is August , 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROXY STATEMENT AND PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE>
AVAILABLE INFORMATION
PTR is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information 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 be obtained from the Commission's web site at
http://www.sec.gov. The PTR Common Shares, PTR's Cumulative Convertible Series
A Preferred Shares of Beneficial Interest, $1.00 par value per share ("Series
A Preferred Shares"), and PTR's Series B Cumulative Redeemable Preferred
Shares of Beneficial Interest, $1.00 par value per share (the "Series B
Preferred Shares" and, together with the Series A Preferred Shares, the "PTR
Preferred Shares") are listed and traded on the New York Stock Exchange (the
"NYSE") under the symbols "PTR," "PTR-PRA," and "PTR-PRB," respectively. All
such reports, proxy statements and other information filed by PTR with the
NYSE may be inspected at the NYSE's offices at 20 Broad Street, New York, New
York 10005.
Homestead has filed with the Commission a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Homestead Securities to be issued pursuant to the Transaction.
This Proxy Statement and Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
As a result of the Transaction, 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 the addresses specified
above. Copies of such materials can be obtained at prescribed rates from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. In addition, such material can be obtained from the
Commission's web site at http://www.sec.gov.
INCORPORATION BY REFERENCE
THIS PROXY STATEMENT AND PROSPECTUS INCORPORATES CERTAIN PTR DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE
DOCUMENTS (OTHER THAN THE EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE
WITHOUT CHARGE UPON ORAL OR WRITTEN REQUEST FROM JEFFREY A. KLOPF, SECRETARY,
AT PTR'S PRINCIPAL EXECUTIVE OFFICES AT 7777 MARKET CENTER AVENUE, EL PASO,
TEXAS 79912, TELEPHONE (915) 877-3900. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY SEPTEMBER 5, 1996.
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are hereby incorporated herein by reference (Commission
File No. 1-10272):
(a) PTR's Annual Report on Form 10-K for the year ended December 31,
1995, as amended by Form 10-K/A No. 1;
(b) PTR's Quarterly Report on Form 10-Q for the period ended March 31,
1996, as amended by Form 10-Q/A No. 1;
(c) PTR's Current Reports on Form 8-K filed February 6, 1996, February
15, 1996, May 22, 1996, August 1, 1996 and August 6, 1996;
(d) PTR's Proxy Statement for the annual meeting of shareholders held on
May 21, 1996; and
(e) The description of PTR's preferred share purchase rights contained in
PTR's Registration Statement on Form 8-A filed with the Commission on July
12, 1994 (as amended by Form 8-A/A No. 1 dated July 20, 1994).
i
<PAGE>
All documents filed by PTR pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date hereof and prior to the date of the PTR
Special Meeting shall be deemed to be incorporated herein by reference and to
be a part hereof from the date of filing of such documents. All information
appearing in this Proxy Statement and Prospectus or in any document
incorporated herein by reference is not necessarily complete and is qualified
in its entirety by the information and financial statements (including notes
thereto) appearing in this Proxy Statement and Prospectus or the documents
incorporated by reference herein and should be read together with such
information and documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Proxy Statement and Prospectus to the extent that a
statement contained herein or in any other subsequently filed document that is
deemed to be incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement and Prospectus.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Proxy Statement and Prospectus, and if given or made, such information or
representations should not be relied upon as having been authorized. This
Proxy Statement and Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Proxy
Statement and Prospectus, or the solicitation of a proxy, in any jurisdiction
to or from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither
the delivery of this Proxy Statement and Prospectus nor any distribution of
securities pursuant to this Proxy Statement and Prospectus shall, under any
circumstances, create any implication that there has been no change in the
information set forth or incorporated herein by reference or in the affairs of
PTR since the date of this Proxy Statement and Prospectus. However, if any
material change occurs during the period that this Proxy Statement and
Prospectus is required to be delivered, this Proxy Statement and Prospectus
will be amended and supplemented accordingly. All information regarding PTR in
this Proxy Statement and Prospectus has been supplied by PTR, and all
information regarding Homestead in this Proxy Statement and Prospectus has
been supplied by Homestead.
ii
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... i
INCORPORATION BY REFERENCE................................................ i
SUMMARY................................................................... 2
RISK FACTORS.............................................................. 15
Significant Influence of Principal Shareholder.......................... 15
Determination of Relative Ownership Percentages......................... 15
Risks in Valuation and Allocation....................................... 16
Conflicts of Interest in the Transaction................................ 16
Taxability of Distribution.............................................. 17
Absence of Prior Public Market.......................................... 17
Risks of Investments in Mortgages and Funding Commitment................ 17
Impact of Transaction on Future Distributions, Funds From Operations and
Price of PTR Common Shares............................................. 17
Competition............................................................. 18
Limited Operating History............................................... 18
THE TRANSACTION (Proposal 1).............................................. 18
General................................................................. 18
The Distribution........................................................ 18
Foreign Shareholders.................................................... 19
Background.............................................................. 19
Recommendations of the PTR Board and Reasons for the Transaction........ 26
Fairness Opinion........................................................ 32
Federal Income Tax Consequences......................................... 36
Interests of Certain Persons in the Transaction......................... 41
The Merger Agreement.................................................... 42
Protection of Business Agreement........................................ 47
SCG Investor Agreement.................................................. 47
Funding Commitment Agreements........................................... 48
ATLANTIC and PTR Investor Agreements.................................... 49
Administrative Services Agreement....................................... 49
Escrow Agreement........................................................ 49
Regulatory Filings and Approvals........................................ 50
Restrictions on Sales by Affiliates..................................... 50
Accounting Treatment.................................................... 50
Expenses................................................................ 50
Dissenters' Rights...................................................... 50
Board Recommendation.................................................... 51
AMENDMENT TO THE PTR DECLARATION OF TRUST (Proposal 2).................... 51
THE SPECIAL MEETING....................................................... 52
Purpose of the Meeting.................................................. 52
Date, Time and Place; Record Date....................................... 52
Voting Rights........................................................... 52
Other Matters........................................................... 52
INFORMATION CONCERNING PTR................................................ 53
PTR Historical and Pro Forma Selected Financial Information............. 53
PTR Share Prices........................................................ 54
PTR Policies with Respect to Certain Activities......................... 54
</TABLE>
iii
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<TABLE>
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PAGE
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<S> <C>
COMPARISON OF RIGHTS OF HOLDERS OF PTR COMMON SHARES AND HOMESTEAD COMMON
STOCK.................................................................... 57
Preferred Shares........................................................ 58
Restrictions on Transfer and Redemption of Shares....................... 58
Dissenters' Rights...................................................... 58
Amendments to the PTR Declaration of Trust and the Homestead Charter.... 59
Amendments to the Bylaws................................................ 59
Termination............................................................. 59
Trustees and Directors.................................................. 59
Removal of Trustees and Directors....................................... 60
Vacancies Among Trustees and Directors.................................. 60
Limitation on Trustee and Director Liability............................ 60
Shareholder Liability................................................... 61
Indemnification of Trustees, Directors and Officers..................... 61
Shareholders' Meetings.................................................. 62
Advance Notice of Director Nominations and New Business................. 63
Asset Requirements...................................................... 63
LEGAL MATTERS............................................................. 63
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS................................ 63
EXPENSES OF SOLICITATION.................................................. 64
SHAREHOLDER PROPOSALS..................................................... 64
INDEX TO PTR PRO FORMA FINANCIAL STATEMENTS............................... F-1
Homestead Prospectus
ANNEX I--Merger and Distribution Agreement
ANNEX II--Opinion of Goldman, Sachs & Co.
</TABLE>
iv
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Proxy Statement and Prospectus
(including the Homestead Prospectus attached hereto and the Annexes hereto) or
incorporated herein by reference. Shareholders are urged to review the entire
Proxy Statement and Prospectus, the Homestead Prospectus and the Annexes
hereto. Unless otherwise indicated, information contained herein regarding PTR
assumes that none of the outstanding Series A Preferred Shares are converted
into PTR Common Shares and no outstanding options to acquire PTR Common Shares
are exercised prior to the Distribution Record Date. Unless otherwise noted,
share ownership information is as of August 1, 1996 and does not take into
account any shares which may be issued by ATLANTIC as a result of an initial
public offering of its common stock (which is expected to occur prior to the
Distribution Record Date). In addition, unless the context otherwise requires,
references to "Homestead" refer to Homestead Village Incorporated and its
subsidiaries. All references to Homestead Village Incorporated's operations
include PTR, ATLANTIC and SCG operations with respect to the Homestead Village
properties. Homestead Village(R) is a registered trademark of SCG, which will
be assigned to Homestead as part of the Transaction. The term "Homestead
Village" as used herein shall include a reference to such registered trademark.
Except as otherwise specifically described, all property and other information
regarding PTR includes its Homestead Village properties.
SECURITY CAPITAL PACIFIC TRUST
The objective of PTR is to be the preeminent real estate operating company
focusing on multifamily property in its western United States target market.
PTR's REIT manager is Security Capital Pacific Incorporated (the "PTR REIT
Manager" or "PTR REIT Management"). Through the PTR REIT Manager, PTR is a
fully integrated operating company which focuses on development, acquisition,
operation and long term ownership of multifamily properties. At June 30, 1996,
PTR owned and operated or was developing 59,736 multifamily units with a total
expected cost of $2.6 billion, including budgeted costs of planned renovations
and development expenditures. PTR's recent investment activity is focused
primarily on the following metropolitan areas: Portland, Oregon; Salt Lake
City, Utah; San Diego, California; San Francisco (Bay Area), California; and
Seattle, Washington. PTR's properties are located in 23 metropolitan areas in
12 states.
PTR seeks to achieve long-term sustainable growth in cash flow by maximizing
the operating performance of its core portfolio through value-added operating
systems and concentrating its experienced team of professionals on developing
and acquiring industry-leading product in targeted submarkets exhibiting strong
job growth and favorable demographic trends.
PTR believes that development of multifamily properties that are built for
long-term ownership and that target an underserved market (moderate income
households, defined as those households earning 65% to 90% of a submarket's
median income; or, $25,870 to $35,821 based on a weighted average median income
using the number of households in each submarket) will provide a substantial
source of long-term cash flow growth. At June 30, 1996, PTR had completed
multifamily developments with total expected costs of $407.9 million, had
developments under construction with total expected costs of $389.6 million,
had developments in planning for which construction is anticipated to commence
within 12 months with total expected costs of $464.6 million and owned land
held for future development with total expected costs of $190.7 million.
PTR develops and acquires properties with a view to effective long-term
operation and ownership. The PTR REIT Manager utilizes its affiliate, Security
Capital Investment Research Incorporated, to conduct comprehensive evaluations
of PTR's target market to identify those submarkets and product types that
offer above average prospects for long-term cash flow growth. These detailed
market evaluations, combined with PTR's extensive development experience as one
of the largest multifamily property owners in its target market, assist PTR in
identifying the submarkets and product types that will offer above average
opportunities for long-term cash flow growth.
PTR has elected to be taxed as a real estate investment trust ("REIT") for
federal income tax purposes. PTR was formed in 1963 and is a real estate
investment trust organized under the laws of Maryland. Its principal executive
offices are located at 7777 Market Center Avenue, El Paso, Texas 79912, and its
telephone number is (915) 877-3900.
2
<PAGE>
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.
Homestead currently has a total of 80 facilities either in operation, under
construction or in pre-development planning. Homestead operates 29 facilities,
has begun construction of 12 additional facilities and has an additional 39
properties in pre-development planning. 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 to
take approximately eight to ten months to construct.
The average length of stay for a customer is in excess of four weeks. For the
quarter ended March 31, 1996, average physical occupancy and average weekly
rate for 17 stabilized properties was 87% and $217 per week, respectively, and,
for the same quarter, average physical occupancy and average weekly rate for
seven pre-stabilized properties was 59% and $217 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.
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 in the Transaction with an aggregate
exercise price of approximately $51 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.
3
<PAGE>
. 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 "The Transaction--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 of a higher quality 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.
RISK FACTORS
In considering whether to approve the matters described herein, PTR
shareholders should consider the following matters in addition to the matters
described in greater detail herein under "Risk Factors." ADDITIONALLY, PTR
SHAREHOLDERS SHOULD CONSIDER THOSE MATTERS DESCRIBED UNDER THE CAPTION "RISK
FACTORS," BEGINNING ON PAGE A-8 IN THE HOMESTEAD PROSPECTUS ATTACHED HERETO,
WITH RESPECT TO THE OWNERSHIP OF HOMESTEAD SECURITIES.
. There may be alternative methods of calculating the relative ownership
percentages of the various parties in Homestead which, if used, could
have resulted in different relative amounts of consideration being
received by PTR, ATLANTIC or SCG.
. The terms of the Transaction were not determined based on arm's length
negotiations.
. Since SCG controls all of the parties to the Transaction, conflicts of
interest exist.
. SCG will exercise significant influence over the business and policies
of PTR, ATLANTIC and Homestead after consummation of the Transaction due
to its (i) existing ownership of shares of PTR and ATLANTIC and of their
respective REIT Managers and expected ownership of shares of Homestead
Common Stock, (ii) right to nominate up to three members of the PTR
Board and the board of directors of ATLANTIC (the "ATLANTIC Board") and
two members of the Homestead Board, and (iii) right of prior
consultation regarding certain Homestead matters, including annual
operating budgets and substantial deviations therefrom.
. PTR will be subject to the risks inherent in making mortgage loans if
the Transaction is approved, including the risk that Homestead may not
be able to make debt service payments or pay principal when due and the
risk that the value of the mortgaged properties may be less than the
amounts owed.
. Homestead and the Homestead Village properties have limited operating
histories.
. Prior to the Distribution, there will not be an established trading
market for the Homestead Securities and there is no assurance of the
price at which the Homestead Securities will trade.
THE SPECIAL MEETING
THE MEETING
The PTR Special Meeting is scheduled to be held at 10:00 a.m., local time, on
Thursday, September 12, 1996, at PTR's executive offices at 7777 Market Center
Avenue, El Paso, Texas. The PTR Board has fixed the close of business on August
12, 1996 as the record date for the determination of holders of PTR Common
Shares entitled to notice of and to vote at the PTR Special Meeting. See "The
Special Meeting."
4
<PAGE>
THE PROPOSALS
At the PTR Special Meeting, shareholders will be asked to consider and vote
upon the following matters:
. The approval of the Merger Agreement and the Transaction; and
. The approval of an amendment to the PTR Declaration of Trust necessary
to consummate the Transaction.
THE PTR BOARD, BY UNANIMOUS VOTE OF TRUSTEES WHO WERE PRESENT, APPROVED THE
MERGER AGREEMENT AND THE TRANSACTION AND RECOMMENDS THAT PTR SHAREHOLDERS VOTE
"FOR" THE APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTION, INCLUDING THE
AMENDMENT TO THE PTR DECLARATION OF TRUST. SEE "THE TRANSACTION--
RECOMMENDATIONS OF THE PTR BOARD AND REASONS FOR THE TRANSACTION."
REQUIRED VOTE
The affirmative vote of the holders of at least two-thirds of the outstanding
PTR Common Shares is required to approve the Merger Agreement and the
Transaction and to approve the amendment to the PTR Declaration of Trust. The
approval by shareholders of the amendment to the PTR Declaration of Trust is a
condition to the consummation of the Transaction and the approval by
shareholders of the Merger Agreement and the Transaction is a condition to the
approval of the amendment to the PTR Declaration of Trust. As of August 1,
1996, SCG beneficially owned approximately 37.8% of the outstanding PTR Common
Shares. See "The Special Meeting--Voting Rights." SCG has agreed, subject to
certain conditions, to vote all PTR Common Shares owned by it in favor of the
proposals. Therefore, the affirmative vote of holders of approximately an
additional 29% of the outstanding PTR Common Shares will be required to approve
the proposals.
THE TRANSACTION
GENERAL
PTR has traditionally focused on multifamily assets in the western United
States and ATLANTIC has focused on multifamily assets in the southeastern
United States. Since 1992 PTR has developed and operated 28 Homestead Village
properties and ATLANTIC has developed and placed in operation one Homestead
Village property. In January 1996, the PTR Board began considering ways to
maximize shareholder value with respect to the Homestead Village properties. On
May 21, 1996, PTR, ATLANTIC, Homestead and SCG entered into the Merger
Agreement.
The Transaction is expected to result in:
. Enhanced market valuation placed on the Homestead Village operations by
allowing the financial markets the ability to focus on the distinct
characteristics of PTR's multifamily property operations and Homestead's
moderate priced, extended-stay lodging business.
. Homestead Village properties being more effectively and profitably
utilized and developed due to the elimination of certain restrictions
applicable to REITs.
. Enhanced ability of Homestead to access external capital markets
necessary to carry out its business plan.
FORMATION OF HOMESTEAD
Assuming that the requisite shareholder vote is received and that all other
conditions to the Merger Agreement have been satisfied or waived, each of PTR,
ATLANTIC and SCG will contribute, through a series of merger transactions, all
of their respective assets related to Homestead Village properties in return
for shares of Homestead Common Stock as follows:
5
<PAGE>
. 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 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 REIT Management Agreement (defined herein) and a similar
agreement with ATLANTIC (the "ATLANTIC REIT Management Agreement") 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 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 and
receive up to $144,044,620 and $98,028,471, respectively, in convertible
mortgage notes. These notes will have a term of approximately ten years,
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 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
6
<PAGE>
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 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 50.6% of the
outstanding Homestead Common Stock.
THE DISTRIBUTION
The Homestead Securities received by PTR will be distributed, pro rata, to
PTR shareholders. The Distribution of the Homestead Securities will be
declared following approval of the proposals by PTR shareholders and ATLANTIC
shareholders, subject to the satisfaction of certain conditions to the Merger
Agreement. The Distribution will be made to holders of PTR Common Shares of
record at the close of business on the Distribution Record Date. The amount of
Homestead Securities to be received by each PTR shareholder in the
Distribution will depend on the number of PTR Common Shares outstanding on the
Distribution Record Date. Based on the number of PTR Common Shares outstanding
as of August 1, 1996, each PTR shareholder would receive 0.131033 shares of
Homestead Common Stock and 0.087907 Homestead Warrants for each PTR Common
Share held. To the extent that any Series A Preferred Shares are converted
into, or options are exercised for, PTR Common Shares prior to the
Distribution Record Date, such conversions or exercises will result in a
proportionate reduction in the amount of Homestead Securities to be received
by each PTR shareholder. See "The Transaction--The Distribution."
No certificates or scrip representing fractional shares of Homestead Common
Stock or fractional Homestead Warrants will be issued directly to PTR
shareholders as a part of the Distribution. The Distribution Agent (defined
herein) will, as soon as practicable after the Distribution Record Date,
aggregate and sell all fractional shares of Homestead Common Stock and
Homestead Warrants on any national securities exchange or interdealer
quotation system on which the Homestead Securities are then listed or quoted
at then prevailing market prices and remit the net proceeds (after deduction
of brokerage fees) to PTR shareholders who would otherwise be entitled to
receive fractional shares or warrants. No assurances can be given as to the
price at which such securities can be sold or the proceeds to shareholders
from such sales.
NO HOLDER OF PTR COMMON SHARES WILL BE REQUIRED TO PAY ANY CASH OR OTHER
CONSIDERATION FOR THE HOMESTEAD SECURITIES RECEIVED IN THE DISTRIBUTION OR TO
SURRENDER OR EXCHANGE PTR COMMON SHARES IN ORDER TO RECEIVE HOMESTEAD
SECURITIES. THE DISTRIBUTION WILL NOT AFFECT THE NUMBER OF, OR THE RIGHTS
ATTACHING TO, OUTSTANDING PTR COMMON SHARES.
7
<PAGE>
The following diagram shows the contributions to be made by, and the
consideration to be distributed with respect to, each of PTR and its
shareholders, ATLANTIC and its shareholders, SCG and Homestead, respectively:
[CHART APPEARS HERE]
<TABLE>
<C> <S> <C> <S> <C>
Homestead Properties Homestead Properties
-------------------- --------------------
28 In Operation 1 In Operation
8 Under Construction 4 Under Construction
- ----------- 18 In Pre-Development ----------- 21 In Pre-Development -----------
Planning Planning
$129 million Funding $18.6 million in cash(1)
Committment $111 million Funding
Commitment
PTR --------------------- HOMESTEAD ---------------------- ATLANTIC
--------------------- ----------------------
- ----------- ----------- -----------
Homestead Securities Homestead Securities
-------------------- --------------------
9,485,727 Shares of 4,201,220 Shares of
Homestead Common Stock Homestead Common Stock
$144 Million Convertible $98 Million Convertible
9,485,727 Mortgages(2) Mortgages 4,201,220
Shares of 6,363,789 Homestead 2,818,517 Homestead Shares of
Homestead Warrants Warrants Homestead
Common (63.2% Ownership(3)) (28.0% Ownership(3)) Common
Stock Stock
6,363,789 Homestead Securities Development Properties 2,818,517
Homestead -------------------- Homestead Trademarks Homestead
Warrants 4,062,788 Shares of Operating Systems Warrants
Homestead Common Stock(4) Personnel
817,694 Homestead
Warrants
(8.8% Ownership(3)(5))
- -------------------- ----------- --------------------
PTR ATLANTIC
SHAREHOLDER(5) SCG SHAREHOLDERS(5)
- -------------------- ----------- --------------------
</TABLE>
(1) Subject to adjustment pursuant to the terms of the Merger Agreement.
(2) In addition, at closing of the Mergers, it is expected that an additional
$77 million of convertible mortage notes will be held by PTR,
(3) Ownership percentages assume full conversion of mortgages and exercise of
all warrants.
(4) 2,243,038 of these shares will be placed in escrow and released as funds
are advanced under the Funding Commitment Agreements.
(5) SCG beneficially owns 37.8% and 64.1% of PTR and ATLANTIC, respectively, at
August 1, 1996.
RECOMMENDATIONS OF THE PTR BOARD AND REASONS FOR THE TRANSACTION
A special committee of the independent trustees of the PTR Board (the "PTR
Special Committee") approved the Merger Agreement and the Transaction as being
fair and reasonable to PTR and on terms and conditions not less favorable to
PTR than those available from unaffiliated third parties. The PTR Special
Committee recommended that the PTR Board approve the Merger Agreement and the
Transaction. The PTR Board, by unanimous approval of the trustees present at
the meeting, approved the Merger Agreement and the Transaction as being fair
and reasonable and on terms not less favorable to PTR than those available from
unaffiliated third parties. In reaching its conclusion, the PTR Board placed
particular emphasis on the recommendation of the PTR Special Committee. The PTR
Board considered a number of other factors including the reasons emphasized by
the PTR Special Committee, the goals and objectives of Homestead, SCG's stated
objective of maximizing shareholder value, the relative contributions of PTR,
ATLANTIC and SCG, the impact of the Transaction on PTR's estimated funds from
operations and balance sheet, the financial structure of Homestead giving
effect to the Transaction, the impact of the REIT rules on continued operation
of the Homestead Village properties by PTR, the terms of the Homestead
Securities, the affiliated nature of the Transaction, the tax impact of the
Distribution on PTR and its shareholders, and the nature and extent of
inquiries from third parties. Finally, the PTR Board considered the condition
to the Merger Agreement that the PTR
8
<PAGE>
Special Committee receive a written opinion from an investment banking firm
satisfactory to the PTR Special Committee that the aggregate consideration to
be received by PTR pursuant to the Merger Agreement in exchange for the
contribution by PTR to Homestead of PTR's Homestead Village properties and the
agreement by PTR to enter into the Funding Commitment Agreement was fair to
PTR. The PTR Board did not quantify or otherwise attempt to assign relative
weights to the specific factors considered in making its determination
although, as noted above, it did place special emphasis on the recommendation
of the PTR Special Committee. For a more detailed discussion of the reasons for
the Transaction and the factors considered by the PTR Board in making its
recommendation, see "The Transaction--Recommendations of the PTR Board and
Reasons for the Transaction."
INTERESTS OF CERTAIN PERSONS
PTR's trustees and executive officers who own PTR Common Shares or ATLANTIC
Common Stock (as hereafter defined) will, in the aggregate, receive a total of
44,646 shares of Homestead Common Stock and 29,950 Homestead Warrants as a
result of the Transaction. SCG and its directors and executive officers who own
PTR Common Shares or ATLANTIC Common Stock will, in the aggregate, receive a
total of 10,460,177 shares of Homestead Common Stock (including 2,243,038
shares being held in escrow) and 5,109,575 Homestead Warrants as a result of
the Transaction. Each of the foregoing persons will receive cash in lieu of
fractional shares of Homestead Common Stock and fractional Homestead Warrants.
Certain officers of PTR and the PTR REIT Manager will become officers and
employees of Homestead and may receive grants of options to acquire Homestead
Common Stock and may be offered the opportunity to purchase shares of Homestead
Common Stock under Homestead's Long-Term Incentive Plan. See "The Transaction--
Interests of Certain Persons in the Transaction."
FAIRNESS OPINION
The PTR Special Committee has retained Goldman, Sachs & Co. ("Goldman,
Sachs") to assist the PTR Special Committee in evaluating the consideration to
be received by PTR in exchange for the PTR assets being transferred to
Homestead.
On May 20, 1996, Goldman, Sachs delivered its oral opinion to the PTR Special
Committee to the effect that, as of the date of such opinion, the aggregate
consideration to be received by PTR pursuant to the Merger Agreement in
exchange for the contribution by PTR to Homestead of PTR's Homestead Village
properties and the agreement by PTR to enter into the Funding Commitment
Agreement was fair to PTR. Goldman, Sachs subsequently confirmed its opinion by
delivery of a written opinion dated the date hereof. The full text of the
written opinion of Goldman, Sachs, which sets forth the assumptions made,
matters considered and limitations of the review undertaken, is attached hereto
as Annex II and is incorporated herein by reference. SHAREHOLDERS OF PTR ARE
URGED TO READ THE OPINION OF GOLDMAN, SACHS IN ITS ENTIRETY. For additional
information concerning the assumptions made, matters considered and limits of
the review by Goldman, Sachs in reaching its opinion and the fees received and
to be received by it, see "The Transaction--Fairness Opinion."
FEDERAL INCOME TAX CONSEQUENCES
The Mergers have been structured to constitute a transaction subject to
Section 351 or the reorganization provisions of the Internal Revenue Code of
1986, as amended to the date hereof (the "Code"), and related provisions. PTR
will recognize taxable gain on the Mergers if PTR is treated as having received
property or cash ("boot") in the Mergers and will recognize gain on the
Distribution in an amount equal to the excess of the sum of (i) the fair market
value of the Homestead Securities on the Distribution Date and (ii) cash
distributed in lieu of fractional shares of Homestead Common Stock and
fractional Homestead Warrants over PTR's basis immediately prior to the
Distribution in the Homestead Securities it receives in the Mergers (PTR's tax
basis in the Homestead Village properties immediately prior to the Transaction
is estimated to be approximately $146.8 million). The earnings and profits of
PTR will be increased by the amount of any such gain recognized in the Mergers
or the Distribution. PTR will also recognize income with respect to the value
of the Homestead Warrants received by it in exchange for entering into the
Funding Commitment Agreement, which will increase PTR's earnings and profits.
9
<PAGE>
The Distribution of the Homestead Securities and cash in lieu of fractional
shares of Homestead Common Stock and fractional Homestead Warrants will
constitute a taxable dividend to PTR shareholders, taxable as ordinary income,
to the extent of the earnings and profits of PTR allocable to such Homestead
Securities and cash. The amount of the Distribution which exceeds the allocated
earnings and profits of PTR will be treated as a nontaxable reduction (although
not below zero) of a shareholder's tax basis in its PTR Common Shares. To the
extent that the Distribution exceeds such shareholder's adjusted tax basis in
its PTR Common Shares, the excess will be taxed as gain to such shareholder.
See "The Transaction--Federal Income Tax Consequences."
CONDITIONS TO THE TRANSACTION
The obligations of PTR to consummate the Transaction are subject to the
satisfaction or waiver of certain conditions, including, among others, (i)
obtaining the requisite approvals of the PTR shareholders and the ATLANTIC
shareholders, (ii) the absence of any injunction prohibiting the consummation
of the Transaction, (iii) the receipt of all governmental consents, orders and
approvals legally required for consummation of the Transaction, (iv) the
receipt of certain legal opinions or Internal Revenue Service ("IRS") rulings
with respect to the tax consequences of the Transaction, effects of the
Transaction on REIT qualification and certain other legal matters, (v) the
continuing accuracy of the representations and warranties of each party and
(vi) the performance of certain other specified obligations by each party. See
"The Transaction--The Merger Agreement--Conditions to the Transaction."
TERMINATION
The Merger Agreement may be terminated at any time prior to the Closing Date
(i) by mutual consent of PTR, ATLANTIC, SCG and Homestead; (ii) by any of PTR,
ATLANTIC, SCG or Homestead after December 31, 1996, if the Transaction has not
been consummated on or before such date (so long as the party terminating has
not breached its obligations under the Merger Agreement except for such
breaches that are immaterial); (iii) unilaterally by any of PTR, ATLANTIC, SCG
or Homestead if (a) any other party fails to perform any covenant or agreement
in the Merger Agreement in any material respect and does not cure such failure
in all material respects within 15 business days after receipt of written
notice of the alleged failure from another party, (b) any other party fails to
fulfill or complete a condition to the obligations of that party (which
condition is not waived) by reason of a breach by that party of its obligations
in the Merger Agreement or (c) any condition to the obligations of any other
party is not satisfied (other than by reason of a breach by that party of its
obligations under the Merger Agreement), and it reasonably appears that the
condition cannot be satisfied prior to December 31, 1996; (iv) unilaterally by
any of PTR, SCG or Homestead if ATLANTIC, through the ATLANTIC Board or the
special committee of the ATLANTIC Board (the "ATLANTIC Special Committee"),
either fails to recommend to ATLANTIC's shareholders the approval of the Merger
Agreement and the Transaction or withdraws, modifies or amends such
recommendation; and (v) unilaterally by any of ATLANTIC, SCG or Homestead if
PTR, through the PTR Board or the PTR Special Committee, either fails to
recommend to PTR's shareholders the approval of the Merger Agreement and the
Transaction or withdraws, modifies or amends such recommendation.
AMENDMENT AND WAIVER
Subject to compliance with applicable law, the Merger Agreement may be
amended by the written agreement of PTR, ATLANTIC, SCG and Homestead. However,
the Merger Agreement may not be amended in any material respect subsequent to
obtaining the approval of the shareholders of PTR and ATLANTIC. See "The
Transaction--The Merger Agreement--Amendment and Waiver."
REGULATORY REQUIREMENTS
Consummation of the Transaction is subject to compliance with the provisions
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), for which early termination of the applicable waiting period was
granted on June 14, 1996.
10
<PAGE>
DISSENTERS' RIGHTS
Under Maryland law, holders of PTR Common Shares are not entitled to
dissenters' rights in connection with the Transaction. See "The Transaction--
Dissenters' Rights."
PTR SHARE PRICES
The Homestead Securities are not traded on any established public trading
market. The PTR Common Shares are listed and traded on the NYSE under the
symbol "PTR." On January 31, 1996 (the last trading day prior to the public
announcement that PTR was evaluating its options with respect to its Homestead
Village properties), the last sales price of the PTR Common Shares, as reported
on the NYSE Composite Tape, was $19 5/8 per share. On May 21, 1996 (the last
trading day preceding the announcement of the signing of the Merger Agreement),
the last sales price of the PTR Common Shares, as reported on the NYSE
Composite Tape, was $21 1/2 per share. See "Information Concerning PTR--PTR
Share Prices and Per Share Dividends." On August 2, 1996, the last sales price
of the PTR Common Shares, as reported on the NYSE Composite Tape, was $21 1/8
per share.
11
<PAGE>
PTR HISTORICAL AND PRO FORMA SUMMARY FINANCIAL DATA
The following table sets forth (1) historical summary financial data for the
periods indicated and as of the dates indicated for PTR and (2) unaudited pro
forma summary financial data for the periods indicated and as of the date
indicated, giving effect to the Transaction and the actual and pending
acquisition of certain multifamily properties in 1996 (described on page F-4 in
this Proxy Statement and Prospectus), as if those had occurred as of January 1,
1995 for the operations summary information and on March 31, 1996 for financial
position information. Pro forma adjustments made to arrive at the pro forma
amounts set forth below are described in the PTR Pro Forma Financial
Information included elsewhere in this Proxy Statement and Prospectus. The
following information should be read in conjunction with and is qualified in
its entirety by the PTR Historical Financial Statements and related notes
thereto incorporated by reference into this Proxy Statement and Prospectus and
the PTR pro forma financial information and accompanying discussion and notes
set forth in the PTR Pro Forma Financial Information. The unaudited pro forma
summary information is intended for informational purposes and is not
necessarily indicative of the future financial position or future results of
operations of PTR or of the financial position or the results of operations of
PTR that would have actually occurred had the Transaction been completed as of
the date or for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------
PRO HISTORICAL PRO HISTORICAL
FORMA --------------- FORMA -----------------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
------- ------- ------- -------- --------- -------- -------- --------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental Income........... $78,096 $75,809 $53,517 $279,060 $ 262,473 $183,472 $ 76,129 $ 30,970 $ 14,721
Property Management Fees
Paid to Affiliates..... 2,687 2,754 1,895 9,216 8,912 7,148 3,862 1,424 148
General and
Administrative
Expenses............... 101 276 214 154 952 784 660 436 697
REIT Management Fee Paid
to Affiliate........... 4,962 5,555 3,957 18,580 20,354 13,182 7,073 2,711 793
Earnings from Operations
(1).................... 21,091 22,920 14,540 76,417 81,696 46,719 23,191 9,037 2,078
Gain (loss) on Sale of
Investments............ 2,923 2,923 -- 2,623 2,623 -- 2,302 (51) (611)
Preferred Share
Dividends Paid......... 6,388 6,388 4,025 21,823 21,823 16,100 1,341 -- --
Net Earnings
Attributable to Common
Shares................. 17,626 19,455 10,515 57,217 62,496 30,619 24,152 8,986 1,467
Common Share
Distributions Paid..... $22,437 $22,437 $14,506 $ 76,804 $ 76,804 $ 46,121 $ 29,162 $ 13,059 $ 4,179
PER SHARE DATA:
Net Earnings
Attributable to Common
Shares................. $ 0.24 $ 0.27 $ 0.20 $ 0.85 $ 0.93 $ 0.66 $ 0.66 $ 0.46 $ 0.21
Common Share
Distributions Paid..... 0.31 0.31 0.2875 1.15 1.15 1.00 0.82 0.70 0.64
Series A Preferred Share
Dividends Paid......... 0.4375 0.4375 0.4375 1.75 1.75 1.75 0.1458 -- --
Series B Preferred Share
Dividends Paid......... $0.5625 $0.5625 $ -- $ 1.363 $ 1.363 $ -- $ -- $ -- $ --
Weighted Average Common
Shares Outstanding..... 72,211 72,211 51,485 67,052 67,052 46,734 36,549 19,435 7,123
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------------- ------------------------------------------------
HISTORICAL
PRO FORMA HISTORICAL ------------------------------------------------
1996 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real Estate Owned, at
cost................... $1,926,796 $1,930,632 $1,855,866 $1,296,288 $872,610 $337,274 $117,572
Total Assets............ 2,018,275 1,889,934 1,840,999 1,295,778 890,301 342,235 141,020
Line of Credit.......... 185,539 36,250 129,000 102,000 51,500 54,802 101
Long-Term Debt.......... 350,000 350,000 200,000 200,000 -- -- --
Mortgages Payable....... 222,055 157,570 158,054 93,624 48,872 30,824 35,772
Total Liabilities....... 820,859 594,812 565,331 455,136 135,284 94,186 38,707
Shareholders' Equity.... $1,196,916 $1,295,122 $1,275,668 $ 840,642 $755,017 $248,049 $102,313
Number of Common Shares
Outstanding............ 72,211 72,211 72,211 50,456 44,645 27,034 13,161
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------------- --------------------------------------------------------------
PRO HISTORICAL PRO HISTORICAL
FORMA ------------------ FORMA ----------------------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
------- -------- -------- -------- --------- --------- --------- --------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net earnings
attributable to Common
Shares................. $17,626 $ 19,455 $ 10,515 $ 57,217 $ 62,496 $ 30,619 $ 24,152 $ 8,986 $ 1,467
Add (Deduct):
Depreciation........... 10,933 10,618 7,424 39,058 36,685 24,614 10,513 5,311 2,886
Provision for possible
loss on investments... -- -- 120 420 420 1,600 2,270 400 400
(Gain) loss on sale of
investments........... (2,923) (2,923) -- (2,623) (2,623) -- (2,302) 51 611
Other (primarily
provision for loss on
receivables).......... -- -- -- -- -- -- 83 174 40
------- -------- -------- -------- --------- --------- --------- --------- --------
Funds from Operations
Attributable to Common
Shares (2)............. $25,636 $ 27,150 $ 18,059 $ 94,072 $ 96,978 $ 56,833 $ 34,716 $ 14,922 $ 5,404
======= ======== ======== ======== ========= ========= ========= ========= ========
Net Cash Provided by
Operating Activities... $ 16,172 $ 12,016 $ 121,795 $ 94,625 $ 49,247 $ 20,252 $ 6,092
Net Cash Used by
Investing Activities... (61,095) (58,926) (294,488) (368,515) (529,065) (229,489) (33,553)
Net Cash Provided by
Financing Activities... 26,342 48,211 191,520 276,457 478,345 185,130 57,259
</TABLE>
12
<PAGE>
- --------
(1) Earnings from operations for the years ended December 31, 1995, 1994 and
1993 reflect a $420,000, a $1.6 million, and a $2.3 million provision,
respectively, for possible losses relating to investments in non-
multifamily properties.
(2) Funds from operations attributable to PTR Common Shares ("funds from
operations") means net earnings computed in accordance with generally
accepted accounting principles ("GAAP"), excluding gains (or losses) from
debt restructuring and sales of property, plus certain non-cash items,
principally property depreciation, and after adjustments for unconsolidated
partnerships and joint ventures. PTR believes that funds from operations is
helpful in understanding a property portfolio's ability to support interest
payments and general operating expenses. Funds from operations should not
be considered as an alternative to net earnings or any other GAAP
measurement of performance as an indicator of PTR's operating performance
or as an alternative to cash flows from operating, investing or financing
activities as a measure of liquidity. In July 1994, PTR changed to a more
conservative policy of expensing the amortization of loan costs in
determining funds from operations. For comparability, funds from operations
has been restated to give effect to this policy as if it had been in effect
since January 1, 1991. The funds from operations measure presented by PTR
may not be comparable to other similarly titled measures of other REITs.
RECENT OPERATING RESULTS
The following tables set forth preliminary unaudited Total Revenues, Net
Earnings Attributable to Common Shares, Net Earnings Attributable to Common
Shares per Share, Common Share Distributions Paid per Share, Weighted Average
Common Shares Outstanding and Reconciliation of Funds from Operations for the
six months ended June 30, 1996 and 1995 for PTR.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1995
-------- --------
(IN THOUSANDS
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Total Revenues.............................................. $156,299 $120,510
Net Earnings Attributable to Common Shares.................. 41,821 26,298
Net Earnings Attributable to Common Shares per Share........ 0.58 0.43
Common Share Distributions Paid per Share................... $ 0.62 $ 0.5750
Weighted Average Common Shares Outstanding.................. 72,217 61,812
Reconciliation of Funds From Operations:
Net Earnings Attributable to Common Shares................ 41,821 26,298
Gain on Sale of Investments, net.......................... (8,083) --
Depreciation.............................................. 21,242 16,550
Provision for possible loss on Investments................ -- 120
Loss on Early Extinguishment of Debt...................... 837 --
-------- --------
Funds from Operations................................... $ 55,817 $ 42,968
======== ========
</TABLE>
COMPARATIVE PER SHARE DATA
The following sets forth for PTR Common Shares and Homestead Common Stock
certain historical and pro forma summary per share financial information for
the three months ended March 31, 1996 and for the year ended December 31, 1995.
The following information should be read in conjunction with and is qualified
in its entirety by (i) the consolidated financial statements and accompanying
notes of PTR included in the documents described under "Incorporation by
Reference," (ii) the balance sheet and accompanying notes of Homestead
13
<PAGE>
contained in the Homestead Prospectus attached to this Proxy Statement and
Prospectus and (iii) the pro forma financial information and notes set forth
above under "--Pro Forma Summary Financial Data."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
PTR COMMON SHARES:
Net Earnings Attributable to Common Shares
per Common Share:
Historical................................. $ .27 $ .93
Pro forma.................................. .24 .85
Distributions per Common Share:
Historical................................. .31 1.15
Pro forma.................................. .31 1.15
Book value per Common Share:
Historical................................. 13.30 13.03
Pro forma.................................. 11.94 N/A
HOMESTEAD COMMON STOCK:
Net Income (Loss) per share:
Historical................................. N/A N/A
Pro forma.................................. $(.003) $(.116)
Dividends per share:
Historical................................. N/A N/A
Pro forma.................................. N/A N/A
Book value per share:
Historical................................. N/A N/A
Pro forma.................................. $ 5.54 N/A
</TABLE>
14
<PAGE>
RISK FACTORS
Holders of PTR Common Shares should consider carefully the specific factors
set forth below as well as the other information contained in this Proxy
Statement and Prospectus in evaluating the Transaction. Additionally, holders
of PTR Common Shares should consider the factors set forth in the Homestead
Prospectus attached hereto under the caption "Risk Factors" with respect to an
investment in Homestead Securities.
SIGNIFICANT INFLUENCE OF PRINCIPAL SHAREHOLDER
As of August 1, 1996, SCG beneficially owned approximately 37.8% of the
issued and outstanding PTR Common Shares and 64.1% of the issued and
outstanding shares of ATLANTIC common stock, $0.01 par value per share
("ATLANTIC Common Stock"). As a result, SCG currently controls approximately
37.8% and 64.1% of the vote on matters submitted for PTR and ATLANTIC
shareholder action, respectively, including the Transaction. No other
shareholder may hold more than 9.8% of the shares of PTR or ATLANTIC. SCG has
the right to nominate up to three trustees to the PTR Board and three
directors to the ATLANTIC Board, depending upon its level of ownership of
shares. The trustees and directors so elected are in a position to exercise
significant influence over the affairs of PTR and ATLANTIC if they were to act
together.
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 PTR and ATLANTIC under their Funding Commitment Agreements.
See "The Transaction--Escrow Agreement." As a result of the distributions by
PTR and ATLANTIC to their respective shareholders, SCG expects to beneficially
own an additional 3,588,965 and 2,693,842 shares of Homestead Common Stock,
respectively, for a total of 8,102,557 shares of Homestead Common Stock, or
approximately 45.6% of the outstanding shares of Homestead Common Stock.
Through its beneficial ownership of Homestead Common Stock, it is expected
that SCG will control 45.6% 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" in the Homestead Prospectus attached hereto. SCG will also own
Homestead Warrants to acquire an additional 5,032,707 shares of Homestead
Common Stock which, if fully exercised, would increase SCG's beneficial
ownership of Homestead Common Stock to 57.7%. 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 "The Transaction--PTR and ATLANTIC
Investor Agreements" and "--SCG Investor Agreement."
The PTR REIT Manager is a wholly owned subsidiary of SCG and is responsible
for the day-to-day operations of PTR. PTR has no employees and all of PTR's
officers are also officers or employees of the PTR REIT Manager.
DETERMINATION OF RELATIVE OWNERSHIP PERCENTAGES
In structuring a combination of the Homestead Village properties and
operations which are separately owned and operated by PTR, ATLANTIC and SCG, a
method had to be used to determine the relative ownership percentages of each
of the parties in the new Homestead entity. The objectives of SCG in
structuring the Transaction were to compensate each party fairly for the
assets to be contributed, to determine the group of assets to be contributed
to the new entity and to use a discounted cash flow method of determining the
relative fair value of the assets to be contributed to the new entity. After
examining a variety of methods of determining relative fair values for the
Homestead Village assets of PTR, ATLANTIC and SCG, SCG determined to use as
15
<PAGE>
the basis for the contributions of each party a total of 80 identified
Homestead properties in operation, under construction or in pre-development
planning as of July 1, 1996 (of which PTR would contribute 54 and ATLANTIC
would contribute 26), the projected cash flows from those properties for 1996,
1997 and 1998, and the projected REIT management fees and property management
fees from such properties, net of operating overhead for 1996, 1997 and 1998.
SCG determined the present values of the projected cash flows from these 80
properties and the projected REIT Management fees and property management fees
payable under existing agreements assuming the agreements were in effect
throughout the relevant periods using discount rates and capitalization rates
which SCG deemed reasonable. The present values of the respective cash flows
were totalled and the relative contributions to the new entity were determined
as follows: PTR--63.64%, ATLANTIC--28.18% and SCG--8.18%. SCG determined the
amount and type of securities to be issued to each party, with PTR and
ATLANTIC receiving Homestead Common Stock, Homestead Warrants and convertible
mortgage notes and SCG receiving Homestead Common Stock and Homestead
Warrants. See "The Transaction--Recommendations of the PTR Board and Reasons
for the Transaction."
SCG determined the relative contributions of each party. The projected cash
flows to be received by PTR, ATLANTIC and SCG and the present values of those
projected cash flows were determined by SCG and reviewed by the PTR Special
Committee and its advisers. The inclusion or exclusion of certain Homestead
Village properties and the use of different discount rates or capitalization
rates would have resulted in different percentage ownership interests in
Homestead. The present values of the respective contributions of the parties
do not, and are not intended to, reflect what any party could obtain in an
actual sale of their contributed assets. The relative ownership percentages
were not based on actual or projected costs of any Homestead Village property
or the book value of any Homestead Village property. SCG did not obtain an
appraisal or any other third party valuation of any Homestead Village property
or the projected cash flow anticipated to be received by SCG under the PTR or
ATLANTIC REIT Management Agreement or property management agreements. See "The
Transaction--Recommendations of the PTR Board and Reasons for the
Transaction."
RISKS IN VALUATION AND ALLOCATION
PTR is contributing 28 developed properties which have operating results
and, in general, its properties are in a more advanced state of development
than the properties to be contributed by ATLANTIC, which currently has one
operating property. There are risks associated with developing new Homestead
Village properties being contributed by PTR and by ATLANTIC. In addition, SCG
is contributing its REIT management and property management operations
relating to the Homestead Village properties. In determining SCG's relative
ownership interest in Homestead, SCG projected net operating cash flows
through 1998 and discounted these cash flows back to July 1, 1996. See "The
Transaction--Recommendations of the PTR Board and Reasons for the
Transaction." Although SCG believes these operations will be profitable once
all 80 properties are operational, to date these operations have not been
profitable because SCG has invested in operating systems to develop and manage
over 200 Homestead Village properties. In issuing its fairness opinion,
Goldman, Sachs did not opine as to the fairness of the allocation of
consideration to be received by the parties. See "The Transaction--Fairness
Opinion."
CONFLICTS OF INTEREST IN THE TRANSACTION
The Transaction has been initiated and structured by individuals who are
executive officers or directors of PTR and ATLANTIC, the PTR REIT Manager and
Security Capital (Atlantic) Incorporated (the "ATLANTIC REIT Manager") and are
affiliated with SCG. As a result, the terms of the Transaction have not been
negotiated at arms' length. No independent representatives have been retained
to negotiate the terms of the Transaction on behalf of PTR. If such
representatives had been retained, the terms of the Transaction might have
been more favorable to the shareholders of PTR. Although independent
representatives were not retained by PTR, the PTR Board created the PTR
Special Committee consisting of Messrs. John Schweitzer, Calvin Kessler and
James Cardwell. The PTR Special Committee engaged Munger, Tolles & Olson as
its legal counsel, and engaged
16
<PAGE>
Goldman, Sachs as its financial advisor to advise it in analyzing and
evaluating the fairness of the Transaction. No member of the PTR Special
Committee is an officer of PTR or a director or officer of the PTR REIT
Manager. Messrs. Schweitzer, Kessler and Cardwell beneficially own 32,602,
30,267 and 30,765 PTR Common Shares, respectively. Mr. Schweitzer or members
of his family beneficially own 12,500 shares of ATLANTIC Common Stock. Neither
Mr. Cardwell nor Mr. Kessler beneficially owns any shares of ATLANTIC Common
Stock. Mr. Schweitzer beneficially owns 268 shares of SCG common stock, $0.01
par value per share ("SCG Common Stock"). Neither Mr. Cardwell nor Mr. Kessler
beneficially owns any SCG Common Stock. Trustees of PTR, other than members of
the PTR Special Committee, beneficially own in the aggregate 114,582 PTR
Common Shares, 186,500 shares of ATLANTIC Common Stock and 11,738 shares of
SCG Common Stock.
TAXABILITY OF DISTRIBUTION
The Distribution will be taxable to PTR shareholders. See "The Transaction--
Federal Income Tax Consequences."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Distribution, there will be no public market for the Homestead
Securities. Application has been made to list the Homestead Common Stock and
the Homestead Warrants on the American Stock Exchange, although there can be
no assurance that such application will be granted or that, if granted, an
active trading market will develop. In addition, there can be no assurances 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 the Homestead Warrants for
reasons unrelated to Homestead's performance.
RISKS OF INVESTMENTS IN MORTGAGES AND FUNDING COMMITMENT
In connection with the Transaction, Homestead will assume approximately $77
million of existing mortgage indebtedness payable to PTR. Additionally,
pursuant to the Funding Commitment Agreement, PTR will agree to fund
additional mortgage loans to Homestead in the aggregate amount of up to
approximately $129 million, primarily to develop the properties contributed to
Homestead by PTR. PTR will receive convertible mortgage notes in respect
thereof in stated amounts of up to $144 million. See "The Transaction--Funding
Commitment Agreements." The obligation to provide this funding and the terms
thereof have been fixed as of the date of the Merger Agreement. There can be
no assurance that PTR could not obtain better terms for such mortgage loans
with an independent third party borrower or if the terms were to be determined
on the date a mortgage loan is made to Homestead. Mortgage investments are
subject to certain risks, including the risk that Homestead, as the borrower,
may not be able to make debt service payments or pay principal when due, the
risk that the value of the mortgaged properties may be less than the amounts
owed, and the risk that interest rates payable on the mortgages may be lower
than PTR's cost of funds. If any of the foregoing occur, PTR's ability to make
distributions to shareholders could be adversely affected.
IMPACT OF TRANSACTION ON FUTURE DISTRIBUTIONS, FUNDS FROM OPERATIONS AND PRICE
OF PTR COMMON SHARES
As of March 31, 1996, the Homestead Village properties owned by PTR
constituted 6.5% of PTR's total assets and for the quarter ended March 31,
1996, PTR's Homestead Village operations accounted for 9.0% of PTR's revenues
and 7.0% of funds from operations. Although there can be no assurances, PTR
does not expect that the Transaction will affect its future distributions to
PTR shareholders. The spin-off of the Homestead properties from PTR may have a
dilutive effect on PTR's funds from operations, however, this impact is
expected to be offset in part by new PTR multifamily properties under
development or which are expected to be acquired, and by income received from
the convertible mortgage notes to be issued to Homestead. As a result of an
amendment to the PTR REIT Management Agreement, income received from the
convertible mortgage loans is excluded from the definition of cash flow on
which the PTR REIT Management fee is based. The spin-off of the Homestead
Securities to PTR shareholders may cause the price of PTR Common Shares to
decline, which decline, however, may be offset in whole or in part by the
market value of the Homestead Securities to be distributed to PTR shareholders
in the Distribution. No assurance, however, can be given as to the price at
which the Homestead Securities may trade or whether any active market will
develop for the Homestead Securities.
17
<PAGE>
COMPETITION
The moderate priced, extended-stay market is rapidly evolving, although
there is no single competitor or small number of competitors of Homestead that
is or are dominant in this industry. Competition in the moderate priced,
extended-stay market is generally based on price, convenience of location,
range of services and guest amenities offered, and quality of service.
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.
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. Additionally, Homestead had no operating
history except during the recent economic expansion. There can be no assurance
that Homestead will be profitable in the future.
THE TRANSACTION
(PROPOSAL 1)
GENERAL
The following is a summary of the material aspects of the Transaction. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which is attached to this Proxy Statement
and Prospectus as Annex I and is incorporated herein by reference.
THE DISTRIBUTION
The Homestead Securities received by PTR will be distributed, pro rata, to
PTR shareholders. The Distribution of the Homestead Securities will be
declared following approval of the proposals by PTR shareholders, subject to
the satisfaction of certain conditions to the Merger Agreement. The
Distribution will be made to holders of PTR Common Shares of record at the
close of business on the Distribution Record Date. The amount of Homestead
Securities to be received by each PTR shareholder in the Distribution will
depend on the number of PTR Common Shares outstanding on the Distribution
Record Date. Based on the number of PTR Common Shares outstanding on August 1,
1996, each shareholder would receive 0.131033 shares of Homestead Common Stock
and 0.087907 Homestead Warrants for each PTR Common Share held. There are
currently issued and outstanding 9,051,000 shares of Series A Preferred Shares
which are convertible into an aggregate of 11,007,826 PTR Common Shares, at a
conversion price of $20.56 per share, subject to adjustment. Additionally,
options to acquire 38,000 PTR Common Shares are outstanding and exercisable
under the Share Option Plan for Outside Trustees. To the extent that any
Series A Preferred Shares are converted into, or options are exercised for,
PTR Common Shares prior to the Distribution Record Date, such conversions or
exercises will result in a proportionate reduction in the amount of Homestead
Securities to be received by each PTR shareholder. In the event that all of
the outstanding Series A Preferred Shares were converted into, and all
outstanding options were exercised for, PTR Common Shares prior to the
Distribution Record Date, an additional 11,045,826 PTR Common Shares would be
issued, which would result in each PTR shareholder receiving 0.113700 shares
of Homestead Common Stock and 0.076279 Homestead Warrants per PTR Common Share
in the Distribution.
No certificates or scrip representing fractional shares of Homestead Common
Stock or fractional Homestead Warrants will be issued directly to PTR
shareholders as a part of the Distribution. The Distribution Agent will, as
soon as practicable after the Distribution Record Date, aggregate and sell all
fractional shares of Homestead Common Stock and Homestead Warrants on any
national securities exchange or interdealer quotation system on which the
Homestead Securities are listed or quoted at then prevailing market prices and
remit the net proceeds
18
<PAGE>
(after deduction of brokerage fees) to PTR shareholders who would otherwise be
entitled to receive fractional shares or warrants. No assurances can be given
as to the price at which such securities can be sold or the proceeds to
shareholders from such sales.
NO HOLDER OF PTR COMMON SHARES WILL BE REQUIRED TO PAY ANY CASH OR OTHER
CONSIDERATION FOR THE HOMESTEAD SECURITIES RECEIVED IN THE DISTRIBUTION OR TO
SURRENDER OR EXCHANGE PTR COMMON SHARES IN ORDER TO RECEIVE HOMESTEAD
SECURITIES. SEE HOWEVER "--FOREIGN SHAREHOLDERS" BELOW. THE DISTRIBUTION WILL
NOT AFFECT THE NUMBER OF, OR THE RIGHTS ATTACHING TO, OUTSTANDING PTR COMMON
SHARES.
FOREIGN SHAREHOLDERS
In the Distribution, Homestead Securities will not be mailed immediately to
PTR shareholders of record whose mailing addresses are outside the United
States ("Foreign Shareholders") but instead will be held by the Distribution
Agent for such shareholders' accounts. As described under the heading "--
Federal Income Tax Consequences--Tax Consequences to PTR Shareholders--Foreign
Withholding," PTR is subject to a United States Federal tax withholding
obligation with respect to the Homestead Securities to be distributed to
Foreign Shareholders. On the Distribution Record Date, the Distribution Agent
will mail a notice to each Foreign Shareholder announcing the Distribution as
well as seeking instructions from the Foreign Shareholder electing between the
following options: (i) providing a check to the Distribution Agent in the
amount to be withheld and receiving his or her full share of Homestead
Securities or (ii) having the Distribution Agent sell that amount of Homestead
Securities necessary to satisfy the withholding obligations and receiving his
or her remaining share of Homestead Securities. Within ten business days after
the Distribution Record Date, the Distribution Agent will mail an additional
notice to each Foreign Shareholder setting forth the amount of the withholding
obligation. A Foreign Shareholder must deliver to the Distribution Agent his
or her instructions and, if option (i) is elected, a check in the proper
amount of the withholding must be received by the Distribution Agent within 20
business days of the Distribution Record Date. If no instructions are received
from a Foreign Shareholder by the end of such period, the Distribution Agent
will take the actions specified in option (ii) in satisfying the withholding
obligations with respect to such shareholder.
BACKGROUND
In 1991, PTR was approached by a third party who was interested in entering
into a collaborative relationship with PTR for the development of moderate
priced, extended-stay lodging facilities. In order to evaluate this proposal,
PTR and SCG did extensive research on the industry and competitors in the
industry and retained consultants to advise them on this business. In 1991,
PTR entered into various agreements with this individual or his affiliates for
the site selection and development of several facilities. By 1992, PTR had
constructed its first moderate priced, extended-stay facility in Texas. This
development was undertaken as part of PTR's multifamily business and not
operated as a separate business.
During 1993, PTR constructed additional facilities in Texas and gained
additional experience in operating these facilities and knowledge of this
segment of the lodging business. By the end of 1994, PTR had gained enough
experience in the business and had done enough research on the overall market
to determine that the Homestead Village business constituted a significant
growth opportunity and that additional personnel and resources were needed to
support and expand such business. Additionally, by the end of 1994, PTR and
the original third party had entered into various agreements which altered
their relationship. See "Certain Relationships and Transactions--Finder's
Agreements" in the Homestead Prospectus.
During 1995, a distinct and separate management team was created by the PTR
REIT Manager to manage and grow the Homestead Village business. Additional
personnel were hired and additional employees were assigned by SCG to increase
development efforts and obtain additional sites. Personnel experienced in the
lodging industry were also recruited and employed by SCG. Because of the
geographical focus of PTR's primary business, it was determined that Homestead
Village properties developed in the southeastern United States would be
developed by ATLANTIC.
19
<PAGE>
Since 1991, the fees received by the REIT managers and property managers for
the Homestead Village operations have been less than the overhead necessary to
fund their Homestead Village operations. See "Financial Statements--SCG-
Homestead Village Group" in the Homestead Prospectus. SCG has been willing to
bear this expense while the Homestead Village concept was being developed
because SCG believed Homestead Village would be accepted in the marketplace
which would result in additional funds from operations for the benefit of PTR
shareholders. In addition, SCG believed that as more Homestead Village
properties became operational, the fees generated by the additional properties
would cover such overhead. SCG believes that under the current REIT management
agreements and property management agreements for the PTR and ATLANTIC
Homestead Village properties, it would generate substantial fees from the 80
properties which are to be contributed to Homestead.
In mid-1995, SCG was contacted by another operator of extended-stay
facilities to discuss a possible business relationship involving PTR's
Homestead Village facilities. Several telephone calls and a meeting were held
but no terms were discussed.
In September 1995, management of SCG made a presentation to the SCG board of
directors (the "SCG Board") regarding the Homestead Village business and its
future direction. The SCG Board instructed SCG management to create a plan for
a structure which would maximize shareholder values for PTR, ATLANTIC and SCG
and to present alternatives to achieve this goal. Management then began to
actively explore means of achieving this goal. At the December 1995 meeting of
the SCG Board, SCG management reported that it had various alternatives under
review but that it was not prepared to make any recommendations at that time.
After this meeting, SCG and the PTR REIT Manager began actively to consider
and analyze various alternatives for the Homestead Village operations.
In December 1995, PTR decided, in anticipation of the possibility of the
formation of Homestead and a potential business combination involving the
Homestead Village business, to place convertible mortgage loans on the
Homestead Village properties. The decision to place the convertible mortgage
loans on the Homestead Village properties was based on PTR's desire to retain
a substantial portion of the value of and a substantial portion of the upside
potential of the Homestead Village business in the event of such a business
combination. On January 24, 1996, approximately $77,289,000 of convertible
mortgage loans were placed on the Homestead Village properties by PTR.
In January 1996, the PTR REIT Manager discussed with the PTR Board various
alternatives for PTR's Homestead Village operations. By the end of January,
PTR trustees instructed the PTR REIT Manager to actively pursue examination of
various alternatives. On January 31, 1996, as part of its press release
discussing results of operations for 1995, PTR made the following statement
(the "January Press Release"):
". . . after a detailed review of Homestead Village's successful
performance, PTR's Board of Trustees has asked management to evaluate all
options relating to the operation of Homestead Village assets in order to
maximize PTR shareholder value. This would include an analysis of whether
Homestead assets should continue to be developed within PTR, be spun out as
a new stand-alone entity with a target market extending beyond PTR's
current market area, or be offered for sale, merger or disposition to a
national operator. The Board asked that this analysis be completed during
1996. Goldman, Sachs & Co. has been engaged to advise the Board on this
matter. It is possible that certain actions, if pursued, may require
approval of PTR's Board of Trustees and a possible shareholder vote."
Following the January Press Release, PTR held several discussions with
Goldman, Sachs regarding a possible spin-off of the Homestead Village
business. In February 1996, the PTR REIT Manager was contacted by a national
operator of extended-stay facilities to discuss a possible transaction. One
meeting was held in February 1996 in which the PTR REIT Manager discussed
valuation of the Homestead Village business and general terms of a possible
transaction. Management provided the other party with certain information
regarding the Homestead Village operations. Management had several telephone
calls with that party later in February 1996 but no written offer was
solicited or received.
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In February 1996, the PTR REIT Manager also received four unsolicited
telephone calls from several other owners or operators of lodging businesses
to discuss PTR's interest in selling its Homestead Village operations. No
formal written offers were received. In addition, Goldman, Sachs received
several unsolicited telephone calls in February 1996 from other parties
inquiring about PTR's Homestead Village operations, but no formal written
offers were received.
During February 1996, SCG management reviewed the options of continuing the
Homestead Village operations within PTR and ATLANTIC or disposing of the
Homestead Village assets. For the reasons discussed below under "--
Recommendations of the PTR Board and Reasons for the Transaction," SCG
management concluded that continuing the Homestead Village operations within
PTR would not maximize value for PTR and ATLANTIC shareholders. SCG management
and the PTR REIT Manager reviewed the various inquiries it had received
regarding the PTR Homestead Village assets and determined that the purchase
proposals it would likely receive would value the Homestead Village assets on
a private company basis and that the consideration that PTR would receive
would be equity securities in a public company which SCG would not control.
PTR REIT Management believed that such result would not maximize shareholder
values. PTR REIT Management also determined that its existing Homestead
Village operations and those under construction or in pre-development planning
were substantially larger than the operations of other entities which were
focused on the moderate priced, extended-stay segment of the lodging business.
SCG management also had to consider the impact of a possible sale of the
Homestead Village assets on the recently assembled management team which had
been put in place to develop the Homestead Village concept. SCG management was
concerned that the Homestead Village properties and operations would suffer
from defections by the Homestead Village management if a sale were to be
pursued and that the Homestead Village properties and operations could not be
sold at an attractive price unless management remained intact. For these
reasons, SCG management and the PTR REIT Manager did not actively pursue a
sale of the Homestead Village business.
By March 1996, SCG management had prepared and distributed materials to the
SCG Board, the ATLANTIC Board and the PTR Board describing in detail the
various alternatives for the Homestead Village operations and the advantages
and disadvantages of each alternative.
On March 12, 1996, members of SCG's management made a presentation to the
ATLANTIC Board as part of a regularly scheduled meeting. SCG's management
presented to the ATLANTIC Board information prepared by SCG regarding
alternatives available for the ATLANTIC Homestead Village operations,
including leaving the properties in ATLANTIC, a sale of the business or a
spin-off of the business, the advantages and disadvantages of each alternative
and SCG's recommendation that a spin-off be pursued. SCG presented detailed
information regarding the lodging industry, the advantages of a spin-off to
ATLANTIC's shareholders, competition in the lodging industry, a proposed
combination of ATLANTIC's and PTR's Homestead Village businesses and the means
of funding those businesses, a method by which the relative ownership
interests of PTR, ATLANTIC and SCG in the new entity would be determined, and
legal requirements to accomplish a combination and spin-off. Following the
discussion, the ATLANTIC Board authorized the ATLANTIC REIT Manager to pursue
a spin-off of ATLANTIC's Homestead Village business and a combination of
ATLANTIC's and PTR's Homestead Village businesses.
Because of SCG's significant ownership of ATLANTIC Common Stock and PTR
Common Shares and SCG's direct interest in the possible spin-off, the ATLANTIC
Board appointed the ATLANTIC Special Committee, consisting of ATLANTIC's
independent directors, Messrs. Ned Holmes and Manuel Garcia, to consider the
proposed transaction and recommend action with respect to any such proposed
transaction to the ATLANTIC Board.
On March 14, 1996, SCG management made a presentation to the PTR Board. SCG
management discussed the opportunity in the extended-stay market, competition
in the lodging industry, means by which the Homestead Village concept could
become national, and historical results for the Homestead Village operations.
SCG management discussed three options available to PTR for its Homestead
Village operations, including leaving its Homestead Village properties in PTR,
a sale of the business or a spin-off, the advantages and disadvantages of
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each option and SCG's recommendation that the PTR Board pursue a spin-off of
the Homestead Village properties. SCG management presented information
regarding a proposed capital structure of a new Homestead Village entity, a
method by which the relative ownership interests of PTR, ATLANTIC and SCG in
the new entity would be determined and possible value creation for PTR
shareholders. Following the discussion, the PTR Board authorized the PTR REIT
Manager to pursue a spin-off of its Homestead Village operations to a new
entity in exchange for securities of the new entity. Because of SCG's
significant ownership of PTR Common Shares and ATLANTIC Common Stock and SCG's
direct interest in the possible spin-off, the PTR Board appointed the PTR
Special Committee, consisting of three of PTR's independent trustees, Messrs.
John C. Schweitzer, James A. Cardwell and Calvin Kessler, to consider the
proposed transaction and recommend action with respect to any such proposed
transaction to the PTR Board. The PTR Special Committee retained Goldman,
Sachs as financial advisor to the PTR Special Committee.
On March 20, 1996, the PTR Special Committee approved the retention of
Munger, Tolles & Olson as legal counsel to the PTR Special Committee.
On March 20, 1996, SCG management made a presentation to the SCG Board
regarding the alternatives available to PTR, ATLANTIC and SCG regarding the
Homestead Village operations, which presentation was similar to the
presentations made to the ATLANTIC Board and the PTR Board. After discussion,
the SCG Board authorized SCG management to proceed with a spin-off of its
Homestead Village business. No special committee of directors of SCG was
formed and no separate counsel or financial advisors were retained by SCG in
connection with the Transaction.
On March 22, 1996, the ATLANTIC Special Committee approved the retention of
King & Spalding as legal counsel to the ATLANTIC Special Committee. On March
29, 1996, the ATLANTIC Special Committee approved retaining J.P. Morgan
Securities Inc. ("J.P. Morgan") to deliver an opinion as to the fairness, from
a financial point of view, to the shareholders of ATLANTIC (other than SCG) of
the consideration to be paid in connection with the proposed Transaction.
Between March 20 and April 8, 1996, SCG management met and had numerous
telephone conversations with J.P. Morgan and Goldman, Sachs to discuss the
proposed spin-off, valuation issues, the terms of the proposed securities to
be issued by Homestead and related matters. During that same period, Mayer,
Brown & Platt, counsel for PTR, ATLANTIC, SCG and Homestead, had several
discussions with King & Spalding and Munger, Tolles & Olson regarding the
structure and the documentation of the proposed transaction.
On April 8, 1996, a special meeting of the PTR Board was held which was
devoted entirely to the proposed spin-off. SCG management made a detailed
presentation to the entire PTR Board regarding the proposed spin-off, pro
forma historical and projected financial information regarding Homestead,
comparisons of multiples for large multifamily REITs and extended-stay lodging
operators, competition in the extended-stay lodging market, reasons why
management believed PTR shareholders would benefit from the proposed spin-off,
terms of the proposed transaction, including terms of the proposed warrants
and convertible mortgages, tax treatment of the proposed transaction, expected
value creation resulting from the spin-off, relative ownership interests of
PTR, ATLANTIC and SCG in the new entity as calculated by SCG, estimated impact
of the spin-off on PTR's funds from operations and estimated impact of the
spin-off on the financial condition of PTR. There followed an extensive
discussion by the entire PTR Board of the proposed transaction, the relative
valuation of SCG's contribution, the terms of the convertible mortgage notes
and warrants, and the assumptions used by SCG in calculating the relative
valuation of the contributions of each party.
At the same meeting Goldman, Sachs made a presentation regarding the
methodologies it would use in reviewing the proposed spin-off and arriving at
its opinion, the issues it would examine in arriving at its opinion and the
form of its opinion.
Such special meeting was adjourned, at which time the PTR Special Committee
met separately with its counsel and, for portions of the meeting, Goldman,
Sachs and SCG management. The PTR Special Committee
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discussed with its counsel its legal duties as a committee of "independent
trustees." Additionally, it discussed the presentations at the PTR Board
meeting and additional information it wanted to review in connection with the
proposed transaction. The PTR Special Committee then met with Goldman, Sachs
and reviewed the scope of Goldman, Sachs' opinion, the analysis to be
performed by Goldman, Sachs, and the timing of receiving Goldman, Sachs'
opinion. Next, the PTR Special Committee met with SCG management to discuss
SCG's analysis and presentation. Later that day, the PTR Board meeting
reconvened at which time the PTR Special Committee members stated that they
would have further meetings to discuss the proposed spin-off and requested
additional information from SCG regarding the methodology used in calculating
percentage ownership interests, assumptions used in SCG's projections and
Homestead Village properties expected to be in operation or under development
by the end of 1997.
On April 11, 1996, the PTR Special Committee met with its counsel and SCG
management to discuss SCG's analysis from which SCG structured the proposed
transaction. At the meeting, the parties extensively discussed the extended-
stay lodging market, the assumptions and methodology underlying SCG's
analysis, the rationale and reasonableness of such assumptions and
methodology, the sensitivity of the analysis to various changes, and the value
and terms of the Homestead Securities and convertible mortgage loans to be
received by PTR in the proposed transaction.
On April 16, 1996, a special meeting of the ATLANTIC Board was held at which
SCG management made a detailed presentation regarding the proposed spin-off
which focused on the following matters: the opportunity to expand Homestead on
a national scope; a description of the segments and competition within the
extended-stay lodging business; comparisons of multiples for large multifamily
REITs and extended-stay lodging operators; the reasons why management believed
ATLANTIC shareholders would benefit from the proposed spin-off; the terms of
the proposed transaction, including the contribution of properties and other
assets by each party for common stock, warrants and convertible mortgage
loans, and the terms of such securities; the expected value creation from the
spin-off; the resulting relative ownership interests of ATLANTIC, PTR and SCG
in the new Homestead entity; the impact of the spin-off on ATLANTIC's results
of operations and financial condition; and the schedule of the spin-off in
regards to a proposed initial public offering by ATLANTIC. Following the
presentation by SCG management, the ATLANTIC Board engaged in an extensive
discussion with SCG management regarding the proposed transaction and its
impact on ATLANTIC.
Following such discussion, at the same ATLANTIC Board meeting,
representatives of J.P. Morgan made a presentation regarding the methodologies
they were using in reviewing the proposed spin-off and their approach to
evaluating the fairness of the transaction, which included an extensive
discussion of valuation methodologies, the terms of the proposed Homestead
securities and the allocation of ownership.
In addition, on April 16, 1996, the ATLANTIC Special Committee met with its
counsel and J.P. Morgan to discuss the financial terms of the proposed
transaction. The ATLANTIC Special Committee discussed with its counsel its
legal duties under Maryland law as a committee of "independent directors."
Among other things, the parties discussed the reasonableness of the terms of
the Homestead Securities and the convertible mortgage loans, the allocation of
ownership in Homestead among ATLANTIC, PTR and SCG, and J.P. Morgan's fairness
analysis and opinion. Next, the ATLANTIC Special Committee discussed with its
counsel the proposed terms of the Merger Agreement and the related agreements,
proposed revisions to such agreements, and the status of the negotiations of
such agreements.
SCG originally had proposed to the PTR Board and ATLANTIC Board in March
1996 a transaction involving a total of 73 Homestead Village properties.
Because of ongoing development by PTR and ATLANTIC of Homestead Village
facilities, in April 1996 SCG revised the proposed transaction to include a
total of 80 Homestead Village facilities. The effect of this change was to
alter the ownership interests of PTR, ATLANTIC and SCG in Homestead and to
increase the aggregate amount of Homestead Securities to be issued.
SCG originally had proposed to the PTR Board and the ATLANTIC Board that the
convertible mortgage loans have a term of 25 years with no call provision and
that the conversion premium be 10% above the expected
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price of the Homestead Common Stock, and that the Homestead Warrants have a
term of 18 months. As a result of negotiations between members of the PTR
Special Committee, Goldman, Sachs, the ATLANTIC Special Committee, J. P.
Morgan and SCG, which occurred throughout April and early May 1996, certain
terms of the proposed Homestead Securities were changed. The term of the
convertible mortgage loans was reduced from 25 years to ten years; a provision
was added to permit Homestead to call the convertible mortgages after five
years; the conversion premium on the convertible mortgage loans was increased
from 10% to 15%; and the term of the Homestead Warrants was reduced from 18
months to 12 months. In addition, SCG agreed to have a portion of its
Homestead Common Stock placed in escrow to be released as funding is made by
PTR or ATLANTIC under the Funding Commitment Agreements.
On April 17, 1996, the PTR Special Committee met with its counsel, and
Goldman, Sachs and its counsel to discuss the financial terms of the proposed
transaction. Among other things, the parties discussed the reasonableness of
the terms of the Homestead Securities and the convertible mortgage loans, the
allocation of ownership in Homestead among PTR, ATLANTIC and SCG, and Goldman,
Sachs' fairness analysis and opinion. Next, the PTR Special Committee
discussed with its counsel the proposed terms of the Merger Agreement and the
related agreements, proposed revisions to such agreements, and how to proceed
in negotiations of such agreements.
During the course of the negotiation of the documents covering the
Transaction, the PTR Special Committee and its counsel requested numerous
changes to the documents because of the related-party nature of the
Transaction. The PTR Special Committee requested that SCG vote its PTR Common
Shares (which represented 37.9% of the outstanding PTR Common Shares as of May
20, 1996) in favor of the proposal only if a majority of the PTR shareholders
not affiliated with SCG voted in favor of the proposal. This voting proposal
is not required under Maryland law. Counsel for the PTR Special Committee also
requested that the Merger Agreement be subject to approval by the holders of
two-thirds of the outstanding PTR Common Shares. Under Maryland law, the
amendment to the PTR Declaration of Trust requires the approval of the holders
of two-thirds of the outstanding PTR Common Shares while the Merger Agreement
requires the approval of the holders of a majority of the outstanding PTR
Common Shares. After several discussions with the PTR Special Committee and
its counsel, SCG declined the request of the PTR Special Committee that it
vote its PTR Common Shares only upon the affirmative vote of the majority of
the non-SCG shareholders since a two-thirds vote requirement would mean that
approval of the Transaction would require a substantial number of shareholders
not affiliated with SCG voting in favor of the Transaction; SCG however did
agree to have the Merger Agreement subject to approval by the holders of two-
thirds of the outstanding PTR Common Shares. Counsel for the PTR Special
Committee also discussed with SCG the terms of the convertible mortgage loans,
the methodology from which the allocation of ownership in Homestead among PTR,
ATLANTIC and SCG was derived, and the discussions SCG had with unaffiliated
third parties with respect to potential transactions involving PTR's Homestead
Village assets. Counsel for the PTR Special Committee also requested that SCG
not receive indemnification under the Merger Agreement for misstatements made
in the Merger Agreement or in the Registration Statement which are
attributable to PTR, ATLANTIC or Homestead, because SCG controls and manages
all these entities. SCG agreed to this request.
On May 14, 1996, the PTR Special Committee met with its counsel, and for a
portion of the meeting, with a senior officer of SCG to discuss the status of
outstanding issues, changes in the terms of the Merger Agreement and the
related agreements, and the structure of the fairness opinion to be received
by the PTR Special Committee from Goldman, Sachs.
On May 15, 1996, the ATLANTIC Special Committee met with its counsel, J.P.
Morgan and SCG management. At such meeting, SCG management discussed with the
ATLANTIC Special Committee the following changes to the terms of the proposed
transaction: an increase in the number of Homestead Village facilities to 80;
the need for ATLANTIC to fund $18.6 million in cash at Closing in order to
assure that ATLANTIC receive all of its shares of Homestead Common Stock at
Closing; the changes to the terms of convertible mortgage notes regarding
maturity date, the conversion premium, and the ability of Homestead to call
the convertible mortgage loans; the terms of the Funding Commitment
Agreements; and the terms of the
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Homestead Warrants. J.P. Morgan then reviewed the impact of these changes on
their view of the fairness of the transaction. The ATLANTIC Special Committee
discussed with SCG management and J.P. Morgan the terms of the proposed
transaction, including the accounting treatment of the transaction, the impact
on ATLANTIC's REIT status and the ability of ATLANTIC to meet its funding
obligations under its Funding Commitment Agreement.
On May 17, 1996, the ATLANTIC Special Committee met with its counsel and
J.P. Morgan to consider the Transaction. At such meeting, counsel for the
ATLANTIC Special Committee and J.P. Morgan discussed the terms of the Merger
Agreement and the related agreements. After extended discussions, J.P. Morgan
delivered an oral fairness opinion to the ATLANTIC Special Committee that, as
of such date, the consideration to be paid to ATLANTIC in the Transaction was
fair, from a financial point of view, to ATLANTIC shareholders (other than
SCG). Following such discussion, the ATLANTIC Special Committee unanimously
resolved that the Merger Agreement in the form presented and the transactions
as contemplated thereby are approved as being fair and reasonable to ATLANTIC,
and the ATLANTIC Special Committee recommends that the ATLANTIC Board approve
the Merger Agreement and the transactions contemplated thereby as being fair
and reasonable to ATLANTIC.
On May 17, 1996, the ATLANTIC Board held a telephonic board meeting with all
directors in attendance. Also present at the meeting were representatives of
J.P. Morgan, counsel to the ATLANTIC Special Committee and senior officers of
SCG and the ATLANTIC REIT Manager. Mr. Holmes reported that the ATLANTIC
Special Committee had met earlier that day with representatives of J.P. Morgan
and King & Spalding to discuss the Transaction and the various documents
relating to the Transaction and that the ATLANTIC Special Committee had
received an oral fairness opinion from J.P. Morgan. Mr. Holmes further
reported that, based on its review of the Transaction, its discussions with
counsel and the oral fairness opinion of J.P. Morgan, the ATLANTIC Special
Committee recommended to the ATLANTIC Board that the Merger Agreement and the
Transaction be approved as fair and reasonable to the ATLANTIC shareholders
(other than SCG). The entire ATLANTIC Board then discussed the terms of the
Transaction, the changes in the terms of the Transaction since it had been
originally proposed to the ATLANTIC Board, the reasons for the cash payment to
be made by ATLANTIC for the Homestead Common Stock at the Closing Date, the
reasons for the premium which ATLANTIC would pay for the Homestead convertible
mortgage notes it would receive, the impact of that premium on ATLANTIC's
future financial results, the reasons for the projected difference in the
investments by PTR and ATLANTIC in their respective Homestead Village
properties, the ability of ATLANTIC to fund its obligations under the Funding
Commitment Agreement, the mechanics of the Distribution and the disposition of
the convertible mortgage loans ATLANTIC would receive. After these
discussions, the ATLANTIC Board approved the Merger Agreement and the
Transaction as fair and reasonable to the ATLANTIC shareholders and
recommended its approval by the ATLANTIC shareholders.
On May 20, 1996, the PTR Special Committee met with its counsel, and for a
portion of the meeting, with Goldman, Sachs and its counsel. At such meeting,
Goldman, Sachs discussed material changes in the terms and conditions of the
proposed transaction since it last met with the PTR Special Committee and how
such changes affect Goldman, Sachs' analysis underlying its opinion. After
extended discussions, Goldman, Sachs delivered an oral opinion to the PTR
Special Committee to the effect that, as of the date of such opinion, the PTR
Transaction was fair to PTR. See "--Fairness Opinion." The PTR Special
Committee requested that its counsel review further with SCG information
regarding discussions between SCG and third parties with respect to the
Homestead Village business.
On May 20, 1996, counsel for the PTR Special Committee reviewed with senior
officers of SCG and Goldman, Sachs inquiries that each had received regarding
PTR's Homestead Village facilities, the responses to those inquiries and the
reasons why SCG and the PTR REIT Manager, as described earlier, had decided
not to pursue a sale of the Homestead Village facilities. Later that day, the
PTR Special Committee, except for Mr. Cardwell, reconvened and met with their
counsel to discuss their respective conversations with SCG management and
Goldman, Sachs regarding potential transactions with unaffiliated third
parties. Following such discussion, the PTR Special Committee resolved that,
subject to final documentation, (a) the Merger Agreement and the
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Transaction are fair and reasonable to PTR and on terms and conditions not
less favorable to PTR than those available from unaffiliated third parties,
and (b) the PTR Special Committee recommends that the PTR Board approve the
Merger Agreement and the Transaction as being fair and reasonable to PTR and
on terms and conditions not less favorable to PTR than those available from
unaffiliated third parties and that the PTR Board recommend to the
shareholders of PTR their approval of the same.
On May 21, 1996, the PTR Board held a meeting at which all trustees were
present, except James Cardwell. The purpose of the meeting was to discuss the
Merger Agreement and the Transaction. Members of SCG management outlined the
terms of the Transaction, discussed the terms of the Homestead Warrants and
convertible mortgage notes, discussed Homestead and answered trustees'
questions. Mr. Schweitzer then discussed the activities of the PTR Special
Committee. He stated that the PTR Special Committee had met six times and that
he had held extensive discussions with the PTR REIT Manager regarding the
Transaction. He reviewed the changes in the Transaction from the terms
originally proposed to the PTR Board, including the change to the conversion
premium for the convertible mortgages. Mr. Schweitzer stated that the PTR
Special Committee had examined in detail the terms of the convertible mortgage
notes and had concluded that the terms were very favorable to PTR compared to
other convertible securities which were available in the market. He also
discussed the PTR Special Committee's review of the allocation of the
ownership interests in Homestead among PTR, ATLANTIC and SCG. He then reviewed
the oral fairness opinion which Goldman, Sachs had delivered to the PTR
Special Committee. Mr. Schweitzer concluded by stating that the PTR Special
Committee recommended to the PTR Board that the Merger Agreement and
Transaction be approved as fair to PTR.
The trustees next discussed the timing of the Transaction and the conditions
to completion of the Transaction. The trustees then reviewed and discussed the
tax consequences of the Merger Agreement and the Distribution to PTR and its
shareholders. The trustees next reviewed and discussed the terms of the
Homestead Warrants and the future overhang on the Homestead Common Stock
created by the Homestead Warrants and the convertible mortgage notes.
SCG management then reviewed with the trustees the terms of the Merger
Agreement and each of the related agreements. SCG management also reviewed
with the trustees the proposed changes to the PTR REIT Management Agreement
and the PTR Declaration of Trust. SCG management explained that the reason for
the change to the REIT Management Agreement and the PTR Declaration of Trust
was to permit the Transaction to occur but to preserve the restrictions on
interested party transactions in other situations and SCG's recommendations
that the REIT Management Agreement be changed to exclude income derived from
the convertible mortgage loans from the formula for computing the REIT
management fee. After discussing these documents and the recommendations of
the PTR Special Committee, the PTR Board unanimously approved the Merger
Agreement and Transaction as fair and reasonable and on terms not less
favorable to PTR than those available from unaffiliated third parties and
recommended to the shareholders that they vote in favor of the Merger
Agreement and the Transaction and the amendment to the PTR Declaration of
Trust and further approved the amendment to the PTR REIT Management Agreement.
The trustees also authorized the PTR REIT Manager to proceed with the
Transaction.
On May 23, 1996, the PTR Special Committee held a telephonic meeting with
all members in attendance. At such meeting, the PTR Special Committee by
unanimous vote ratified the resolutions adopted by the PTR Special Committee
at its May 20, 1996 meeting.
RECOMMENDATIONS OF THE PTR BOARD AND REASONS FOR THE TRANSACTION
SCG Recommendations and Reasons.
By early 1996, SCG had determined that the PTR Homestead Village operations
were yielding very favorable returns, which were higher than returns on PTR's
multifamily properties, and could be operated more effectively as a separate
business. Based on the reasons described below, SCG believed that it would be
in the best interests of PTR and its shareholders for the Homestead Village
operations to be separated from PTR and
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spun-off to its shareholders. SCG believed that the same reasons also were
applicable to ATLANTIC as it increased its development of Homestead Village
properties. Because of the interests of PTR, ATLANTIC and SCG in the various
parts of the Homestead Village operations, management's goal was to combine
the various parts of the Homestead Village operations and spin off the
resulting entity to the various parties in a manner which would maximize
shareholder values for each party while being fair to each entity and its
shareholders.
The following reasons were emphasized by SCG in recommending to the PTR
Board that it approve a spin-off of the Homestead Village operations.
. PUBLIC MARKET VALUATION. SCG examined the public market valuations of PTR,
other large public multifamily REITs and public extended-stay lodging
facility operators and concluded that although the PTR Homestead Village
operations have been very successful, the public market valuation of PTR has
not reflected the value of the Homestead Village operations within PTR. SCG
reviewed the funds from operations multiple of PTR as of December 31, 1995,
prior to the January Press Release, and the funds from operations multiples
of several other larger multifamily REITs, which multiples were comparable.
This comparability of funds from operations multiples demonstrated to SCG
that the public market valuation of PTR gave no additional value to the
Homestead Village operations within PTR beyond their funds from operations
contribution. SCG also examined the earnings before interest, taxes,
depreciation and amortization ("EBITDA") multiple of PTR for 1995 with
EBITDA multiples, based on market prices of two publicly held operators of
extended-stay lodging facilities, which were greater than PTR's EBITDA
multiple. This difference in multiples lead SCG to conclude that shareholder
value for PTR shareholders would be maximized if the Homestead Village
operations could be separated from PTR's traditional core business of owning
and operating garden apartments and spun off.
. NATIONAL SCOPE. SCG has determined that in order for the Homestead Village
concept to be highly successful, the Homestead Village operations should be
national in scope. The Homestead Village trademark, operating system and
management are owned or provided by SCG. PTR has Homestead Village
facilities which are operating, under construction or in pre-development
planning in several of its target markets in the western United States.
ATLANTIC has Homestead Village facilities under construction or in pre-
development planning in several of its target markets in the southeastern
United States. By combining all of the Homestead Village facilities in
operation, under construction or in pre-development planning with
management, operating systems and the Homestead Village trademark in a
single entity, SCG believed that the resulting entity would be stronger,
have greater geographic diversification, be more focused, achieve greater
economies of scale and be national in scope.
. FOCUS OF PTR'S PRIMARY BUSINESS. SCG believes that the capital markets place
a premium on REITs which are focused on a single product. PTR's objective is
to be the preeminent real estate operating company focusing on multifamily
property in its western United States target market. The Homestead Village
concept was initially created as a byproduct of the multifamily development
activities of PTR. Because of PTR's success with the Homestead Village
concept, the Homestead Village properties as of March 31, 1996 constituted
6.5% of PTR's assets, and for the quarter ended March 31, 1996 constituted
9.0% of PTR's revenues and 7.0% of PTR's funds from operations. As the
Homestead Village properties continue to become an increasingly greater
percentage of PTR's operations, revenues and net income, PTR could be
perceived as no longer focused on its primary business of owning and
operating multifamily properties. Further, as discussed above, SCG does not
believe that the market appropriately values the Homestead Village concept
within PTR. By spinning off the Homestead Village assets, SCG believes PTR
can get the dual benefit of focusing on its primary business while obtaining
an enhanced valuation for its Homestead Village business.
. RATING AGENCY ISSUES. PTR currently has investment grade ratings for its
public debt. It is SCG's belief that the presence of the Homestead Village
operations within PTR has caused concern for the rating agencies, as a
different business than multifamily operations with a different risk
profile, and that the continued inclusion of the Homestead Village assets
within PTR might have an adverse impact on PTR's ratings. Because PTR's
present intention is to finance future development through the public debt
markets and not through the issuance of additional common equity, management
believes it would be prudent to eliminate rating agencies' issues regarding
the continued operation of the Homestead Village properties within PTR.
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. REIT RULES IMPACT ON OPERATION OF HOMESTEAD VILLAGE PROPERTIES. The REIT
rules impose restrictions on the types of services that a REIT may offer.
Homestead Village operations generally involve the provision of maid
services to its guests. These services are considered "non-customary" under
the REIT rules. If a REIT provides "non-customary" services in connection
with the rental of real estate, then all or part of the associated rents
will fail to qualify as rents from real property for REIT purposes and, if
nonqualified gross income (which includes nonqualified rents) exceed 5% of
the REIT's gross income, the REIT will lose its REIT status under the Code.
Through various methods, PTR has ensured that rents received from Homestead
Village operations qualify as rents from real property for REIT purposes.
However, these methods have resulted in inefficiencies in operation of the
Homestead Village properties or loss of certain revenues from the
properties. By spinning off the Homestead Village assets, these
inefficiencies will be eliminated and PTR's REIT status will remain
unaffected.
Based primarily on these reasons, SCG recommended a spin-off to the PTR
Board. By consolidating the Homestead Village operations in the Transaction,
SCG has attempted to eliminate the issues of lack of market valuation for the
Homestead Village properties, impediments to a national scope of the Homestead
Village concept, diffusion of PTR's focus on multifamily properties, rating
agency concerns regarding the continued operation of the Homestead properties
with PTR and REIT compliance matters, while at the same time permitting PTR
shareholders to participate in the future growth of the Homestead Village
concept.
In structuring the Transaction, SCG sought to address the issue of the
impact on PTR's funds from operations caused by the spin-off of the Homestead
Village assets through the issuance of the convertible mortgage notes. These
mortgages will have a dual purpose. First, they will provide a source of
funding for Homestead's future development activities. Second, they will
provide a means by which PTR can retain capital and not return to the common
equity markets. At the closing of the Mergers, it is expected that PTR will
have an aggregate of approximately $77 million in mortgage notes outstanding
on various Homestead Village properties and at full funding in 1998, and
assuming all planned Homestead Village properties which PTR has committed to
finance are developed and there are no conversions of any mortgage notes, PTR
will have an aggregate of approximately $221 million in mortgage notes
outstanding. These mortgage loans will bear interest at 9% per annum, have a
term of 10 years, cannot be called for the first five years and will be
convertible into shares of Homestead Common Stock at $11.50 per share. In
addition, a portion of the shares of Homestead Common Stock to be received by
SCG will be issued to and placed with State Street Bank and Trust Company
("Escrow Agent") and will only be released to SCG as mortgage loans are made
by PTR or ATLANTIC under their Funding Commitment Agreements. See "--Escrow
Agreement."
The methodology used in determining the relative ownership percentages of
PTR, ATLANTIC and SCG in Homestead was established by SCG 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, as described in the succeeding paragraph; 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, as described below. For purposes of the foregoing
calculations, SCG assumed that at July 1, 1996, PTR would have 28 properties
in operation, seven properties under construction and 19 properties in pre-
development planning, and that ATLANTIC would have no properties in operation,
five properties under construction and 21 properties in pre-development
planning. At August 1, 1996, PTR actually had 28 properties in operation,
eight properties under construction and 18 properties in pre-development
planning, and ATLANTIC actually had one property in operation, four properties
under construction and 21 properties in pre-development planning.
For purposes of determining the relative ownership interests of PTR and
ATLANTIC in Homestead, SCG projected the net operating income for each of
these properties for the 18 months ended December 31, 1997, capitalized 1998
(the first year in which all 80 Homestead Village properties are assumed to be
stabilized)
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projected net operating income at 11%, and discounted both cash flows back to
July 1, 1996, using a discount rate of 11%. SCG projected a net operating
income for each of the 80 Homestead Village properties through the end of 1998
based on the historical income and expense experience of the Homestead Village
properties currently in operation, its current development plans for each such
Homestead Village property, and its extensive experience in the market and
submarket in which each such Homestead Village property is or will be located.
In addition, the material underlying economic assumptions used by SCG in
projecting net operating income for each of the Homestead Village properties
were as follows: a 5% increase in the average weekly rental rate beginning 18
months after the opening of a property and every 12 months thereafter; a 28%
occupancy rate for the first three months of operation, a 70% occupancy rate
for the second three months of operation, and an 83% stabilized occupancy rate
thereafter; an annual 5% increase in expenses every 12 months after the
opening of a property; and a capital reserve for each property at a rate of 5%
of gross revenue for the property. The capitalization rate of 11% applied to
1998 net operating income for each Homestead Village property contributed by
PTR and ATLANTIC reflects SCG's estimate of current real estate market
capitalization rates for non-branded lodging facilities based on its review of
publicly available industry information. The discount rate of 11% applied to
PTR and ATLANTIC cash flows reflects SCG's estimate of the rate appropriate to
the moderate priced, extended-stay lodging industry.
For purposes of determining the relative ownership interest of SCG in
Homestead, SCG calculated the projected PTR and ATLANTIC REIT Management fees
and property management fees which SCG would have received under existing
agreements with PTR and ATLANTIC for the 80 Homestead Village properties
assuming that such agreements were in effect throughout the relevant periods,
net of operating overhead of SCG related to those properties, for the 18
months ended December 31, 1997, multiplied projected 1998 net operating income
derived from such fees by nine, and discounted all cash flows back to July 1,
1996 using a discount rate of 17.5%. The 9.0x multiple for 1998 net operating
income for SCG was based on a publicly available report prepared by an
independent third party (The Future of Money Management in America, Bernstein
Research, 1995 Ed.) of private and public companies in the financial services
sector after adjusting for growth expectations and business objectives for
each company. A discount rate of 17.5% was applied to SCG's cash flow between
1996 and 1998 to reflect SCG's belief that a higher level of uncertainty
exists regarding the profitability of financial services operations during a
period of rapid growth. SCG anticipates that it would rapidly increase its
management operations relating to the Homestead Village properties during the
next three years as 51 additional properties are developed and become
stabilized. The REIT Management fees and property management fees were
calculated using the same projected net operating income through the end of
1998 for the 80 Homestead Village properties used to calculate the present
values of the cash flows contributed by PTR and ATLANTIC. No separate
consideration was attributed to the Homestead Village trademark, operating
system or rights for planned facilities to be contributed by SCG, as the
trademark and operating systems would be necessary to achieve the anticipated
fees.
These present values of cash flows were prepared solely for the purpose of
determining the relative ownership interests of PTR, ATLANTIC and SCG in
Homestead. These contributions were totalled and the resulting percentages of
the contributions are as follows: PTR-63.64%; ATLANTIC-28.18%; and SCG-8.18%.
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 approximately $111 million, respectively. PTR
and ATLANTIC will receive convertible mortgage notes in respect of such
fundings in stated amounts of up to $144 million and $98 million,
respectively. The effect of these provisions of the PTR Funding Commitment
Agreement is that PTR will fund approximately $898,000 for each $1,000,000
principal amount of convertible mortgage loans. The convertible mortgage loans
will be recorded for financial reporting purposes at a discount of
approximately $15 million which will be amortized and recorded as an
adjustment to interest income over the ten-year term of the mortgage loans
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
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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. 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. 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 footnotes j and m to the PTR Pro
Forma Condensed Consolidated Financial Statements) 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.
The PTR REIT Management Agreement prohibits the PTR REIT Manager from
proposing transactions which, among other things, involve the sale or purchase
of properties by PTR to or from the PTR REIT Manager or its affiliates. In
connection with the Transaction, both PTR and ATLANTIC have waived such
provisions of their respective REIT Management agreements. Additionally, the
PTR REIT Management fees are based upon PTR's cash flow (as defined in the PTR
REIT Management Agreement). PTR's cash flow includes interest payable on loans
made by PTR. Because SCG's contribution is based upon discounted cash flows
expected to be generated from the Homestead Village properties contributed by
PTR (including Homestead Village properties to be funded by PTR pursuant to a
Funding Commitment Agreement), PTR and the PTR REIT Manager have amended the
PTR REIT Management Agreement to exclude from the calculation of the PTR REIT
Management fee the interest payable on the mortgage loans made by PTR.
PTR Board Recommendations and Reasons.
At a special meeting of the PTR Board on May 21, 1996, following a review of
the information considered by SCG and a review of terms of the Merger
Agreement and the Transaction, as well as consideration of the recommendation
of the PTR Special Committee, the PTR Board unanimously approved the Merger
Agreement and the Transaction and recommended that PTR shareholders vote for
approval of the Merger Agreement and the Transaction. As noted below, the PTR
Board placed special emphasis in the determination by the PTR Special
Committee that the Merger Agreement and the Transaction are fair and
reasonable to PTR and on terms not less favorable to PTR than those available
from unaffiliated third parties.
In making its determination with respect to the Transaction, the PTR Board
considered the following material factors in approving the Merger Agreement
and the Transaction:
(i) The reasons emphasized by SCG in making its recommendations. The PTR
Board considered the concern of SCG management that the public market
valuation of PTR would not reflect the value of the Homestead Village
assets within PTR, that the capital markets place a premium on REITs which
are focused on a particular product and that the presence of Homestead
Village properties has caused a concern for the rating agencies.
(ii) The goals and objectives of Homestead, the projected growth in the
number of Homestead Village properties in operation, the gross revenues and
net operating income of the combined Homestead Village operations, the
funds from operations multiple of PTR as compared to its competitors, and
the EBITDA multiple of PTR and competitors in the extended stay market.
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(iii) SCG's stated objective of maximizing shareholder value for the
shareholders of each of PTR, ATLANTIC and SCG, both separately and
individually, related to the Homestead Village operations while pursuing a
course of action that is fair to each shareholder group, and the expected
benefit resulting from a spin-out of the Homestead Village operations based
upon the number of operating Homestead Village properties at the end of
1997, the projected EBITDA for Homestead in 1998, and an assumed EBITDA
multiple and the proportionate interest of each of PTR, ATLANTIC and SCG in
the net benefit.
(iv) The proposed contributions by PTR, ATLANTIC and SCG using discounted
cash flow analysis of projected net operating income for the 80 properties
in operation and under development, as well as the methodology for
calculating the amount of the contribution by SCG using discounted cash
flow analysis of REIT management and property management fees for the
Homestead Village operations. The PTR Board examined SCG's methodology in
determining those contributions, the projections employed by SCG, the
assumptions underlying the projections, the mathematical accuracy of the
projections, and the resulting percentages of the contributions of each of
PTR, ATLANTIC and SCG and found them to be reasonable.
(v) The estimated impact of the proposed transaction on the shareholders
of PTR comparing the estimated value of a PTR Common Share based upon 1997
estimated funds from operations and the current funds from operations
multiple to the estimated value of the various Homestead securities which
shareholders would own directly or indirectly as a result of the
Transaction, with no weight attributed to the Homestead Warrants.
(vi) The estimated impact of the proposed Transaction on PTR and PTR's
balance sheet, having reviewed historical performance of PTR, internal
forecasts assuming no spin-off and internal forecasts assuming a spin-off
as of January 1996, and the impact of the proposed Transaction on PTR's
covenants under its loan agreements.
(vii) The balance sheets of Homestead giving effect to the proposed
Transaction and full funding of the convertible mortgage debt, the capital
structure of Homestead at cost and the Homestead Warrants. In particular,
the PTR Board considered whether the number of shares issuable upon
exercise of the Homestead Warrants and conversion of the convertible
mortgage loans might restrict appreciation in the per share price of
Homestead Common Stock for an extended period.
(viii) The impact of the Transaction on PTR's projected funds from
operations and PTR's ability to continue to make cash distributions to
shareholders at the current level. The PTR Board considered the fact that
projected funds from operations for 1996 and 1997 would be impacted by the
Transaction but noted that the amendment to the REIT Management Agreement
to exclude income from the convertible mortgage loans as a basis for PTR
REIT Manager compensation would in part offset the potential decrease in
funds from operations caused by the Transaction.
(ix) The impact of the REIT tax rules on the operation of Homestead
Village properties by PTR. The PTR Board was advised that the current
methods of operation under the REIT tax rules would impose certain
inefficiencies in operation of the Homestead Village properties by PTR or
loss of certain revenues from the properties.
(x) The terms of the convertible mortgage loans and the Homestead
Warrants. The PTR Board considered the value of the continued investment by
PTR in Homestead Village facilities through the convertible mortgage loans,
the obligations of PTR under the Funding Commitment Agreement and PTR's
source of funding.
(xi) The nature of the Transaction in light of PTR's policies against
principal transactions and the existing provisions of the PTR Declaration
of Trust and the PTR REIT Management Agreement. The PTR Board considered
that the approval by PTR shareholders was required and that certain
provisions of the PTR REIT Management Agreement must be waived to effect
the Transaction and that the proposed amendment to the PTR Declaration of
Trust is limited to the Transaction only.
(xii) The Distribution will result in a taxable dividend to shareholders.
The PTR Board considered the estimated amount of such tax in light of the
value to be created by the spin-off. For a description of the estimated
amount of the taxable dividend based on certain assumptions and on various
assumed values of
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the Homestead Securities, see "--Federal Income Tax Consequences--Tax
Consequences to PTR Shareholders--The Distribution."
(xiii) The impact of the Distribution on the holders of Series A
Preferred Shares and the potential conversion of Series A Preferred Shares
resulting from the Distribution and the tax impact of such conversion on
PTR and its common shareholders.
(xiv) The substantial ownership interest of SCG in PTR and ATLANTIC and
the impact that such ownership interest was likely to have on SCG in
structuring the Transaction.
(xv) The PTR Board informed itself of the nature and extent of inquiries
by other parties regarding a possible transaction involving PTR's Homestead
Village assets.
(xvi) The PTR Board considered the condition to the Merger Agreement that
the PTR Special Committee receive a written opinion from an investment
banking firm satisfactory to the PTR Special Committee that the aggregate
consideration to be received by PTR pursuant to the Merger Agreement in
exchange for the contribution by PTR to Homestead of PTR's Homestead
Village properties and the agreement by PTR to enter into the Funding
Commitment Agreement was fair to PTR.
(xvii) As noted above, the PTR Board placed special emphasis on the
recommendation of the PTR Special Committee. In reaching this
determination, the PTR Special Committee considered the same factors
described herein which were considered by the PTR Board as a whole. The PTR
Special Committee consulted with SCG management as well as with its legal
counsel and with Goldman, Sachs. In addition, the PTR Special Committee
considered the opinion, analyses and presentations of Goldman, Sachs
described below under "--Fairness Opinion," including the opinion of
Goldman, Sachs to the effect that, as of the date of such opinion, and
based upon and subject to certain matters stated therein, the PTR
Transaction (as defined in such section below) was fair to PTR. In this
respect, while the PTR Special Committee did not explicitly adopt Goldman,
Sachs' financial analyses, the PTR Special Committee placed special
emphasis on such analyses in its overall evaluation of the Transaction and
viewed such analyses as favorable to its determination.
In view of the wide variety of factors considered by the PTR Board, the PTR
Board did not quantify or otherwise attempt to assign relative weights to the
specific factors considered in making its determination.
FAIRNESS OPINION
On May 20, 1996, Goldman, Sachs delivered its oral opinion to the PTR
Special Committee that, as of the date of such opinion, the PTR Transaction
(as defined below) was fair to PTR. Goldman, Sachs subsequently confirmed its
oral opinion by delivery of its written opinion dated as of the date hereof.
As used herein, "PTR Transaction" means the receipt by PTR of aggregate
consideration pursuant to the Merger Agreement, consisting of 9,485,727 shares
of Homestead Common Stock in exchange for the contribution by PTR to Homestead
of PTR's Homestead Village properties (the "PTR Properties") and 6,363,789
Homestead Warrants in exchange for the agreement by PTR to enter into the
Funding Commitment Agreement.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN, SACHS DATED AS OF THE DATE
HEREOF, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX
II TO THIS PROXY STATEMENT AND PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. SHAREHOLDERS OF PTR ARE URGED TO, AND SHOULD, READ SUCH OPINION IN
ITS ENTIRETY. THE FOLLOWING SUMMARY, WHILE CONTAINING ALL MATERIAL ELEMENTS OF
SUCH OPINION, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE OPINION.
In connection with its written opinion, Goldman, Sachs reviewed among other
things the Merger Agreement, the form of Funding Commitment Agreement, this
Proxy Statement and Prospectus, the Annual Reports to Stockholders and Annual
Reports on Form 10-K for the two years ended December 31, 1995; certain
interim reports to shareholders and Quarterly Reports on Form 10-Q of PTR;
certain financial analyses and forecasts for PTR and Homestead, including
financial analyses and forecasts relating to the PTR Properties and
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the assets being contributed to Homestead by ATLANTIC and SCG (the
"Performance Results"), prepared by the management of PTR, ATLANTIC and SCG,
respectively (collectively, the "Analyses"), and provided to Goldman, Sachs by
the management of PTR. Goldman, Sachs also held discussions with members of
the senior management of PTR regarding its past and current business
operations, the financial condition of PTR and the future prospects of PTR
with and without the PTR Properties and of Homestead. In addition, Goldman,
Sachs reviewed the reported price and trading activity for PTR Common Shares,
compared certain financial and stock market information for PTR with similar
information for certain other companies the securities of which are publicly
traded, reviewed the pro forma financial information for Homestead provided by
the management of PTR and compared it with similar information for certain
other companies including those in the extended-stay lodging industry
specifically and in other industries generally, and performed such other
studies and analyses as Goldman, Sachs considered appropriate.
In preparing its opinion, Goldman, Sachs relied, without independent
verification, upon the accuracy and completeness of all the financial and
other information reviewed by Goldman, Sachs for purposes of its opinion. In
that regard, Goldman, Sachs assumed, with the consent of the PTR Special
Committee, that the Analyses have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of PTR, ATLANTIC and SCG, as the case may be, and that such
Performance Results will be realized at the times contemplated therein. In
addition, Goldman, Sachs has not made an independent evaluation or appraisal
of the assets and liabilities of PTR (including the assets being contributed
by PTR to Homestead), ATLANTIC (including the assets being contributed by
ATLANTIC to Homestead), SCG (including the assets being contributed by SCG to
Homestead), Homestead or any of their subsidiaries and was not furnished with
any such evaluation or appraisal. PTR did not place any limitations upon
Goldman, Sachs with respect to the procedures followed or factors considered
by Goldman, Sachs in rendering its opinion.
The following is a summary of certain of the analyses used by Goldman, Sachs
in connection with providing its oral opinion to the PTR Special Committee on
May 20, 1996. Goldman, Sachs used substantially the same type of analyses in
connection with providing the written opinion attached hereto as Annex II.
Comparable Companies Comparison. Goldman, Sachs reviewed and compared
certain financial information relating to PTR to corresponding financial
information, ratios and public market multiples for six publicly traded
multifamily real estate investment trusts (the "Selected REITs"): Avalon
Properties, Inc., Equity Residential Properties Trust, Irvine Apartment
Communities, Inc., Merry Land & Investment Co., Inc., Post Properties, Inc.,
and United Dominion Realty Trust Inc., using stock prices as of May 13, 1996.
The Selected REITs were chosen because they are publicly traded companies with
operations that, for purposes of analysis, may be considered similar to PTR.
Goldman, Sachs' analysis of the Selected REITs indicated that, based on First
Call consensus estimates for 1996 and 1997 funds from operations ("FFO") as of
May 14, 1996, multiples of FFO estimates for the Selected REITs for 1996
ranged from 10.8x to 12.6x and averaged 11.6x, and for 1997 ranged from 10.1x
to 11.4x and averaged 10.6x. PTR's multiples of FFO estimates were 12.0x and
10.8x for 1996 and 1997, respectively, based on PTR's stock price of $19.63 on
January 31, 1996, immediately prior to the announcement that PTR was
considering, among other options, the spin-off of the PTR Properties (the
"Pre-Announcement Price"). PTR's multiples of FFO estimates were 13.0x and
11.7x for 1996 and 1997, respectively, based on PTR's stock price as of May
13, 1996. For the Selected REITs, estimated 1996 earnings before interest,
depreciation and amortization ("EBITDA") multiples ranged from 11.9x to 13.8x
and averaged 12.8x; common stock dividend yields as of May 13, 1996 ranged
from 6.4% to 7.2% and averaged 6.8%; and five-year estimated growth in FFO,
based on research analysts' estimates, ranged from 7.0% to 10.0% and averaged
8.2%. For PTR, the estimated 1996 EBITDA multiple was 13.4x, PTR Common Share
dividend yield as of May 13, 1996 was 6.3% and five-year estimated growth in
FFO, based on research analyst's estimates, was 12.0%.
Goldman, Sachs also reviewed and compared certain financial information
relating to Homestead to corresponding financial information, ratios and
public market multiples of publicly traded companies deemed to be appropriate
comparables to Homestead. This comparison consisted of an analysis, based on
stock prices as of May 13, 1996, of selected publicly traded companies in the
extended stay lodging industry and publicly traded
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companies experiencing high growth (together, the "Selected Companies"), which
are identified below. Goldman, Sachs compared 1996-1997 estimated earnings per
share ("EPS") as reported by Institutional Brokers Estimate System ("I/B/E/S")
and estimated EBITDA per share as projected in equity analyst research reports
or otherwise calculated for the Selected Companies. Homestead was considered
relative to two publicly traded companies in the extended stay lodging
business: Studio Plus Hotels, Inc. and Extended Stay America, Inc.; two
companies experiencing high growth through consolidation: Stewart Enterprises,
Inc. and HFS, Inc.; and three companies experiencing high growth through
development and expansion: Starbucks Corp., Sunglass Hut International, Inc.
and Boston Chicken Inc. The Selected Companies were chosen because the
industry in which they operate and/or their projected growth dynamics was
analogous to Homestead's industry and/or potential growth dynamics. Multiples
on EBITDA averaged 17.0x for the extended stay lodging companies, 18.5x for
the companies experiencing high growth through consolidation, and 18.5x for
the companies experiencing high growth through development and expansion.
EBITDA Contribution Analysis. Goldman, Sachs reviewed certain publicly
available operating and financial information and reviewed estimated future
operating and financial information for PTR provided by the management of PTR.
Information reviewed included FFO and EBITDA attributable to the multifamily
properties owned and operated by PTR and attributable to the PTR Properties
for the four years ending December 31, 1995. PTR's management also provided
projected FFO for the two years 1996-1997, assuming alternately that (i) the
PTR Transaction had occurred as of January 1, 1996, and (ii) the PTR
Transaction had not occurred. The information provided by PTR's management
accounted for the revenue contributed by the PTR Properties as well as the
associated expenses incurred in the asset and property management of those
same assets. Based on PTR's management's projections for stabilized operations
in 1998 of the PTR Properties, Goldman, Sachs compared (i) the 1998 EBITDA
attributable to the PTR Properties, assuming no PTR Transaction had occurred,
to (ii) PTR's proportionate share of Homestead's EBITDA, assuming the PTR
Transaction had occurred. Goldman, Sachs estimated that $1.00 of EBITDA
generated by the PTR Properties assuming no PTR Transaction had occurred and
the PTR Properties had remained with PTR would compare with $1.08 of EBITDA,
PTR's proportionate share of Homestead's EBITDA assuming the PTR Transaction
had occurred.
Pro Forma Implied Value Per Share Analysis. Goldman, Sachs prepared pro
forma analyses of the financial impact of the PTR Transaction on PTR's implied
value per share. Goldman, Sachs compared the value per share of PTR assuming
alternately that (i) the PTR Properties remained within PTR and (ii) the PTR
Properties were contributed to Homestead pursuant to the terms of the Merger
Agreement. This moment in time analysis assumed all stock prices analyzed were
unaffected by general market movements and any other factors unrelated to the
PTR Transaction, and was not a prediction of the prices at which the Homestead
Common Stock and Homestead Warrants may trade, if and when issued.
Based on the 1998 EBITDA multiples of one or more of the selected publicly
traded companies in the extended stay lodging industry assuming a 52-week high
and low stock price, the range of implied values of shares of Homestead Common
Stock, on a primary share basis, was $25.65 to $50.20, and $45.83 based on
such companies' stock price as of May 13, 1996, and, on a fully diluted share
basis, was $17.04 to $26.59, and $24.89 based on such companies' stock price
as of May 13, 1996. Based on the 1997 EPS multiples for the selected publicly
traded companies experiencing high growth, the range of implied values of
Homestead's shares was $9.93 to $17.75, with an average value of $13.17, on a
primary share basis, and was $10.89 to $13.94, with an average value of
$12.15, on a fully diluted basis. Using the multiples of the Selected
Companies, PTR management's assumption that PTR's share of Homestead is
63.64%, and 72,210,918 as the total number of PTR Common Shares outstanding,
Goldman, Sachs calculated that the implied value of Homestead allocable to
each PTR Common Share ranged from $2.06 to $7.17.
Goldman, Sachs calculated the implied value per PTR Common Share, pro forma
for the PTR Transaction, using projections for 1996 and 1997 FFO provided by
PTR's management. Based on the Pre-Announcement Price, the 1996 and 1997 FFO
multiples on 1996 and 1997 FFO assuming no PTR Transaction occurred were 12.0x
and 10.8x, respectively. Based on these multiples and projected 1996 and 1997
FFO, pro forma for the PTR Transaction, the implied value of each PTR Common
Share, pro forma for the PTR Transaction, was $18.36 and $17.71, respectively.
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<PAGE>
Together, these analyses indicated that, pro forma for the PTR Transaction,
the implied value of each PTR Common Share would range from $19.76 to $25.53,
assuming no conversion of the convertible mortgages, compared to a trading
price of $19.63, the Pre-Announcement Price. The implied value of each PTR
Common Share, pro forma for the Transaction, represents a premium to the Pre-
Announcement Price ranging from .7% to 30.1%.
Convertible Mortgages. Under the terms of the Merger Agreement and Funding
Commitment Agreements, PTR and ATLANTIC will receive consideration for their
respective contributions allocated in the same proportion, 30% Homestead
Common Stock and 70% convertible mortgages, while SCG will receive 100% of its
consideration in the form of Homestead Common Stock. Accordingly, Goldman,
Sachs analyzed the value of the convertible mortgages to be received by PTR
under the Funding Commitment Agreement. Goldman, Sachs reviewed the terms of
the securities to be received: 9.0% coupon, conversion premium of 15.0% over
the initial Homestead Common Stock price, no dividend on the underlying
Homestead Common Stock, and five-year call protection. Goldman, Sachs
calculated that the break-even point by which the coupon received by PTR on
the convertible mortgages would compensate for the conversion premium would be
1.7 years following issuance of the convertible mortgages. Goldman, Sachs
compared these terms with the terms of 48 publicly offered convertible
debenture issues issued between February 1995 and March 1996 (the "Selected
Issues"). The Selected Issues had an average coupon of 6.15%, an average
conversion premium of 22.0% and an average dividend of 0.9% on the underlying
common stock. Goldman, Sachs calculated that the average break-even point of
the Selected Issues would be 4.1 years following their issuance.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman, Sachs' opinion. In arriving at its fairness
determination, Goldman, Sachs considered the results of all such analyses,
taken as a whole. The analyses were prepared solely for the purposes of
Goldman, Sachs' providing its opinion to the PTR Special Committee as to the
fairness of the PTR Transaction to PTR and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may
be sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, neither PTR,
Goldman, Sachs nor any other person assumes responsibility if future results
are materially different from those forecast.
As described above, Goldman, Sachs' opinion to the PTR Special Committee was
one of the many factors taken into consideration by the PTR Board in making
its determination to approve the Merger Agreement and the Transaction. The
foregoing summary does not purport to be a complete description of the
analyses performed by Goldman, Sachs and is qualified by reference to the
written opinion of Goldman, Sachs set forth in Annex II hereto.
Goldman, Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisition, negotiated underwriting, competitive bidding,
secondary distributions of listed and unlisted securities, private placement
and valuation for estate, corporate and other purposes.
Goldman, Sachs has acted as financial advisor and provided certain
investment banking services to PTR and certain affiliates of PTR from time to
time including participating in and receiving fees in connection with the
public offering of securities. Goldman, Sachs has also provided a fairness
opinion to SCG in connection with its merger with an affiliate. In addition,
it is anticipated that Goldman, Sachs will act as lead underwriter in
connection with the initial public offering of ATLANTIC, for which it,
together with any other underwriters, will receive usual and customary
underwriting discounts and commissions expected to range from 6.25% to 6.75%
of the total proceeds to ATLANTIC in connection with the ATLANTIC IPO plus
reimbursement of expenses customarily reimbursed in such offerings. Goldman,
Sachs may in the future provide financial advisory and investment banking
services to PTR, ATLANTIC, SCG, Homestead or their affiliates.
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<PAGE>
Pursuant to a letter agreement dated April 1, 1996 (the "GS Engagement
Letter"), the PTR Special Committee engaged Goldman, Sachs to render an
opinion with respect to the consideration to be received by PTR in connection
with the contribution by PTR to Homestead of the PTR Properties. Pursuant to
the terms of the GS Engagement Letter, PTR has agreed to pay Goldman, Sachs a
fee of $250,000 one-half of which would be paid upon execution of the GS
Engagement Letter and the other half upon delivery of Goldman, Sachs' written
opinion, whether or not such opinion is favorable as to the fairness of the
PTR Transaction. PTR also has agreed to reimburse Goldman, Sachs for its
reasonable out-of-pocket expenses, including attorneys' fees and
disbursements, and to indemnify Goldman, Sachs against certain liabilities,
including certain liabilities under federal securities laws.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States Federal income tax
consequences of the Transaction to PTR and PTR shareholders. To the extent
such summary discusses matters of law, it is based upon the opinion of Mayer,
Brown & Platt. The summary is based upon the Code, its legislative history,
administrative pronouncements, judicial decisions and Treasury regulations,
subsequent changes to any of which may affect the tax consequences described
herein, possibly on a retroactive basis. The summary only applies to persons
who hold PTR Common Shares as capital assets and does not address tax
considerations which may affect the treatment of certain special status
taxpayers such as financial institutions, broker-dealers, life insurance
companies, tax-exempt organizations, investment companies and foreign
taxpayers. The summary does not address the foreign, state, local or other tax
consequences of the Transaction. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS AS TO THE PARTICULAR UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO
THEM OF THE TRANSACTION AND AS TO THE FOREIGN, STATE, LOCAL AND OTHER TAX
CONSEQUENCES OF THE TRANSACTION.
Tax Consequences to PTR
The Mergers. In the opinion of Mayer, Brown & Platt, based on certain
representations of PTR, the Mergers constitute a transaction subject to
Section 351 or the reorganization provisions of the Code and related
provisions. Assuming the Mergers constitute a transaction subject to Section
351 or the reorganization provisions of the Code and related provisions, (i)
PTR will not recognize gain, income or loss upon the receipt of the Homestead
Common Stock in the Mergers in exchange for the Homestead Village properties
transferred by PTR to Homestead in the Mergers except to the extent that PTR
is treated as having received "boot" in the Mergers, (ii) the tax basis of the
Homestead Common Stock received by PTR will be the same as PTR's and its
subsidiaries' tax basis in the Homestead Village properties transferred by PTR
to Homestead in the Mergers reduced by any liabilities of PTR's subsidiaries
assumed by Homestead in the Mergers, and (iii) the holding period of the
Homestead Common Stock received by PTR will be the same as PTR's and its
subsidiaries' holding period in the Homestead Village properties, allocated
among the shares of the Homestead Common Stock received according to the fair
market values of such properties. To the extent that PTR is treated as having
received "boot" in the Mergers, PTR will recognize taxable gain with respect
to each of the Homestead Village properties transferred by PTR to Homestead in
the Mergers in an amount equal to the lesser of (i) the fair market value on
the date of the Merger of the "boot" received by PTR allocated to such
Homestead Village property and (ii) the amount by which the fair market value
of such Homestead Village property exceeds PTR's or its subsidiaries' tax
basis therein. The tax basis of the Homestead Common Stock received by PTR
will be increased by the amount of any such taxable gain recognized and will
be decreased by the fair market value of the "boot" received. PTR's tax basis
in any "boot" received will equal the fair market value on the date of the
Merger of such "boot." Any taxable gain recognized by PTR as a result of the
receipt of "boot" will reduce the amount of gain recognized by PTR on the
Distribution.
The Distribution. PTR will recognize gain upon the Distribution of the
Homestead Securities to its shareholders in an amount equal to the excess of
the sum of (i) the fair market value of the Homestead Securities on the
Distribution Date and (ii) cash distributed in lieu of fractional shares of
Homestead Common Stock and fractional Homestead Warrants over PTR's tax basis
immediately prior to the Distribution in the Homestead
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<PAGE>
Securities it receives in the Mergers, and the earnings and profits of PTR
will be increased by the amount of any such gain recognized. PTR's gain on the
Distribution will be reduced to the extent that PTR recognized gain on the
Mergers from the receipt of "boot" and its tax basis in the Homestead Common
Stock was increased thereby. In computing its taxable income for the year in
which the Distribution occurs, PTR will be allowed a dividends paid deduction
with respect to the Distribution in an amount equal to the sum of the fair
market value on the Distribution Date of the Homestead Securities distributed
and any cash distributed in lieu of fractional shares of Homestead Common
Stock and fractional Homestead Warrants, but in no event in excess of the
earnings and profits of PTR.
The fair market value of the Homestead Securities on the Distribution Date
will be determined by the best available evidence as to their value on that
date. Assuming there are no aberrations in the trading of the Homestead
Securities, and absent special factors bearing on the value of a particular
holder's Homestead Securities, the best available evidence of the fair market
value of the Homestead Securities on the Distribution Date should be their
value as reflected by their trading prices on the first day of when issued
trading or within a reasonable period before or after such date. To the extent
the trading price of the Homestead Securities does not reflect their fair
market value because, for example, there are too few trades, the trading is of
a sporadic nature or such securities were not traded, then other relevant data
bearing on the value of the Homestead Securities will be considered in
determining the fair market value of the Homestead Securities.
Thus, as a result of the Transaction, PTR will recognize gain in an amount
equal to the excess of the value of the Homestead Village properties
transferred by PTR to Homestead in the Mergers over PTR's or its subsidiaries'
basis therein (the "net built-in gain"). PTR will recognize such gain in one
of the following ways: (i) as a result of the receipt of "boot" in the
Mergers, (ii) upon the Distribution, or (iii) in part as a result of the
receipt of "boot" in the Mergers and in part upon the Distribution. In
addition, if the fair market value of any Homestead Village property
transferred by PTR to Homestead in the Mergers were less than PTR's or its
subsidiaries' tax basis therein (a "built-in loss") and if the fair market
value of "boot" received by PTR in the Mergers were to exceed PTR's net built-
in gain in the Homestead Village properties, PTR would recognize additional
gain in the Transaction in an amount equal to the lesser of (i) PTR's
aggregate built-in losses in the Homestead Village properties and (ii) the
excess of the fair market value of the "boot" received by PTR in the Mergers
over PTR's net built-in gain in the Homestead Village properties. However, it
is not anticipated that any of the Homestead Village properties transferred by
PTR in the Mergers will have a built-in loss.
Mortgages. After consummation of the Transaction, PTR will hold mortgage
notes of Homestead convertible into shares of Homestead Common Stock. See "The
Transaction--Funding Commitment Agreements." The terms of the Funding
Commitment Agreement provide that PTR will fund approximately $898,000 for
each $1,000,000 principal amount of convertible mortgage loans. Pursuant to
Sections 1271 through 1275 of the Code and regulations thereunder, PTR will be
treated as having acquired the convertible mortgage loans with original issue
discount in an amount equal to the difference between the issue price (the
amount funded by PTR) and the principal amount at maturity of the convertible
mortgage loans. PTR will be required to accrue such original issue discount in
income on a yield to maturity basis over the terms of the convertible mortgage
loans before receipt of the cash attributable to such income. Because PTR is
generally required to distribute 95% of its income in order to retain its REIT
status and 100% of its income to avoid being taxed, PTR may be required to
borrow funds in order to distribute amounts attributable to any such original
issue discount. Interest paid by Homestead (and original issue discount
accrued) to PTR on the mortgage notes will constitute qualified income for
purposes of determining whether PTR meets the gross income requirements for
REIT qualification.
The terms of the mortgages provide for adjustment of the price for
conversion of the mortgages into the Homestead Common Stock if Homestead makes
certain distributions of stock, cash or other property to its shareholders.
While Homestead does not presently contemplate making such a distribution, if
Homestead makes a distribution of cash or property resulting in an adjustment
to the conversion price, PTR, as a holder of such convertible mortgages, may
be viewed as receiving a "deemed distribution" under Section 305 of the Code,
even if PTR does not hold any Homestead Common Stock at such time. The deemed
distribution would
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<PAGE>
constitute a taxable dividend, taxable as ordinary income, to the extent that
the earnings and profits of Homestead were allocable to the deemed
distribution. The amount of the deemed distribution which exceeded the
allocated earnings and profits of Homestead would be considered return of
capital and would reduce PTR's tax basis in the convertible mortgages (but not
below zero) by the value of the deemed distribution. To the extent that the
value of the deemed distribution exceeds PTR's tax basis in the convertible
mortgages, the deemed distribution would result in gain to PTR. PTR's tax
basis in the convertible mortgages would then immediately be increased by the
value of the property deemed to have been distributed.
Except as discussed below with respect to cash received in lieu of
fractional shares, PTR will not recognize gain or loss upon the exercise of
the conversion right. PTR's tax basis in the Homestead Common Stock received
upon the conversion will be equal to PTR's tax basis in the mortgages
converted. Upon conversion of the mortgages, PTR will receive cash in lieu of
any fractional shares of Homestead Common Stock and will recognize gain to the
extent that the cash received exceeds PTR's tax basis in the portion of the
mortgages converted for cash in lieu of fractional shares. In the event that
PTR exercises its conversion right, it is expected that PTR, consistent with
its status as a REIT, will shortly thereafter distribute to its shareholders
or sell in the open market the Homestead Common Stock received. PTR will
recognize gain upon such distribution or sale of the Homestead Common Stock
received upon conversion in an amount equal to the excess of the fair market
value of the Homestead Common Stock over PTR's tax basis therein and the
earnings and profits of PTR will be increased by the amount of any such gain
recognized. In computing its taxable income for the year in which any such
Homestead Common Stock is distributed, PTR will be allowed a dividends paid
deduction in an amount equal to the fair market value at the time of
distribution of the Homestead Common Stock distributed, but in no event in
excess of the earnings and profits of PTR.
Commitment Fee Income. The receipt by PTR of the Homestead Warrants in
consideration for entering into the Funding Commitment Agreement will be
treated as a commitment fee to PTR for entering into the Funding Commitment
Agreement which will constitute taxable income to PTR. Such income will
constitute qualified income for purposes of determining whether PTR meets the
gross income requirements for REIT qualification. The earnings and profits of
PTR will be increased by the amount of the commitment fee income, consequently
increasing the amount of the Distribution which will be treated as a fully
taxable dividend to PTR shareholders.
Tax Consequences to Homestead
Assuming the Mergers constitute a transaction subject to Section 351 or the
reorganization provisions of the Code and related provisions, (i) Homestead
will not recognize gain, income or loss as a result of the Transaction, (ii)
the tax bases of the Homestead Village properties received by Homestead from
PTR and its subsidiaries will be the same as the tax bases of PTR and its
subsidiaries in such properties increased by the amount of any gain recognized
by PTR as a result of the receipt by PTR of "boot" in the Mergers, and (iii)
the holding period of the Homestead Village properties received by Homestead
from PTR and its subsidiaries will be the same as the holding period of PTR
and its subsidiaries in such properties.
Tax Consequences to PTR Shareholders
The Distribution. The amount received by PTR shareholders in the
Distribution will be equal to the fair market value of the Homestead
Securities received plus the amount of any cash received in lieu of fractional
shares of Homestead Common Stock and fractional Homestead Warrants. The
Distribution will constitute a taxable dividend to PTR shareholders, taxable
as ordinary income, to the extent of the earnings and profits of PTR allocable
to such Homestead Securities and cash. To the extent that holders of Series A
Preferred Shares convert their shares into PTR Common Shares prior to the
Distribution Record Date, a greater portion of the earnings and profits of PTR
will be allocable to the Homestead Securities and cash distributed, and a
greater portion of subsequent distributions by PTR to holders of PTR Common
Shares will be taxable to such holders. The amount of the distribution which
exceeds the allocated earnings and profits of PTR will be treated as a
nontaxable reduction (although not below zero) of a shareholder's adjusted tax
basis in its PTR Common Shares.
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<PAGE>
To the extent that the Distribution exceeds such shareholder's adjusted tax
basis in its PTR Common Shares, the Distribution will be treated as gain to
such shareholder. Any such gain will constitute capital gain to such
shareholder if the shareholder holds its PTR Common Shares as a capital asset,
and will constitute long-term capital gain if such shareholder has held such
shares for at least one year. As discussed above, gain recognized by PTR upon
the distribution of the Homestead Securities will increase PTR's earnings and
profits, thus increasing the portion of the distributions of PTR for the
taxable year of the Distribution which will be treated as taxable dividends as
opposed to return of capital.
To the extent that PTR has a net capital gain for the taxable year, it may
designate all or a portion of any dividend distributed as a capital gain
dividend. In this event, shareholders will be provided written notice of such
designation within 30 days after the close of PTR's taxable year. Shareholders
will be taxed at the long-term capital gains rate on any such capital gain
dividends regardless of the shareholders' holding period of its PTR Common
Shares. The amount of capital gain dividends which may be designated by PTR
will be reduced by any capital loss carryovers of PTR. Gain recognized by PTR
as a result of the Distribution will constitute capital gain to the extent
attributable to Homestead Village properties held by PTR and its subsidiaries
in excess of one year prior to the Mergers and PTR anticipates that it will
designate dividends attributable to any net capital gain resulting from the
Distribution as capital gain dividends.
The following sets forth an estimate of the portion of the Distribution
taxable as a dividend to PTR shareholders, based upon various assumed values
for the Homestead Securities and the following additional assumptions. The
following information assumes that (i) (a) the total number of outstanding PTR
Common Shares on the Distribution Record Date is 72,392,081, (b) the total
number of outstanding Series A Preferred Shares on the Distribution Record
Date is 9,051,000, and (c) the total number of outstanding Series B Preferred
Shares on the Distribution Record Date is 4,200,000, (ii) PTR will make total
cash distributions to common shareholders for calendar year 1996 in an amount
equal to $89,653,290, (iii) PTR's total earnings and profits other than from
the Transaction for calendar year 1996 is $95,400,000, (iv) PTR's and its
subsidiaries' tax basis in the Homestead Village properties immediately prior
to the Transactions is $146,835,880 and (v) no Series A Preferred Shares are
converted into PTR Common Shares or outstanding options to acquire PTR Common
Shares are exercised. The foregoing assumptions and the assumed values of
Homestead Securities below are intended for informational purposes only for
purposes of computing the portion of the Distribution taxable as a dividend
based upon such assumptions and are not intended as an indication of the
actual number of PTR Common Shares which will be or are expected to be
outstanding on the Distribution Record Date, actual or expected cash
distributions to be made by PTR for calendar year 1996, actual or expected
taxable income of PTR for calendar year 1996, actual or expected tax basis of
PTR and its subsidiaries in the Homestead Village properties immediately prior
to the Transactions, whether holders of Series A Preferred Shares will or are
expected to convert such shares into PTR Common Shares, or PTR's estimate of
the value of the Homestead Securities.
<TABLE>
<CAPTION>
ASSUMED ASSUMED VALUE
VALUE OF ASSUMED OF PORTION OF
ONE SHARE OF VALUE OF ONE DISTRIBUTION THE DISTRIBUTION
HOMESTEAD HOMESTEAD PER PTR TAXABLE AS A
COMMON STOCK WARRANT COMMON SHARE DIVIDEND
------------ ------------ ------------- ----------------
<S> <C> <C> <C>
$10.00 $ 0.00 $1.31 $0.60
12.50 2.50 1.85 1.00
15.00 5.00 2.40 1.43
17.50 7.50 2.95 1.88
20.00 10.00 3.49 2.34
</TABLE>
Foreign Withholding. For purposes of this discussion a "non-U.S. holder"
means any PTR shareholder who, for United States income tax purposes, is a
foreign corporation, a nonresident alien, a nonresident alien fiduciary of a
foreign estate or trust, or a foreign partnership which has at least one
member that is, for United States Federal income tax purposes, a foreign
corporation, a nonresident alien individual or a nonresident alien fiduciary
of a foreign estate or trust. Non-U.S. holders will be subject to U.S.
withholding tax at a rate of 30%, or if applicable, a lower treaty rate, on
the portion of the Distribution not attributable to capital gains unless the
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<PAGE>
Distribution is effectively connected with the conduct of a trade or business
in the United States by such non-U.S. holder. In addition, under the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA"), any distribution made
by PTR to a non-U.S. holder, to the extent attributable to gains from
dispositions of United States Real Property Interests ("USRPIs") by PTR
("USRPI Capital Gains"), will be considered effectively connected with a U.S.
trade or business of the non-U.S. holder and subject to U.S. income tax at the
rates applicable to U.S. individuals or corporations. PTR will be required to
withhold tax equal to 35% of the amount of the Distribution to the extent it
constitutes USRPI Capital Gains, without regard to the portion of the
Distribution which PTR designates as a capital gain dividend. The portion of
the Distribution which constitutes USRPI Capital Gains may also be subject to
the 30% branch profits tax (unless reduced by treaty) in the case of a non-
U.S. holder that is a foreign corporation.
Any portion of the Distribution that exceeds both current and accumulated
earnings and profits of PTR will not be taxed as either an ordinary dividend
or a capital gain dividend. However, because PTR will not be able to determine
at the time the Distribution is made whether or not the Distribution will be
in excess of PTR's current and accumulated earnings and profits, the
Distribution will be subject to full withholding. The non-U.S. holder may seek
a refund of over-withholding from the Internal Revenue Service if it is
subsequently determined that the Distribution was, in fact, in excess of PTR's
current and accumulated earnings and profits. Under current Treasury
Regulations, distributions paid to an address in a foreign country are
presumed to be paid to a resident of that country (unless the payor has
knowledge to the contrary) for foreign withholding purposes and, under the
current interpretation of the Treasury Regulations, for purposes of
determining the applicability of a tax treaty rate. In any case where a
distribution is payable in any medium other than money, the withholding agent
cannot release the property so distributed until the property has been
converted into funds sufficient to enable the withholding agent to pay over in
money the tax required to be withheld. For a discussion of the manner in which
this withholding obligation will be satisfied by PTR in connection with the
Distribution, see "Foreign Shareholders."
Backup Withholding. Under the backup withholding rules of the Code (which
generally impose a 31% withholding tax on certain persons who fail to furnish
the information required under the United States tax reporting requirements),
a PTR shareholder who receives Homestead Securities or cash in lieu of
fractional shares of Homestead Common Stock or fractional Homestead Warrants
in the Distribution may be subject to backup withholding with respect to such
Homestead Securities and cash received in the Distribution unless such
shareholder (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (ii) provides a
correct taxpayer identification number and certifies under penalties of
perjury that the taxpayer identification number is correct and that the holder
is not currently subject to backup withholding because of a failure to report
all dividend and interest income. Any amount withheld under these rules will
be credited against the shareholder's Federal income tax liability.
Information Reporting. PTR is required to report the amount distributed to
shareholders pursuant to the Distribution (and the allocation of such amount
among ordinary dividends, capital gain dividends and return of capital) to the
IRS and each shareholder on Form 1099-DIV.
Homestead Common Stock. A shareholder's tax basis in the Homestead Common
Stock received in the Distribution will be the fair market value of the
Homestead Common Stock on the Distribution Date to be determined as discussed
above. A shareholder's holding period for the Homestead Common Stock received
in the Distribution will begin on the day after the Distribution Record Date.
Upon the sale or exchange of Homestead Common Stock, a Homestead shareholder
will realize gain or loss measured by the difference between the amount
realized on the sale or other disposition and the shareholder's tax basis in
the Homestead Common Stock. Such gain or loss will be capital gain or loss to
such shareholder if the shareholder holds its Homestead Common Stock as a
capital asset, and will be a long term capital gain or loss if the Homestead
shareholder's holding period with respect to the Homestead Common Stock sold
is more than one year at the time of sale or exchange.
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<PAGE>
Homestead Warrants. A shareholder's tax basis in the Homestead Warrants
received in the Distribution will be the fair market value of the Homestead
Warrants on the Distribution Date to be determined as discussed above. A
shareholder's holding period for the Homestead Warrants received in the
Distribution will begin on the day after the Distribution Record Date.
The terms of the Homestead Warrants distributed to PTR shareholders pursuant
to the Merger Agreement provide for adjustment of the price for exercise if
Homestead makes certain distributions of stock, cash or other property to its
shareholders. While Homestead does not presently contemplate making such a
distribution, if Homestead makes a distribution of cash or property resulting
in an adjustment to the exercise price, the holders of the Homestead Warrants
(the "Warrant Holders") may be viewed as receiving a "deemed distribution"
under Section 305 of the Code, even if such Warrant Holder does not hold any
Homestead Common Stock at such time. The deemed distribution would constitute
a taxable dividend, taxable as ordinary income, to the extent that the
earnings and profits of Homestead were allocable to the deemed distribution.
The amount of the deemed distribution which exceeded the allocated earnings
and profits of Homestead would be considered a return of capital, and would
reduce the Warrant Holder's tax basis in the Homestead Warrants (but not below
zero) by the value of the deemed distribution. To the extent that the value of
the deemed distribution exceeds the Warrant Holder's tax basis in its
Homestead Warrants, the deemed distribution would result in gain to such
Warrant Holder. In any event, the Warrant Holder's tax basis in its Homestead
Warrants would then immediately be increased by the value of the property
deemed to have been distributed.
Except as discussed below with respect to cash received in lieu of
fractional shares, Warrant Holders will not recognize gain or loss upon the
exercise of the Homestead Warrants. The Warrant Holder's tax basis in the
Homestead Common Stock received upon the exercise of the Homestead Warrants
will be equal to the sum of (i) the Warrant Holder's tax basis in the warrants
exercised and (ii) the exercise price paid. Upon the exercise of the Homestead
Warrants, Warrant Holders will receive cash in lieu of any fractional shares
of Homestead Common Stock and will recognize gain to the extent that the cash
received exceeds the Warrant Holder's tax basis in the portion of the
Homestead Warrants exercised for cash in lieu of fractional shares.
Upon a sale or other disposition of a Homestead Warrant, a Warrant Holder
will recognize gain or loss measured by the difference between the amount
realized on the sale or other disposition and the Warrant Holder's tax basis
in the Homestead Warrant. Such gain or loss will be capital gain or loss if
the stock into which the Homestead Warrants are exercisable would be a capital
asset in the Warrant Holder's hands, and will be a short term capital gain or
loss because the Homestead Warrants expire within one year and therefore the
Warrant Holder's holding period will be one year or less.
If a Warrant Holder's Homestead Warrants expire without being exercised, the
Warrant Holder will recognize a loss at the time such Homestead Warrants
expire equal to its tax basis in the expired Homestead Warrants. In general,
such loss will be a capital loss if the stock into which the warrants were
exercisable would be a capital asset in the Warrant Holder's hands.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Based on the ownership on August 1, 1996, PTR's trustees and executive
officers who own PTR Common Shares or ATLANTIC Common Stock would, in the
aggregate, receive a total of 44,646 shares of Homestead Common Stock and
29,950 Homestead Warrants as a result of the Transaction. They will also
receive cash in lieu of any fractional shares of Homestead Common Stock and
fractional Homestead Warrants. SCG and its directors and executive officers
who own PTR Common Shares or ATLANTIC Common Stock will, in the aggregate,
receive a total of 10,460,177 shares of Homestead Common Stock (including
2,243,038 shares held in escrow) and 5,109,575 Homestead Warrants as a result
of the Transaction. They will also receive cash in lieu of any fractional
shares of Homestead Common Stock and fractional Homestead Warrants. Certain
officers of PTR and the PTR REIT Manager, including David Dressler, W.
Geoffrey Jewett, John Patterson and Gregg Plouff, will become officers and
employees of Homestead. In addition, such officers may receive options to
acquire Homestead Common Stock and may be offered the opportunity to purchase
shares of Homestead
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Common Stock under Homestead's Long-Term Incentive Plan. See "Management--Long-
Term Incentive Plan" in the Homestead Prospectus attached hereto.
THE MERGER AGREEMENT
Pursuant to the Merger Agreement, PTR and Homestead shall take all actions
necessary to cause PTR Homestead Village Incorporated, a wholly owned
subsidiary of PTR, to be merged with and into Homestead in exchange for
9,485,727 shares of Homestead Common Stock, ATLANTIC and Homestead shall take
all actions necessary to cause Alabama Homestead Incorporated and Atlantic
Homestead Village Incorporated, wholly owned subsidiaries of ATLANTIC, to be
merged with and into Homestead in exchange for an aggregate of 4,201,220 shares
of Homestead Common Stock, and SCG and Homestead shall take all actions
necessary to cause Homestead Village Managers Incorporated, Homestead Realty
Services Incorporated and SCG Homestead Village Incorporated, wholly owned
subsidiaries of SCG, to be merged with and into Homestead in exchange for an
aggregate of 4,062,788 shares of Homestead Common Stock of which 2,243,038
shares will be placed in escrow and released as funds are advanced under the
Funding Commitment Agreements. In addition, pursuant to a warrant purchase
agreement dated as of May 21, 1996 by and among PTR, ATLANTIC, SCG and
Homestead (the "Warrant Purchase Agreement"), PTR and ATLANTIC will receive
6,363,789 and 2,818,517 Homestead Warrants, respectively, in exchange for their
entering into their respective Funding Commitment Agreement described below.
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 a period of one year
without charge.
For a description of the amount of Homestead Securities to be received by PTR
shareholders in the Transaction, see "The Transaction--The Distribution."
The following is a summary of the Merger Agreement, which is attached as
Annex I to this Proxy Statement and Prospectus and is incorporated herein by
reference. Such summary is qualified in its entirety by reference to the Merger
Agreement.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties of PTR, ATLANTIC, SCG and Homestead, including,
with respect to PTR, ATLANTIC and Homestead, documents filed with the
Commission and the accuracy of the information contained or incorporated
therein, and with respect to PTR, ATLANTIC, SCG and Homestead, the (i)
preparation of the financial statements in accordance with GAAP applied on a
consistent basis, (ii) absence of undisclosed liabilities, (iii) absence of
certain material adverse events and (iv) accuracy of the information provided
to Homestead with respect to the Registration Statement of which this Proxy
Statement and Prospectus is a part.
Certain Covenants and Agreements. Pursuant to the Merger Agreement, each of
PTR, ATLANTIC and SCG has agreed that, during the period from the date of the
Merger Agreement until the Closing Date or the earlier termination of the
Merger Agreement, it will, among other things (except as permitted by the
Merger Agreement or as consented to in writing by the other parties): (i)
conduct its extended-stay lodging business in the ordinary and usual course and
consistent with past practice; (ii) use its best efforts to take all actions
reasonably necessary to continue, in the ordinary and normal course of its
business and consistent with past practice, with the development or
construction of any extended-stay properties currently in development; (iii)
not issue, sell, pledge or dispose of, or agree to issue, sell, pledge or
dispose of, any shares of, or any options, warrants or rights of any kind to
acquire any shares of stock of certain subsidiaries; (iv) not (a) except as
described in clauses (b) through (e) below, incur or become contingently liable
with respect to any additional indebtedness for borrowed money in respect of
the assets to be contributed to Homestead, (b) take any action which would
jeopardize PTR's or ATLANTIC's status as a REIT under the Code, (c) sell any of
the properties to be contributed to Homestead, (d) prepay any existing
convertible mortgage loans (except that PTR may cause one of its subsidiaries
to prepay a portion of the existing convertible mortgage loans to the extent
that the costs to acquire and develop the properties being contributed to
Homestead is less than the amount outstanding under such loans) or (e) purchase
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or acquire any properties for use as extended-stay facilities; (v) use
reasonable efforts to preserve its extended-stay lodging business organization
and goodwill, keep available the services of its present officers, preserve
the goodwill and business relationships with its lessees, operators,
suppliers, distributors, customers and others, and not engage in any action,
directly or indirectly, with the intent to affect adversely the Transaction;
(vi) confer with one or more representatives of the other parties when
requested to report on material operational matters and the general status of
ongoing operations of its business; and (vii) maintain, in full force and
effect, with all premiums due thereon paid, policies of insurance covering all
of its insurable tangible assets and businesses related to its Homestead
Village operations in amounts and as to foreseeable risks usually insured
against by persons operating similar businesses under valid and enforceable
policies of insurance issued by nationally recognized insurers.
Pursuant to the Merger Agreement, Homestead has agreed that, during the
period from the date of the Merger Agreement until the Closing Date or the
earlier termination of the Merger Agreement, it will, among other things
(except as permitted by the Merger Agreement or as consented to in writing by
the other parties): (i) except in certain limited circumstances, not issue,
sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of, any
additional shares of, or any options, warrants or rights of any kind to
acquire any shares of stock of Homestead, of any class or any debt or equity
securities convertible into or exchangeable for such stock, or amend or modify
the terms and conditions of any of the foregoing; (ii) not incur or become
contingently liable with respect to any indebtedness for borrowed money or
enter into any contract or arrangement with respect thereto; and (iii) not
enter into any contract, arrangement or understanding relating to the
disposition of any property to be received from PTR, ATLANTIC or SCG, however,
it may purchase or acquire properties for use as extended-stay lodging
facilities with the consent of each of the other parties provided that the
funds therefor are loaned from SCG to Homestead at a rate of interest no
greater than the prime rate of interest as announced by Wells Fargo Realty
Advisors, Incorporated from time to time plus one-half of one percent.
Pursuant to the Merger Agreement, (i) each of PTR, ATLANTIC, SCG and
Homestead shall afford to each other party and their respective accountants,
counsel, financial advisors and other representatives full access during
normal business hours throughout the period prior to the Closing to all
properties, books, contracts, commitments and records of such party, as
appropriate and, during such period, shall furnish promptly to the other, (a)
a copy of each report, schedule and other document filed or received pursuant
to the requirements of federal or state securities laws or filed with the
Commission in connection with the transactions contemplated by the Merger
Agreement, (b) such other information concerning their respective businesses,
properties and personnel which are the subject of the Merger Agreement as
shall be reasonably requested, and (c) a writing indicating any change or
occurrence which may have any material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the properties which are the subject of the Merger
Agreement; (ii) PTR, ATLANTIC and Homestead shall file the Registration
Statement with the Commission as soon as is reasonably practicable after the
date of the Merger Agreement and shall use all reasonable efforts to have the
Registration Statement declared effective by the Commission as promptly as
practicable, and each of them shall also take any action required to be taken
under applicable state blue sky or securities laws in connection with the
Distribution; (iii) in the case of PTR and ATLANTIC, promptly take such action
as is necessary to obtain shareholder approval of the Merger Agreement and the
Transaction; (iv) in the case of PTR and ATLANTIC, use its best efforts to
obtain and deliver to the other certain letters from its principal executive
officers, directors, trustees and "affiliates" as defined under Rule 145 under
the Securities Act agreeing to certain restrictions on resale of Homestead
Securities received in the Transaction; (v) Homestead shall use its best
efforts to effect, at or before the Closing Date, authorization for quotation
or listing on a national securities exchange or interdealer quotation system
upon official notice of issuance, of the Homestead Securities to be issued in
connection with the Distribution; (vi) each of PTR, ATLANTIC, SCG and
Homestead shall cooperate and use its best efforts to take all actions, make
all filings, registrations and submissions, and do all things necessary and
advisable to consummate the Transaction, including, but not limited to,
obtaining all required consents, waivers and approvals from the Commission,
the Department of Justice and any other applicable government entity; (vii)
the parties shall consult with each other prior to issuing any press release
or any written public statement with respect to the Merger Agreement or the
Transaction and shall not issue any
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such press release or written public statement prior to review by the other
parties, except that prior review and approval shall not be required if, in
the reasonable judgment of the party seeking to issue such release or public
statement, prior review and approval would prevent the timely dissemination of
such release or public statement in violation of any applicable law, rule,
regulation or policy of a national securities exchange or interdealer
quotation system; (viii) SCG will vote all PTR Common Shares and all shares of
ATLANTIC Common Stock owned by it in favor of approval and adoption of the
Merger Agreement and the Transaction, provided, however, that SCG will not be
obligated to vote any such shares in favor of such matters in the event the
PTR Board or the ATLANTIC Board withdraws, modifies or amends its
recommendation; (ix) ATLANTIC shall file with the Commission as soon as is
reasonably practicable after the date of the Merger Agreement a registration
statement relating to an initial public offering (the "ATLANTIC IPO") of
shares of ATLANTIC Common Stock and shall use all reasonable efforts to have
such registration statement declared effective by the Commission as promptly
as practicable, and shall take any action required to be taken under
applicable state blue sky or securities laws in connection with the ATLANTIC
IPO and, in the event that the ATLANTIC Board determines that it is not
reasonably practicable to file a registration statement relating to the
ATLANTIC IPO, it shall give written notice as promptly as practicable to each
of PTR, SCG and Homestead; (x) each party agrees to maintain as confidential
certain information provided to the other parties during the negotiation of
the Merger Agreement and the Transaction; and (xi) SCG shall be responsible
for all amounts due to employees who will become employees of Homestead for
earned but unpaid salary, wages and benefits for periods prior to the Closing
Date.
Conditions to the Transaction. The respective obligations of each of the
parties to effect the Transaction are subject to a number of conditions,
including among others: (i) each other party shall have performed in all
material respects its agreements contained in the Merger Agreement required to
be performed on or prior to the Closing Date and all representations and
warranties of such party shall be true and correct in all material respects on
and as of the date made and the Closing Date; (ii) the Merger Agreement and
the Transaction shall have been approved and adopted by the shareholders of
each of PTR and ATLANTIC; (iii) the PTR Board and the ATLANTIC Board shall
have each declared the dividend contemplated by the Distribution; (iv) the
Registration Statement shall have become effective and no stop order
suspending such effectiveness shall have been issued and remain in effect and
no proceeding shall have been initiated or threatened by the Commission; (v)
each of ATLANTIC and PTR shall have received either an opinion of Mayer, Brown
& Platt or a ruling from the IRS to the effect that, for United States Federal
income tax purposes, the Mergers constitute a transaction subject to Section
351 or the reorganization provisions of the Code and related provisions; (vi)
no preliminary or permanent injunction or other order or decree by any federal
or state court which prevents the consummation of the Transaction shall have
been issued or taken and remain in effect (each party agreeing to use its best
efforts to have any such injunction, order or decree lifted); (vii) all
governmental consents, orders and approvals legally required for the
consummation of the Transaction shall have been obtained and be in effect at
the Closing Date, and such consents, orders and approvals shall have become
final; (viii) the waiting period applicable to the consummation of the
Transaction under the HSR Act shall have expired or been terminated; (ix) the
Homestead Warrants shall have been issued pursuant to the Warrant Purchase
Agreement; (x) ATLANTIC shall have contributed $18.6 million (subject to
adjustment as provided in the Merger Agreement) in cash to one of its
subsidiaries being merged into Homestead and such subsidiary shall not have
encumbered or otherwise disposed of such funds; (xi) the registration
statement in connection with the ATLANTIC IPO, if filed with the Commission,
shall have been declared effective by the Commission or withdrawn by ATLANTIC,
or if such registration statement has not been filed, ATLANTIC shall have
given notice that it does not intend to proceed with the ATLANTIC IPO; (xii)
each of PTR, ATLANTIC and SCG shall have forgiven all indebtedness of their
respective subsidiaries being merged into Homestead (other than the existing
convertible mortgage loans); and (xiii) all material consents from third
parties necessary to consummate the Transaction shall have been obtained.
In addition to the conditions set forth above, the obligations of ATLANTIC
to effect the Transaction are subject to the following conditions: (i) the
receipt of a written legal opinion from Munger, Tolles & Olson, special
counsel to the PTR Special Committee, as to certain legal matters; (ii) the
receipt of a written legal opinion from Mayer, Brown & Platt as to certain
legal matters; (iii) the receipt by the ATLANTIC Special Committee from an
investment banking firm of an opinion to the effect that, as of the date of
this Proxy
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Statement and Prospectus, the consideration to be paid to ATLANTIC in
connection with the transactions contemplated by the Merger Agreement and by
the Related Agreements (as defined in the Merger Agreement) was fair, from a
financial point of view, to ATLANTIC's shareholders (other than SCG), which
opinion shall not have been withdrawn, revoked or modified; (iv) the Homestead
Securities to be issued in connection with the Distribution shall have been
authorized for quotation or listing on a national securities exchange or an
interdealer quotation system upon official notice of issuance; (v) the receipt
from Homestead of the executed Funding Commitment Agreement described below;
(vi) the receipt from Homestead of the executed ATLANTIC Investor Agreement
described below; (vii) the receipt of the executed Protection of Business
Agreement described below from each of PTR, Homestead and SCG; (viii) the
receipt of "comfort letters" in form and substance reasonably satisfactory to
ATLANTIC from the independent certified public accountants of PTR, Homestead
and SCG; (ix) no governmental consent, order or approval legally required to
consummate the Transaction shall have any terms which, in the reasonable
judgment of ATLANTIC, when taken together with the terms of all such consents,
orders or approvals, would materially impair the value of the Transaction to
ATLANTIC; (x) no governmental authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations,
would materially impair the value of the Transaction to ATLANTIC; and (xi) the
receipt of an opinion from Mayer, Brown & Platt to the effect that the
performance of the Merger Agreement shall not jeopardize the status of
ATLANTIC as a REIT.
In addition to the conditions set forth above, the obligations of PTR to
effect the Transaction are subject to the following conditions: (i) the
receipt of written legal opinions from King & Spalding, special counsel to the
ATLANTIC Special Committee, as to certain legal matters; (ii) the receipt of a
written legal opinion from Mayer,
Brown & Platt as to certain legal matters; (iii) the receipt by the PTR
Special Committee from an investment banking firm of an opinion to the effect
that, as of the date of this Proxy Statement and Prospectus, the aggregate
consideration to be received by PTR pursuant to the Merger Agreement in
exchange for the PTR properties and the agreement by PTR to enter into the
Funding Commitment Agreement was fair to PTR, which opinion shall not have
been withdrawn, revoked or modified; (iv) the Homestead Securities to be
issued in connection with the Distribution shall have been authorized for
quotation or listing on a national securities exchange or an interdealer
quotation system upon official notice of issuance; (v) the receipt from
Homestead of the executed Funding Commitment Agreement described below; (vi)
the receipt from Homestead of the executed PTR Investor Agreement described
below; (vii) the receipt of the executed Protection of Business Agreements
described below from each of ATLANTIC, SCG and Homestead; (vii) the receipt of
"comfort letters" in form and substance reasonably satisfactory to PTR from
the independent certified public accountants of ATLANTIC, Homestead and SCG;
(ix) no governmental consent, order or approval legally required to consummate
the Transaction shall have any terms which, in the reasonable judgment of PTR,
when taken together with the terms of all such consents, orders or approvals,
would materially impair the value of the Transaction to PTR; (x) no
governmental authority shall have promulgated any statute, rule or regulation
which, when taken together with all such promulgations, would materially
impair the value of the Transaction to PTR; and (xi) the receipt of an opinion
from Mayer, Brown & Platt to the effect that the performance of the Merger
Agreement shall not jeopardize the status of PTR as a REIT.
In addition to the conditions set forth above, the obligations of SCG to
effect the Transaction are subject to the following conditions: (i) the
receipt of a written legal opinion from Munger, Tolles & Olson as to certain
legal matters; (ii) the receipt of a written legal opinion from King &
Spalding as to certain legal matters; (iii) the receipt of "comfort letters"
in form and substance reasonably satisfactory to SCG from the independent
certified public accountants of ATLANTIC, PTR and Homestead; (iv) the receipt
from Homestead of the executed SCG Investor Agreement and the executed
Administrative Services Agreement described below; (v) the receipt of the
executed Protection of Business Agreement described below from each of PTR,
ATLANTIC and Homestead; (vi) no governmental consent, order or approval
legally required to consummate the Transaction shall have any terms which, in
the reasonable judgment of SCG, when taken together with the terms of all such
consents, orders or approvals, would materially impair the value of the
Transaction to SCG; and (vii) no governmental authority shall have promulgated
any statute, rule or regulation which, when taken together with all such
promulgations, would materially impair the value of the Transaction to SCG.
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In addition to the conditions set forth above, the obligations of Homestead
to effect the Transaction are subject to the following conditions: (i) the
receipt of a written legal opinion from Munger, Tolles & Olson as to certain
legal matters; (ii) the receipt of a written legal opinion from King &
Spalding as to certain legal matters; (iii) the receipt of a written legal
opinion from Mayer, Brown & Platt as to certain legal matters; (iv) the
receipt of letters from affiliates of ATLANTIC and PTR relating to the
restrictions on transferability of the Homestead Securities to be received in
the Transaction pursuant to Rule 145 promulgated under the Securities Act; (v)
the receipt from PTR and ATLANTIC of the executed Funding Commitment
Agreements described below; (vi) the receipt from ATLANTIC and PTR of the
executed ATLANTIC and PTR Investor Agreements described below; (vii) the
receipt of "comfort letters" in form and substance reasonably satisfactory to
Homestead from the independent certified public accountants of ATLANTIC, PTR
and SCG; (viii) the receipt of the executed SCG Investor Agreement and the
executed Administrative Services Agreement described below; (ix) the receipt
of the executed Protection of Business Agreement described below from each of
ATLANTIC, PTR and SCG; (x) the receipt from SCG of the executed Escrow
Agreement described below; (xi) the delivery by SCG of an assignment of the
Homestead Village trademark; (xii) no governmental consent, order or approval
legally required to consummate the Transaction shall have any terms which, in
the reasonable judgment of Homestead, when taken together with the terms of
all such consents, orders or approvals, would materially impair the value of
the Transaction to Homestead; and (xiii) no governmental authority shall have
promulgated any statute, rule or regulation which, when taken together with
all such promulgations, would materially impair the value of the Transaction
to Homestead.
Termination. The Merger Agreement may be terminated at any time prior to the
Closing (i) by mutual consent of PTR, ATLANTIC, SCG and Homestead; (ii) by any
of PTR, ATLANTIC, SCG or Homestead after December 31, 1996, if the Transaction
has not been consummated on or before such date (so long as the party
terminating has not breached its obligations under the Merger Agreement except
for such breaches that are immaterial); (iii) unilaterally by any of PTR,
ATLANTIC, SCG or Homestead if (a) any other party fails to perform any
covenant or agreement in the Merger Agreement in any material respect and does
not cure such failure in all material respects within 15 business days after
receipt of written notice of the alleged failure from another party, (b) any
other party fails to fulfill or complete a condition to the obligations of
that party (which condition is not waived) by reason of a breach by that party
of its obligations in the Merger Agreement or (c) any condition to the
obligations of any other party is not satisfied (other than by reason of a
breach by that party of its obligations under the Merger Agreement), and it
reasonably appears that the condition cannot be satisfied prior to December
31, 1996; (iv) unilaterally by any of PTR, SCG or Homestead if ATLANTIC,
through the ATLANTIC Board or the ATLANTIC Special Committee, either fails to
recommend to ATLANTIC's shareholders the approval of the Merger Agreement and
the Transaction or withdraws, modifies or amends such recommendation; and (v)
unilaterally by any of ATLANTIC, SCG or Homestead if PTR, through the PTR
Board or the PTR Special Committee, either fails to recommend to PTR's
shareholders the approval of the Merger Agreement and the Transaction or
withdraws, modifies or amends such recommendation.
In the event of termination of the Merger Agreement by any party as provided
above, the Merger Agreement will become void and there will be no further
obligation on the part of any party or their respective officers and trustees
or directors (except as set forth in certain provisions of the Merger
Agreement, including the expense reimbursement and termination fees described
under "--Expenses"). However, in the event that termination is pursuant to
clauses (iv) or (v) in the previous paragraph, ATLANTIC or PTR, as the case
may be, shall pay to each of the other parties all of the documented, out-of-
pocket expenses incurred by such parties after execution of the Merger
Agreement in connection with the transactions contemplated thereby.
Amendment and Waiver. Subject to applicable law, the Merger Agreement may be
amended by the written agreement of PTR, ATLANTIC, SCG and Homestead. However,
the Merger Agreement may not be amended in any material respect subsequent to
obtaining the approval of the shareholders of PTR and ATLANTIC. Each of PTR,
ATLANTIC, SCG and Homestead may unanimously agree to (a) extend the time for
the performance of any of the obligations or other acts of the parties
thereto, (b) waive any inaccuracies in the representations and warranties
contained therein and or in any document delivered pursuant thereto, and (c)
waive compliance with any of the agreements or conditions contained therein.
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Indemnification. Each party has agreed to indemnify and hold harmless the
other parties (other than SCG) from and against losses incurred by such party
as a result of any breach of, or inaccuracy in, any of its representations and
warranties or agreements contained in the Merger Agreement. The
indemnification obligations of PTR, ATLANTIC and SCG are subject to a maximum
amount equal to the aggregate fair market value (based on the first sale price
of the Homestead Securities if trading in such securities has occurred) of the
Homestead Securities received by such party. The indemnification obligations
of Homestead shall not exceed, in the aggregate, the fair market value (based
on the first sale price of the Homestead Securities if trading in such
securities has occurred) of all of the Homestead Securities issued in
connection with the Transaction. The obligations to indemnify terminate two
years after the Distribution and may be invoked only in the event of losses
that exceed $200,000, in which event the indemnification will cover all losses
(including the initial amount).
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 owing, 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 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
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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 plan approved by stockholders) and (viii) the incurrence,
restructuring, renegotiation or repayment of indebtedness for borrowed money
(including guarantees) 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, include 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 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.
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. PTR and ATLANTIC will provide Homestead
aggregate funding for developments in the amounts of up to $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 $144 million and $98
million, 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 fund up to the full amount of
its obligation with respect to such property. Homestead is required to
endeavor in good faith 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 loans
are scheduled to mature on October 31, 2006, and are not callable until five
years after the Closing Date. Homestead has pledged the assets being
contributed by PTR as collateral for the mortgage loans being made by PTR, and
it has pledged the assets being contributed by ATLANTIC as collateral for the
mortgage loans being made by ATLANTIC.
48
<PAGE>
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, include 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 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 of the convertible mortgage notes 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.
ADMINISTRATIVE SERVICES AGREEMENT
Upon the consummation of the Transaction, 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 are expected to 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
agreement will be for an initial term expiring on December 31, 1996 and will
be automatically 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 directors of the annual compensation payable to SCG for services
rendered to Homestead.
ESCROW AGREEMENT
Pursuant to an escrow agreement to be dated the Closing Date (the "Escrow
Agreement") among Homestead, SCG and the 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, the
Escrow Agent will release to Homestead all of the shares of Homestead Common
Stock remaining in the escrow account. All 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
49
<PAGE>
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.
REGULATORY FILINGS AND APPROVALS
Consummation of the Transaction is subject to the provisions of the HSR Act,
for which early termination of the applicable waiting period was granted on
June 14, 1996. Pursuant to the Merger Agreement, each of PTR, ATLANTIC, SCG
and Homestead may terminate the Merger Agreement if (i) any governmental
consent, order or approval legally required for the consummation of the
Transaction has not been obtained and in effect on the Closing Date or (ii)
any governmental consent, order or approval legally required for the
consummation of the Transaction shall have any terms, which in the reasonable
judgement of PTR, ATLANTIC, SCG or Homestead, respectively, would materially
impair the value of the Homestead Securities to be received by PTR, ATLANTIC
or SCG, respectively, or the value to Homestead of the Transaction.
RESTRICTIONS ON SALES BY AFFILIATES
The Homestead Securities to be issued in the Transaction will have been
registered under the Securities Act. Such shares will be freely transferable
under the Securities Act, except for shares issued to any person who may be
deemed to be an affiliate (as such term is defined for purposes of Rule 145
under the Securities Act, an "Affiliate") of ATLANTIC or PTR. Affiliates,
including SCG, may not sell their Homestead Securities acquired in connection
with the Transaction except pursuant to (i) an effective registration
statement under the Securities Act covering such shares, (ii) paragraph (d) of
Rule 145 or (iii) any other applicable exemption under the Securities Act.
Each of PTR and ATLANTIC has agreed to use its best efforts to procure written
agreements ("Affiliate Agreements") from executive officers, directors,
trustees and other Affiliates containing appropriate representations and
commitments intended to ensure compliance with the Securities Act.
ACCOUNTING TREATMENT
Since PTR will own over 50% of Homestead immediately after the Mergers, the
Transaction will be recorded by PTR as: (i) the formation of Homestead as a
wholly-owned subsidiary into which the PTR-Homestead Village Group assets will
be transferred at historical cost; (ii) the acquisition of Homestead Village
net assets of ATLANTIC and SCG (at fair value) for Homestead Securities using
the purchase method of accounting; and (iii) a reduction of shareholders'
equity to reflect the distribution of Homestead Securities owned by PTR to
PTR's shareholders. The historical financial statements of PTR-Homestead
Village Group will become the predecessor of Homestead and the operations of
the SCG-Homestead Village Group and the Atlantic-Homestead Village Group will
be included from the date of acquisition. For a description of certain terms
used in this paragraph, refer to the combined historical financial statements
included in the Homestead Prospectus attached hereto.
EXPENSES
The Merger Agreement provides that, whether or not the Transaction is
consummated, all expenses incurred in connection with the Merger Agreement and
the Transaction will be paid by the party incurring such expenses, except that
(i) expenses incurred in connection with filing, printing and distributing
this Proxy Statement and Prospectus will be paid 63.64%, 28.18% and 8.18% by
PTR, ATLANTIC and SCG, respectively, (ii) all costs relating to the ATLANTIC
IPO will be paid by ATLANTIC, (iii) all taxes payable by reason of the
Transaction will be paid 63.64%, 28.18% and 8.18% by PTR, ATLANTIC and SCG,
respectively and (iv) the filing fees payable in connection with the filings
under the HSR Act will be paid by SCG. See "Expenses of Solicitation."
DISSENTERS' RIGHTS
Holders of PTR Common Shares are not entitled to dissenters' rights in
connection with the Transaction.
50
<PAGE>
BOARD RECOMMENDATION
THE PTR BOARD, BY UNANIMOUS VOTE OF TRUSTEES WHO WERE PRESENT AT THE
MEETING, APPROVED THE MERGER AGREEMENT AND THE TRANSACTION AND RECOMMENDS THAT
PTR SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTION. THE AFFIRMATIVE VOTE OF THE HOLDERS OF TWO-THIRDS OF THE
OUTSTANDING PTR COMMON SHARES IS REQUIRED TO APPROVE AND ADOPT THIS PROPOSAL.
AMENDMENT TO THE PTR DECLARATION OF TRUST
(PROPOSAL 2)
The PTR Declaration of Trust contains certain provisions which would
prohibit the Transaction from being completed. Article 1, Section 5(g) of the
PTR Declaration of Trust currently limits the ability of PTR to make mortgage
loans to an affiliate unless an appraisal is obtained from a qualified
independent appraiser. Pursuant to the terms of the Merger Agreement and the
Funding Commitment Agreements, PTR will be obligated to make convertible
mortgage loans to Homestead, upon consummation of the Transaction, to finance
the development of certain properties being contributed by PTR to Homestead.
It is contemplated that these mortgage loans will be made without first
obtaining an appraisal from a qualified independent appraiser.
In addition, Article 1, Section 6(a) of the PTR Declaration of Trust
currently restricts PTR from selling properties to the PTR REIT Manager, a
sponsor of PTR, trustees or affiliates thereof. Other transactions with
affiliates are also restricted but allow PTR to enter into such transactions
with the approval of a majority of the PTR Board, including the approval of a
majority of the independent trustees. It is arguable that the Transaction
could be considered the sale of properties to an affiliate.
Since the PTR Board has approved the Transaction, the PTR Board has
determined to amend the PTR Declaration of Trust in order to be able to enter
into various obligations contemplated by the Merger Agreement. This amendment
will only apply to the Transaction. The provisions of the PTR Declaration of
Trust governing transactions with affiliates will not otherwise be affected.
See "Information Concerning PTR--PTR Policies with Respect to Certain
Activities." Therefore, in order to facilitate certain continuing obligations
of PTR after the consummation of the Transaction, such as the making of
convertible mortgage loans, shareholders are being asked to consider and vote
upon the following amendment to the PTR Declaration of Trust:
"ARTICLE 9. HOMESTEAD TRANSACTION
Notwithstanding anything to the contrary contained herein, including,
without limitation, the provisions of Article 1 and Article 4 of this
Declaration of Trust, the Trust shall be authorized to perform all of
its obligations and exercise all of its rights under the terms of that
certain Merger and Distribution Agreement, dated as of May 21, 1996 (as
such agreement may be amended or supplemented from time to time, the
"Merger Agreement"), among the Trust, Security Capital Atlantic
Incorporated, Security Capital Group Incorporated and Homestead Village
Properties Incorporated and each of the other agreements and
transactions contemplated thereby, including, without limitation, the
following agreements (as each of such agreements are defined in the
Merger Agreement) and the transactions contemplated by such agreements:
(i) Articles of Merger; (ii) Warrant Purchase Agreement; (iii) one or
more Funding Commitment Agreements (including, without limitation, any
notes and mortgages or deeds of trust in connection therewith); (iv)
Investor and Registration Rights Agreement; (v) Protection of Business
Agreement; and (vi) Distribution Agency Agreement."
THE PTR BOARD, BY UNANIMOUS VOTE OF TRUSTEES WHO WERE PRESENT AT THE
MEETING, APPROVED THE AMENDMENT TO THE PTR DECLARATION OF TRUST AND RECOMMENDS
A VOTE "FOR" THE PROPOSAL TO AMEND THE PTR DECLARATION OF TRUST. The
affirmative vote of the holders of two-thirds of the outstanding PTR Common
Shares is required to approve and adopt this proposal.
51
<PAGE>
THE SPECIAL MEETING
PURPOSE OF THE MEETING
At the PTR Special Meeting, the holders of PTR Common Shares will be asked
to (i) consider and vote upon a proposal to approve and adopt the Merger
Agreement and the Transaction and (ii) consider and vote upon an amendment to
the PTR Declaration of Trust necessary to consummate the Transaction. A copy
of the Merger Agreement is attached as Annex I hereto and is incorporated
herein by reference and a copy of the Homestead Prospectus is attached hereto
and is incorporated herein by reference.
DATE, TIME AND PLACE; RECORD DATE
The PTR Special Meeting is scheduled to be held at 10:00 a.m., local time,
on Thursday, September 12, 1996, at PTR's executive offices at 7777 Market
Center Avenue, El Paso, Texas. The PTR Board has fixed the close of business
on August 12, 1996 as the record date (the "PTR Record Date") for the
determination of holders of PTR Common Shares entitled to notice of and to
vote at the PTR Special Meeting. On August 1, 1996, there were 72,392,081 PTR
Common Shares outstanding and PTR had approximately 3,200 record holders. As
of August 1, 1996, SCG and PTR's trustees and executive officers beneficially
owned an aggregate of 27,622,084 shares or approximately 38.2% of the
outstanding PTR Common Shares. SCG has agreed, subject to certain conditions,
and each of such other persons has indicated his or her intent, to vote his or
her shares in favor of the Merger Agreement and the Transaction as well as in
favor of the amendment to the PTR Declaration of Trust. Therefore, the
affirmative vote of holders of approximately an additional 29% of the
outstanding PTR Common Shares will be required to approve the proposals.
VOTING RIGHTS
Assuming the existence of a quorum, the affirmative vote of the holders of
at least two-thirds of the outstanding PTR Common Shares is also required to
approve the Merger Agreement and the Transaction. The affirmative vote of the
holders of at least two-thirds of the outstanding PTR Common Shares is
required to approve and adopt the amendment to the PTR Declaration of Trust.
Holders of record of PTR Common Shares on the PTR Record Date are entitled to
one vote per share at the PTR Special Meeting. The presence, either in person
or by proxy, of the holders of a majority of the outstanding PTR Common Shares
is necessary to constitute a quorum at the PTR Special Meeting.
If a shareholder attends the PTR Special Meeting, he or she may vote by
ballot. However, since many shareholders may be unable to attend the PTR
Special Meeting, the PTR Board is soliciting proxies so that each holder of
PTR Common Shares on the PTR Record Date has the opportunity to vote on the
proposals to be considered at the PTR Special Meeting. When a proxy card is
returned properly signed and dated, the shares represented thereby will be
voted in accordance with the instructions on the proxy card. If a shareholder
does not return a signed proxy card, his or her shares will not be voted and
thus will have the effect of a vote against the amendment to the PTR
Declaration of Trust and the Merger Agreement and the Transaction. Similarly,
broker non-votes and abstentions will have the effect of a vote against the
amendment to the PTR Declaration of Trust and the Merger Agreement and the
Transaction. Shareholders are urged to mark the box on the proxy card to
indicate how their shares are to be voted. If a shareholder returns a signed
proxy card, but does not indicate how his or her shares are to be voted, the
shares represented by the proxy card will be voted "FOR" approval and adoption
of the amendment to the PTR Declaration of Trust and the Merger Agreement and
the Transaction. The proxy card also confers discretionary authority on the
individuals appointed by the PTR Board and named on the proxy card to vote the
shares represented thereby on any other matter that is properly presented for
action at the PTR Special Meeting.
Any PTR shareholder who executes and returns a proxy card may revoke such
proxy at any time before it is voted by (i) notifying in writing the Secretary
of PTR at 7777 Market Center Avenue, El Paso, Texas 79912, (ii) granting a
subsequent proxy or (iii) appearing in person and voting at the PTR Special
Meeting. Attendance at the PTR Special Meeting will not in and of itself
constitute revocation of a proxy.
OTHER MATTERS
PTR is not aware of any business or matter other than those indicated above
which may be properly presented at the PTR Special Meeting. If, however, any
other matter properly comes before the PTR Special Meeting, the proxy holders
will, in their discretion, vote thereon in accordance with their best
judgments.
52
<PAGE>
INFORMATION CONCERNING PTR
PTR HISTORICAL AND PRO FORMA SELECTED FINANCIAL INFORMATION
The following table sets forth (1) historical selected financial information
for the periods indicated and as of the dates indicated for PTR and (2)
unaudited pro forma selected financial information for the periods indicated
and as of the date indicated, giving effect to the Transaction and the actual
and pending acquisition of certain multifamily properties in 1996 (described
on page F-4 in this Proxy Statement and Prospectus), as if those had occurred
as of January 1, 1995 for the operations summary information and on March 31,
1996 for financial position information. Pro forma adjustments made to arrive
at the pro forma amounts set forth below are described in the PTR Pro Forma
Financial Information included elsewhere in this Proxy Statement. The
following information should be read in conjunction with and is qualified in
its entirety by the PTR Historical Financial Statements and related notes
thereto incorporated by reference into this Proxy Statement and Prospectus and
the PTR Pro Forma Financial Information and accompanying discussion and notes
set forth in the PTR Pro Forma Financial Information. The unaudited pro forma
selected financial information is intended for informational purposes and is
not necessarily indicative of the future financial position or future results
of operations of PTR or of the financial position or the results of operations
of PTR that would have actually occurred had the Transaction been completed as
of the date or for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------
PRO HISTORICAL PRO HISTORICAL
FORMA --------------- FORMA -----------------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
------- ------- ------- -------- --------- -------- -------- --------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental Income........... $78,096 $75,809 $53,517 $279,060 $ 262,473 $183,472 $ 76,129 $ 30,970 $ 14,721
Property Management Fees
Paid to Affiliates..... 2,687 2,754 1,895 9,216 8,912 7,148 3,862 1,424 148
General and
Administrative
Expenses............... 101 276 214 154 952 784 660 436 697
REIT Management Fee Paid
to Affiliate........... 4,962 5,555 3,957 18,580 20,354 13,182 7,073 2,711 793
Earnings from Operations
(1).................... 21,091 22,920 14,540 76,417 81,696 46,719 23,191 9,037 2,078
Gain (loss) on Sale of
Investments............ 2,923 2,923 -- 2,623 2,623 -- 2,302 (51) (611)
Preferred Share
Dividends Paid......... 6,388 6,388 4,025 21,823 21,823 16,100 1,341 -- --
Net Earnings
Attributable to Common
Shares................. 17,626 19,455 10,515 57,217 62,496 30,619 24,152 8,986 1,467
Common Share
Distributions Paid..... $22,437 $22,437 $14,506 $ 76,804 $ 76,804 $ 46,121 $ 29,162 $ 13,059 $ 4,179
PER SHARE DATA:
Net Earnings
Attributable to Common
Shares................. $ 0.24 $ 0.27 $ 0.20 $ 0.85 $ 0.93 $ 0.66 $ 0.66 $ 0.46 $ 0.21
Common Share
Distributions Paid..... 0.31 0.31 0.2875 1.15 1.15 1.00 0.82 0.70 0.64
Series A Preferred Share
Dividends Paid......... 0.4375 0.4375 0.4375 1.75 1.75 1.75 0.1458 -- --
Series B Preferred Share
Dividends Paid......... $0.5625 $0.5625 $ -- $ 1.363 $ 1.363 $ -- $ -- $ -- $ --
Weighted Average Common
Shares Outstanding..... 72,211 72,211 51,485 67,052 67,052 46,734 36,549 19,435 7,123
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------------- ------------------------------------------------
HISTORICAL
PRO FORMA HISTORICAL ------------------------------------------------
1996 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real Estate Owned, at
cost................... $1,926,796 $1,926,796 $1,855,866 $1,296,288 $872,610 $337,274 $117,572
Total Assets............ 2,018,275 1,889,934 1,840,999 1,295,778 890,301 342,235 141,020
Line of Credit.......... 185,539 36,250 129,000 102,000 51,500 54,802 101
Long-Term Debt.......... 350,000 350,000 200,000 200,000 -- -- --
Mortgages Payable....... 222,055 157,570 158,054 93,624 48,872 30,824 35,772
Total Liabilities....... 820,859 594,812 565,331 455,136 135,284 94,186 38,707
Shareholders' Equity.... $1,196,916 $1,295,122 $1,275,668 $ 840,642 $755,017 $248,049 $102,313
Number of Common Shares
Outstanding............ 72,211 72,211 72,211 50,456 44,645 27,034 13,161
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------------- --------------------------------------------------------------
PRO HISTORICAL PRO HISTORICAL
FORMA ------------------ FORMA ----------------------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
------- -------- -------- -------- --------- --------- --------- --------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net earnings
attributable to Common
Shares................. $17,626 $ 19,455 $ 10,515 $ 57,217 $ 62,496 $ 30,619 $ 24,152 $ 8,986 $ 1,467
Add (Deduct):
Depreciation........... 10,933 10,618 7,424 39,058 36,685 24,614 10,513 5,311 2,886
Provision for possible
loss on investments... -- -- 120 420 420 1,600 2,270 400 400
(Gain) loss on sale of
investments........... (2,923) (2,923) -- (2,623) (2,623) -- (2,302) 51 611
Other (primarily
provision for loss on
receivables).......... -- -- -- -- -- -- 83 174 40
------- -------- -------- -------- --------- --------- --------- --------- --------
Funds from Operations
Attributable to Common
Shares (2)............. $25,636 $ 27,150 $ 18,059 $ 94,072 $ 96,978 $ 56,833 $ 34,716 $ 14,922 $ 5,404
======= ======== ======== ======== ========= ========= ========= ========= ========
Net Cash Provided by
Operating Activities... $ 16,172 $ 12,016 $ 121,795 $ 94,625 $ 49,247 $ 20,252 $ 6,092
Net Cash Used by
Investing Activities... (61,095) (58,926) (294,488) (368,515) (529,065) (229,489) (33,553)
Net Cash Provided by
Financing Activities... 26,342 48,211 191,520 276,457 478,345 185,130 57,259
</TABLE>
53
<PAGE>
- --------
(1) Earnings from operations for the years ended December 31, 1995, 1994 and
1993 reflect a $420,000, a $1.6 million and $2.3 million provision,
respectively, for possible losses relating to investments in non-
multifamily properties.
(2) Funds from operations means net earnings computed in accordance with GAAP,
excluding gains (or losses) from debt restructuring and sales of property,
plus certain non-cash items, principally property depreciation, and after
adjustments for unconsolidated partnerships and joint ventures. PTR
believes that funds from operations is helpful in understanding a property
portfolio's ability to support interest payments and general operating
expenses. Funds from operations should not be considered as an alternative
to net earnings or any other GAAP measurement of performance as an
indicator of PTR's operating performance or as an alternative to cash
flows from operating, investing or financing activities as a measure of
liquidity. In July 1994, PTR changed to a more conservative policy of
expensing the amortization of loan costs in determining funds from
operations. For comparability, funds from operations has been restated to
give effect to this policy as if it had been in effect since January 1,
1991. The funds from operations measure presented by PTR may not be
comparable to other similarly titled measures of other REITs.
PTR SHARE PRICES
The PTR Common Shares are traded on the NYSE. There is no established public
trading market for the Homestead Common Stock. The following table sets forth,
for the periods indicated, the high and the low sale prices of the PTR Common
Shares, as reported on the NYSE Composite Tape by Compuserve, and the
distributions declared, for the periods indicated. Homestead has not paid any
dividends on its Common Stock and does not intend to pay any in the near
future.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTIONS
------- ------- -------------
<S> <C> <C> <C>
1994:
First Quarter............................. $21 5/8 $18 1/4 $0.250(1)
Second Quarter............................ 20 1/8 17 3/4 0.250
Third Quarter............................. 18 7/8 17 5/8 0.250
Fourth Quarter............................ 18 3/8 15 1/2 0.250
1995:
First Quarter............................. $18 3/8 $16 3/8 $0.2875(2)
Second Quarter............................ 18 1/8 16 5/8 0.2875
Third Quarter............................. 19 1/4 17 0.2875
Fourth Quarter............................ 20 1/2 17 1/4 0.2875
1996:
First Quarter............................. $22 1/8 $19 1/2 $0.310(3)
Second Quarter............................ 22 1/2 19 1/4 0.310
Third Quarter through August 1, 1996...... 21 3/4 20 1/2 --
</TABLE>
- --------
(1) Declared in the fourth quarter of 1993 and paid in the first quarter of
1994.
(2) Declared in the fourth quarter of 1994 and paid in the first quarter of
1995.
(3) Declared in the fourth quarter of 1995 and paid in the first quarter of
1996.
As of August 1, 1996, PTR had approximately 3,200 record holders of PTR
Common Shares. As of August 1, 1996, there were 1,000 shares of Homestead
Common Stock issued and outstanding, all of which were held of record by SCG.
PTR POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
Policies With Respect to Certain Activities. Subject to restrictions in the
PTR Declaration of Trust, the PTR Board may amend or revise PTR's policies
from time to time without a vote of the shareholders of PTR. The PTR Board
also reserves the right to make exceptions for transactions when it believes
that the transaction is in the best long-term interests of PTR and its
shareholders.
54
<PAGE>
Investment Policies. PTR evaluates investments based on its estimate of the
contribution of an investment to increased cash flow on an unleveraged basis.
PTR seeks to achieve long-term sustainable growth in cash flow by maximizing
the operating performance of its core portfolio through value added operating
systems and concentrating its experienced team of professionals on developing
and acquiring industry-leading product in targeted submarkets exhibiting
strong job growth and favorable demographic trends.
Prospective property investments are analyzed pursuant to several
underwriting criteria, including purchase price, competition and other market
factors, and prospects for long-term growth in cash flow. PTR's development or
acquisition decision is based upon the expected contribution of the property
to long-term cash flow growth on an unleveraged basis. The expected cash flow
contribution is based on an estimate of all cash revenues from leases and
other revenue sources, minus expenses incurred in operating the property
(generally real estate taxes, insurance, maintenance, personnel costs and
utility charges, but excluding depreciation, debt service and amortization of
loan costs) and a reserve for capital expenditures.
The PTR Declaration of Trust contains limitations on PTR's ability to make
certain investments. It is PTR's policy to generally limit its investments
such that (i) no more than 10% of its assets are invested in land held for
development other than land under development or where development is in
planning, (ii) PTR will not be treated as an investment company under the
Investment Company Act of 1940, and (iii) PTR does not invest in mortgage
loans, other than (a) mortgage loans to third party owner-developers in
connection with the development of multifamily properties that are
contractually required to be sold to PTR upon completion; (b) mortgage loans
to entities in which PTR owns a substantial majority of the economic interest;
(c) convertible mortgage loans to Homestead; and (d) other than mortgage loans
(convertible, participating or otherwise) where the PTR Board believes that
such loans are in the best long-term interests of PTR and its shareholders.
Financing Policies. The PTR Declaration of Trust provides that aggregate
borrowing of PTR, secured and unsecured, shall not be unreasonable in relation
to the net assets of PTR and shall be reviewed by the Trustees at least
quarterly. The PTR Declaration of Trust provides that the maximum amount of
such borrowing in relation to the net assets shall, in the absence of a
satisfactory showing that a higher level of borrowing is appropriate, not
exceed 300%. Any excess in borrowing over such 300% level shall be approved by
a majority of the Independent Trustees and disclosed to shareholders in the
next quarterly report of PTR, along with justification for such excess. The
term "net assets" means the total assets (other than intangibles) at cost,
before deducting depreciation or other non-cash reserves, less total
liabilities, calculated at least quarterly on a basis consistently applied.
PTR has an unsecured revolving line of credit for the purpose of
facilitating investment in developments and acquisitions as well as for
working capital. PTR may also from time to time determine to issue securities
senior to the PTR Common Shares, including preferred shares and debt
securities. PTR's financing policies guide it to replace revolving credit
borrowings with the proceeds of equity offerings or long-term, fixed rate,
fully amortizing debt. PTR does not intend to incur long-term, floating rate
debt other than in connection with property acquisitions in which the debt
assumed is impracticable to prepay or is tax-exempt debt.
Policies With Respect to Operating Expenses. The PTR Declaration of Trust
provides that Total Operating Expenses of PTR shall (in the absence of a
satisfactory showing to the contrary) not exceed in any fiscal year the
greater of: (a) 2% of the average of the aggregate book value of the assets of
PTR invested, directly or indirectly, in equity interests in and loans secured
by real estate, before reserves for depreciation or bad debts or other similar
non-cash reserves, computed by taking the average of such values at the end of
each month during such period; or (b) 25% of the Net Income of PTR for such
year. "Net Income" means total revenues applicable to such year, less the
expenses applicable to such year other than additions to reserves for
depreciation or bad debts or other similar non-cash reserves. For the purposes
of the foregoing, Net Income excludes the gain from the sale of PTR's assets.
"Total Operating Expenses" means all operating, general and administrative
expenses of PTR as determined under GAAP except the expenses of raising
capital, interest payments, taxes, non-cash expenditures and costs related
directly to asset acquisition, operation and disposition. The Independent
Trustees have the fiduciary responsibility of limiting such expenses to
amounts that do not exceed such limitations unless
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the Independent Trustees shall have made a finding that, based on such unusual
and non-recurring factors which they deem sufficient, a higher level of
expenses is justified for such year. Any such findings and the reasons in
support thereof shall be reflected in the minutes of the meeting of the
trustees. "Independent Trustee" means a trustee who (i) is not affiliated,
directly or indirectly, with the PTR REIT Manager, whether by ownership of,
ownership interest in, employment by, any material business or professional
relationship with, or service as an officer or director of, the PTR REIT
Manager or a business entity which is an affiliate of the PTR REIT Manager,
(ii) is not serving as a trustee or director for more than three real estate
investment trusts organized by a sponsor of PTR and (iii) performs no other
services for PTR, except as trustee.
The PTR Declaration of Trust provides that, within 60 days after the end of
any fiscal quarter of PTR for which Total Operating Expenses (for the 12
months then ended) exceeded 2% of average invested assets (as calculated
above) or 25% of Net Income, whichever is greater, there shall be sent to the
shareholders of PTR a written disclosure of such fact. If the Independent
Trustees find that such higher operating expenses are justified, such
disclosure shall be accompanied by an explanation of the facts the Independent
Trustees considered in arriving at the conclusion that such higher operating
expenses were justified. In the event that the Independent Trustees do not
determine such excess expenses are justified, the PTR REIT Manager shall
reimburse PTR for the amount by which the aggregate annual expenses paid or
incurred by PTR exceeded the limitations herein provided.
Conflict of Interest Policies. PTR does not intend to engage in principal
transactions with officers and trustees or to engage Independent Trustees to
provide services to PTR. In addition, transactions with the PTR REIT Manager
and its affiliates are significantly restricted and must be approved by a
majority of the Independent Trustees. PTR's policy is not to borrow from or
make loans to affiliates, other than mortgage loans to entities in which PTR
owns a substantial majority of the economic interest, convertible mortgage
loans to Homestead or mortgage loans (convertible, participating or otherwise)
where the PTR Board believes that such loans are in the best long-term
interests of PTR and its shareholders.
With a view to resolving potential conflicts of interest and protecting the
interests of PTR's shareholders against such possible conflicts, the PTR
Declaration of Trust requires that a majority of the PTR Board consist of
Independent Trustees. PTR's Independent Trustees are required to monitor the
performance of the PTR REIT Manager.
Policies Applicable to the PTR REIT Manager and Officers and Trustees of
PTR. The PTR REIT Manager has agreed in writing not to engage in any principal
transaction with PTR, including but not limited to purchases, sales or leases
of property or borrowing or lending of funds, except for transactions approved
by a majority of the Independent Trustees not otherwise interested in such
transaction as being fair and reasonable to PTR and on terms and conditions
not less favorable to PTR than those available from unaffiliated third
parties. The Transaction is currently prohibited by the terms of the PTR REIT
Management agreement, although the PTR REIT Manager and PTR have agreed to
waive this prohibition as it relates to the Transaction. Additionally, the PTR
Declaration of Trust currently prohibits PTR from selling property to a
sponsor, the PTR REIT Manager, a trustee, or affiliates thereof, although if
Proposal 2 is approved, such sales, to the extent that they are part of the
Transaction, would not be prohibited. See "Proposal to Amend the PTR
Declaration of Trust." The PTR Declaration of Trust further provides that PTR
shall not enter into any other principal transaction (including without
limitation the making of loans, borrowing money, or investing in joint
ventures) with a sponsor, the PTR REIT Manager, a trustee or affiliates
thereof, except for transactions approved by a majority of the Independent
Trustees not otherwise interested in such transaction as being fair and
reasonable to PTR and on terms and conditions not less favorable to PTR than
those available from unaffiliated third parties. In addition to the
requirements described above, PTR will not engage in such transactions unless
the Independent Trustees believe that any such transaction is in the long-term
best interests of PTR and its shareholders. The sole activity of the PTR REIT
Manager is managing PTR.
The PTR REIT Management agreement permits affiliates of the PTR REIT Manager
to provide property management and other services to PTR for compensation. The
fees charged for such services must be comparable
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to fees that would be charged by unaffiliated, qualified third parties. Any
property management or other fees for services provided by affiliates are
reviewed annually by the PTR Board and must be approved by a majority of the
Independent Trustees.
With certain exceptions, officers and employees of the PTR REIT Manager
spend all of their time on PTR's affairs. In the future, certain officers or
employees may be transferred to or from other affiliates of the PTR REIT
Manager, consistent with the PTR REIT Manager's plan for management depth and
orderly succession.
Under the law of Maryland (where PTR is organized), each trustee is
obligated to offer to PTR any opportunity (with certain limited exceptions)
which comes to him and which PTR could reasonably be expected to have an
interest in developing. In addition, under Maryland law, any contract or
transaction between PTR and any trustee or any entity in which the trustee has
a material financial interest is voidable unless (i) it is approved, after
disclosure of the interest, by the affirmative vote of a majority of
disinterested trustees or by the affirmative vote of a majority of the votes
cast by disinterested shareholders or (ii) it is fair and reasonable to PTR.
Policies with Respect to Other Activities. PTR may, but does not presently
intend to, make investments other than as previously described. All
investments will be primarily related to multifamily properties and the
management and development thereof. PTR has authority to issue senior
securities, to offer PTR Common Shares or other securities and to repurchase
or otherwise reacquire PTR Common Shares or any other securities and may
engage in such activities in the future. PTR has not made, and does not intend
to make, loans to affiliates, other than mortgage loans to entities in which
it owns a substantial majority of the economic interest, convertible mortgage
loans to Homestead and convertible mortgage loans where the PTR Board believes
that such loans are in the best long-term interest of PTR and its
shareholders. PTR will not make loans to its officers and trustees or to the
PTR REIT Manager. PTR may in the future make loans to partnerships, joint
ventures or other entities in which it participates in order to meet working
capital needs. PTR has not engaged in trading, underwriting or agency
distribution or sale of securities of other issuers and does not intend to do
so. PTR does not intend to engage in the purchase or sale of properties (other
than acquisition or disposition of properties in accordance with the REIT
rules and PTR's investment policies) and may on a selected basis in the future
offer securities in exchange for properties. PTR makes annual and quarterly
reports to shareholders. The annual reports contain audited financial
statements.
At all times, PTR intends to make investments in such a manner as to be
consistent with the requirements of the Code for PTR to qualify as a REIT
unless, because of changing circumstances or changes in the Code (or in
regulations thereunder), the PTR Board determines that it is no longer in the
best interests of PTR to qualify as a REIT.
COMPARISON OF RIGHTS OF HOLDERS OF
PTR COMMON SHARES AND HOMESTEAD COMMON STOCK
PTR is a real estate investment trust formed under Title 8 of the
Corporations and Associations Article of the Annotated Code of Maryland (the
"Maryland REIT Law"). The rights of holders of PTR Common Shares are governed
by the Maryland REIT Law and the PTR Declaration of Trust and Bylaws.
Homestead is a corporation incorporated under the Maryland General Corporation
Law (the "MGCL"). The rights of holders of Homestead Common Stock are governed
by the MGCL and by the Homestead charter (the "Homestead Charter") and Bylaws.
The Maryland REIT Law does not address many issues that are addressed in the
MGCL, e.g., calling of special meetings of shareholders, shareholder quorum
and voting requirements, fixing of record dates, standards for dividends and
other distributions, trustee conflicts of interest and amendment of bylaws.
Many of these matters are addressed in the PTR Declaration of Trust and
Bylaws.
The rights of Homestead shareholders will differ in some respects from the
rights of PTR shareholders. A summary of these differences is set forth below.
The following summary does not purport to be a complete statement of the
rights of holders of PTR Common Shares under applicable Maryland law, the PTR
Declaration
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of Trust and Bylaws or a comprehensive comparison with the rights of the
holders of Homestead Common Stock under applicable Maryland law, the Homestead
Charter and Bylaws or a complete description of the provisions referred to
herein. The identification of specific differences is not meant to indicate
that other equally or more significant differences do not exist. This summary
is qualified in its entirety by reference to the Maryland REIT Law and the PTR
Declaration of Trust and Bylaws and to the MGCL and the Homestead Charter and
Bylaws, to which prospective holders of Homestead Common Stock are referred.
PREFERRED SHARES
Subject to limitations prescribed by Maryland law and the PTR Declaration of
Trust and the Homestead Charter, the PTR Board is authorized to reclassify and
issue from the authorized but unissued shares of beneficial interest of PTR,
and the Homestead Board is authorized to reclassify and issue from the
authorized but unissued shares of stock of Homestead, as applicable, preferred
shares in series and to establish from time to time the number of preferred
shares to be included in such series and to fix the designation and any
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and terms
and conditions of redemption of the shares of each series, and such other
subjects or matters as may be fixed by resolution of the PTR Board or
Homestead Board or duly authorized committees thereof. On August 1, 1996, PTR
had 9,051,000 of its Series A Preferred Shares issued and outstanding and held
of record by approximately 100 shareholders and had 4,200,000 of its Series B
Preferred Shares issued and outstanding and held of record by approximately
300 shareholders. Homestead has no shares of preferred stock outstanding.
RESTRICTIONS ON TRANSFER AND REDEMPTION OF SHARES
The PTR Declaration of Trust contains provisions governing the number of
shares that its shareholders may beneficially own. The PTR Declaration of
Trust restricts beneficial ownership of PTR's outstanding shares by a single
person, or persons acting as a group, to 9.8% of the outstanding PTR Common
Shares, except that for SCG, the ownership limitation is 49%. Beneficial
ownership of PTR Common Shares includes PTR Common Shares which a person may
acquire upon conversion of the Series A Preferred Shares. The purposes of
these provisions are to assist in protecting and preserving PTR's REIT status
and to protect the interest of shareholders in takeover transactions by
preventing the acquisition of a substantial block of shares unless the
acquiror makes a cash tender offer for all outstanding shares. While these
provisions are included in order to allow PTR to more effectively preserve its
REIT status under the Code, they may also have the effect of making an
attempted takeover of PTR more difficult for an acquiror.
The Homestead Charter contains no similar provisions.
DISSENTERS' RIGHTS
Under the Maryland REIT Law, a shareholder of a Maryland trust REIT has the
same right to demand and receive the fair market value of his or her shares as
is available to a stockholder under the MGCL but only in connection with
certain mergers and certain acquisitions and upon compliance by the
shareholder with certain procedures.
Under the MGCL, a stockholder of a Maryland corporation has the right, in
connection with certain mergers, sales of all or substantially all the assets
or other transactions, to demand and receive the fair value (excluding any
appreciation or depreciation resulting from the transaction) of his or her
stock if the stockholder complies with certain procedures. Under the MGCL, the
amount to be received by dissenters for their stock may be determined by
agreement between the dissenters and the corporation or, if the corporation
and the dissenters are unable to agree, the corporation or the dissenters may
petition a court for an appraisal of the fair value of the stock. Dissenters'
rights are not generally available with respect to stock listed on a national
securities exchange or on the National Association of Securities Dealers
Automated Quotation System.
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AMENDMENTS TO THE PTR DECLARATION OF TRUST AND THE HOMESTEAD CHARTER
The PTR Board, by a two-thirds vote, may amend the provisions of the PTR
Declaration of Trust from time to time, without a vote of shareholders, to
qualify PTR as a REIT under the Code or the Maryland REIT Law. Except as set
forth in the preceding sentence, the PTR Declaration of Trust may be amended
only by the affirmative vote or written consent of the holders of not less
than two-thirds of the PTR Common Shares then outstanding.
The Homestead Charter may be amended only upon the approval of the
stockholders by the affirmative vote of a majority of the total number of
votes entitled to be cast on the matter.
AMENDMENTS TO THE BYLAWS
The PTR Declaration of Trust provides that the PTR Bylaws may be altered,
amended or repealed and new Bylaws may be adopted, at any meeting of the PTR
Board by a majority vote of the trustees, subject to repeal or change by
action of the shareholders of PTR entitled to vote thereon.
As permitted by the MGCL, the Homestead Charter and Bylaws vest exclusive
power to amend, alter or repeal the Bylaws in the Homestead Board.
TERMINATION
The PTR Declaration of Trust permits the termination of PTR by the
affirmative vote or written consent of the holders of a majority of the
outstanding shares of all classes of beneficial interest of PTR.
The MGCL provides that a Maryland corporation may be dissolved, after
approval by a majority of the entire board of directors, only upon the
affirmative vote of two-thirds of all the votes entitled to be cast on the
matter.
TRUSTEES AND DIRECTORS
The Maryland REIT Law does not set forth the duties of trustees of a
Maryland real estate investment trust such as PTR. The MGCL provides that a
director of a Maryland corporation such as Homestead shall perform his duties
in good faith, in a manner he reasonably believes to be in the best interests
of the corporation and with the care of an ordinarily prudent person in a like
position under similar circumstances.
The PTR Declaration of Trust provides that the number of trustees cannot be
less than three nor more than fifteen with the actual number of trustees to be
determined from time to time by resolution of the trustees then in office. The
PTR Board has set the current number of trustees at seven. The term of office
of each trustee is one year and until the election and qualification of his or
her successor. Trustees may succeed themselves in office. Trustees must be
individuals who are at least 21 years old and not under legal disability. A
majority of the trustees may not be affiliated with PTR's REIT Manager or with
any of its affiliates. A trustee is required to have at least three years of
relevant experience demonstrating the knowledge and experience required to
successfully acquire and manage the type of assets being acquired by PTR.
The Homestead Charter provides that the initial number of directors shall be
three, which number may be increased or decreased from time to time by a vote
of a majority of the entire Homestead Board. See "Information Concerning
Homestead--Certain Relationships and Transactions--SCG Investor Agreement" in
the Homestead Prospectus attached hereto. The directors are 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 in
1998, a second class will be elected to hold office for a term expiring at the
annual meeting of shareholders in 1999 and a third class will be elected to
hold office for a term expiring at the annual meeting of shareholders in 2000.
Each director will hold office for the term to which he or she is elected and
until his or her
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successor is duly elected and qualifies. At each annual meeting of Homestead
shareholders, the successors to the class of directors whose terms expire at
such meeting will be elected to hold office for a term of three years.
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 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 their respective
affiliates, except as director or trustee.
REMOVAL OF TRUSTEES AND DIRECTORS
The PTR Declaration of Trust provides that a trustee may be removed, with or
without cause, by the vote of the holders of two-thirds of the outstanding PTR
Common Shares or by vote of two-thirds of the trustees then in office (which
action shall be taken only by vote at a meeting and not by authorization
without a meeting).
The MGCL provides that any director of a corporation may be removed, with or
without cause, by the stockholders by the affirmative vote of a majority of
all votes entitled to be cast for the election of directors.
VACANCIES AMONG TRUSTEES AND DIRECTORS
Vacancies on the PTR Board (including vacancies resulting from an increase
in the number of trustees) will be filled either at a special meeting of
shareholders called for that purpose or at the next annual meeting of
shareholders. Trustees elected at special meetings of shareholders to fill
vacancies shall hold office until the next annual meeting of shareholders.
Independent Trustees are required to nominate replacements for vacancies
amongst the Independent Trustees' positions.
The MGCL provides that unless the charter or bylaws of a corporation provide
otherwise, newly created directorships resulting from an increase in the
number of directors may be filled by a majority of the entire board of
directors, and vacancies on the board that result from any other cause may be
filled by a majority of the remaining directors. Vacancies on the board
resulting from the removal of a director by the shareholders may also be
filled by the shareholders. The Homestead Bylaws provide that 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.
LIMITATION ON TRUSTEE AND DIRECTOR LIABILITY
The Maryland REIT Law permits a Maryland trust REIT's declaration of trust
to contain any provision limiting the liability of trustees and officers of
the REIT for money damages to the REIT and its shareholders except (i) to the
extent that it is proved that the person actually received an improper benefit
or profit in money, property or services, for the amount of the benefit or
profit or (ii) to the extent that a judgment or other final adjudication
adverse to the person is entered in a proceeding based on a finding in the
proceeding that the person's action or failure to act was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated
in the proceeding. The PTR Declaration of Trust contains such a provision
which eliminates the liability of trustees and officers of PTR for monetary
damages for any act or omission by such person unless (i) the trustee or
officer actually received an improper benefit in money, property or services
(in which case, such liability shall be for the amount of the benefit in
money, property or services actually received), (ii) the trustee's or
officer's action or failure to act was the result of active and deliberate
dishonesty and was material to the cause of action being adjudicated, (iii)
the trustee's or officer's action or failure to act constitutes willful
misconduct or deliberate recklessness or (iv) such liability to PTR is
specifically imposed upon trustees or officers by statute.
The MGCL allows a corporation's charter to contain a provision limiting a
director's or an officer's personal liability to the corporation and its
shareholders for money damages except to the extent that (i) it is proved that
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the individual actually received an improper benefit or profit, for the amount
of such benefit or profit; or (ii) a judgment or other final adjudication
adverse to the individual is entered in a proceeding based on a finding in the
proceeding that the individual's action or failure to act was the result of
active and deliberate dishonesty and was material to the cause of action. The
Homestead Charter contains such a provision which limits the liability of its
directors and officers for money damages to the fullest extent permitted by
the MGCL.
SHAREHOLDER LIABILITY
Both the Maryland REIT Law and the PTR Declaration of Trust provide that
shareholders shall not be personally liable for the obligations of PTR. The
PTR Declaration of Trust further provides that PTR shall indemnify and hold
each shareholder harmless from all claims and liabilities to which the
shareholder may become subject by reason of his or her being or having been a
shareholder and that PTR shall reimburse each shareholder for all legal and
other expenses reasonably incurred by the shareholder in connection with any
such claim or liability, except to the extent that such claim or liability
arises out of the shareholder's bad faith, willful misconduct or gross
negligence and provided that such shareholder gives PTR prompt notice of any
claim or liability and permits PTR to conduct the defense thereof. In
addition, PTR is required to, and as a matter of practice does, insert a
clause in its management and other contracts providing that shareholders
assume no personal liability for obligations entered into on behalf of PTR.
Nevertheless, with respect to tort claims, contractual claims where
shareholder liability is not so negated, claims for taxes and certain
statutory liability, the shareholders may, in some jurisdictions, be
personally liable to the extent that such claims are not satisfied by PTR.
Inasmuch as PTR carries public liability insurance which it considers
adequate, any risk of personal liability to shareholders is limited to
situations in which PTR's assets plus its insurance coverage would be
insufficient to satisfy the claims against PTR and its shareholders.
Stockholders of a Maryland corporation are not personally liable for
obligations of the corporation.
INDEMNIFICATION OF TRUSTEES, DIRECTORS AND OFFICERS
The Maryland REIT Law permits a REIT to indemnify or advance expenses to
trustees, officers, employees and agents of the REIT to the same extent as is
permitted for directors, officers, employees and agents of a Maryland
corporation under the MGCL. The PTR Declaration of Trust provides that PTR
shall indemnify and hold harmless each trustee from and against all claims and
liabilities, whether they proceed to judgment or are settled, to which such
trustee may become subject by reason of his being or having been a trustee, or
by reason of any action alleged to have been taken or omitted by him as
trustee, and shall reimburse him for all legal and other expenses reasonably
incurred by him in connection with any such claim or liability, including any
claim or liability arising under the provisions of federal or state securities
laws. However, the PTR Declaration of Trust provides that no trustee shall be
indemnified or reimbursed under the foregoing provisions in relation to any
matter unless it shall have been adjudicated that his action or omission did
not constitute willful misfeasance, bad faith or gross negligence in the
conduct of his duties, or, unless, in the absence of such an adjudication, PTR
shall have received a written opinion from independent counsel, approved by
the trustees, to the effect that if the matter of willful misfeasance, bad
faith or gross negligence in the conduct of duties had been adjudicated, it
would have been adjudicated in favor of such trustee. Additionally, PTR has
entered into indemnity agreements with each of its officers and trustees which
provide for reimbursement of all expenses and liabilities of such officer or
trustee, arising out of any lawsuit or claim against such officer or trustee
due to the fact that he was or is serving as an officer or trustee, except for
liabilities and expenses (i) the payment of which is judicially determined to
be unlawful, (ii) relating to claims under Section 16(b) of the Exchange Act
or (iii) relating to judicially determined criminal violations.
The Homestead Charter authorizes Homestead, to the maximum extent permitted
by Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer 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,
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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, from and against any claim or
liability to which such person may become subject or which such person may
incur by reason of his or her status as a present or former director or
officer of the corporation. The Bylaws of Homestead obligate it, to the
maximum extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer 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 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 and who is made a party to the proceeding by reason of his service
in that capacity. The Homestead Charter and Bylaws also permit Homestead to
indemnify and advance expenses to any person who served a predecessor of
Homestead in any of the capacities described above and to any employee or
agent of Homestead or a predecessor of Homestead.
The MGCL 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 is made a party by reason of his service in that
capacity. The MGCL 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. In addition, the MGCL requires Homestead, as a
condition to advancing expenses, to obtain (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by Homestead as authorized by the Bylaws
and (b) a written statement by or on his behalf to repay the amount paid or
reimbursed by Homestead if it shall ultimately be determined that the standard
of conduct was not met.
SHAREHOLDERS' MEETINGS
The PTR Declaration of Trust provides for an annual meeting of shareholders
to be held within six months after the end of each full fiscal year. The PTR
Declaration of Trust also provides that special meetings of shareholders may
be called by a majority of the trustees, a majority of the Independent
Trustees or an officer of PTR and shall be called upon the written request of
shareholders holding in the aggregate not less than 10% of the outstanding PTR
Common Shares entitled to vote.
The MGCL provides that special meetings of the shareholders may be called by
the president, the board of directors or any other person specified in the
charter or bylaws of a corporation. The Homestead Bylaws also give the
Chairman of the Board and the chief executive officer the power to call a
special meeting of the shareholders. Under the current MGCL, a special meeting
of stockholders must be called by the secretary of the corporation upon the
written request of stockholders entitled to cast 25% of the votes entitled to
be cast at the meeting setting forth the purpose for which the meeting is
being called. A bill passed by the Maryland legislature and signed by the
Governor of Maryland earlier this year permits a Maryland corporation to
increase the percentage of votes necessary to require the secretary of the
corporation to call a special meeting from 25% to as high as a majority. This
bill will become effective on October 1, 1996. Accordingly, the Homestead
Bylaws provide that on and after October 1, 1996, a special meeting must be
called by the secretary upon the written request of the holders entitled to
cast a majority of the votes entitled to be cast at the meeting.
62
<PAGE>
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
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 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 of such stockholder and of the beneficial owner, if
any, on whose behalf the proposal is made; and (iii) as to the stockholder
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 stockholder
as they appear 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 stockholder and such beneficial owner, if
any.
ASSET REQUIREMENTS
To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT Law requires that the company hold, either directly or
indirectly, at least 75% of the value of its assets in real estate assets,
mortgages or mortgage-related securities, government securities, cash and cash
equivalent items, including high-grade short-term securities and receivables.
The Maryland REIT Law also prohibits using or applying land for farming,
agricultural, horticultural or similar purposes. The MGCL has no such
requirement.
LEGAL MATTERS
The validity of the Homestead Common Stock and the Homestead Warrants
offered hereby will be passed upon for Homestead by Mayer, Brown & Platt,
Chicago, Illinois. Certain legal matters relating to the Transaction will be
passed upon for ATLANTIC, Homestead, PTR and SCG by King & Spalding, Atlanta,
Georgia (counsel to the ATLANTIC Special Committee), Mayer, Brown & Platt,
Chicago, Illinois and Munger, Tolles & Olson, Los Angeles, California (counsel
to the PTR Special Committee). King & Spalding, Mayer, Brown & Platt and
Munger, Tolles & Olson will rely 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 PTR, ATLANTIC, SCG
and Homestead and certain of their respective affiliates. King & Spalding has
in the past represented PTR.
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS
The financial statements of PTR as of December 31, 1995 and 1994, and for
each of the years in the three-year period ended December 31, 1995, and the
related schedule have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
With respect to the unaudited interim financial information for the three-
month periods ended March 31, 1996 and March 31, 1995 of PTR incorporated by
reference herein, the independent certified public accountants have reported
that they applied limited procedures in accordance with professional standards
for a review of such information. However, their separate report included in
PTR's quarterly report on Form 10-Q for the quarter ended March 31, 1996,
incorporated by reference herein, states that they did not audit, and they do
not express an opinion, on that interim financial information. Accordingly,
the degree of reliance on their report on such information should be
restricted in light of the limited nature of the review procedures applied.
The accountants
63
<PAGE>
are not subject to the liability provisions of section 11 of the Securities
Act for their report on the unaudited interim financial information because
that report is not a "report" or a "part" of the registration statement
prepared or certified by the accountants within the meaning of Sections 7 and
11 of the Securities Act.
EXPENSES OF SOLICITATION
Homestead will pay the expenses in connection with the filing, printing and
distribution of this Proxy Statement and Prospectus. The costs of solicitation
of proxies from PTR shareholders will be borne by PTR. PTR will reimburse
brokers, fiduciaries, custodians and other nominees for reasonable out-of-
pocket expenses incurred in sending this Proxy Statement and Prospectus and
other proxy materials to, and obtaining instructions relating to such
materials from, beneficial owners of stock. PTR shareholder proxies may be
solicited by trustees or officers of PTR in person, by letter or by telephone
or telegram. In addition, PTR has retained Georgeson & Company, New York, New
York, to assist in the solicitation of proxies. It is estimated that its fees
for services to PTR will not exceed $10,000 in the aggregate plus expenses.
PTR will also reimburse custodians, nominees and fiduciaries for forwarding
proxies and proxy materials to the beneficial owners of their stock in
accordance with regulations of the Commission and the NYSE.
SHAREHOLDER PROPOSALS
Any Proposal by a shareholder intended to be presented at the 1997 annual
meeting of shareholders must be received by PTR at its principal executive
offices located at 7777 Market Center Avenue, El Paso, Texas 79912 not later
than November 30, 1996 for inclusion in PTR's proxy statement and form of
proxy relating to PTR's 1997 annual meeting of shareholders.
64
<PAGE>
INDEX TO PTR PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996
(unaudited).............................................................. F-3
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 1996 (unaudited).................................. F-9
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1995 (unaudited)...................................... F-13
</TABLE>
F-1
<PAGE>
PTR
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as
if the following transactions had occurred on March 31, 1996: (i) PTR-
Homestead Village Group acquires land parcels which were under contract to be
acquired as of March 31, 1996 and are expected to close prior to the
Transaction; (ii) PTR acquires multifamily properties which were acquired or
under contract to be acquired subsequent to March 31, 1996, all of which are
expected to close prior to the closing of the Transaction; (iii) Homestead
Village Incorporated ("Homestead") was capitalized and the PTR-Homestead
Village Group merged into Homestead, (iv) the net assets of Atlantic-Homestead
Village Group and SCG-Homestead Village Group were acquired by Homestead
through the issuance of additional Homestead Common Stock and Homestead
Warrants, and (v) PTR distributes all of the shares of Homestead Common Stock
and Homestead Warrants it received from the Mergers to the PTR shareholders.
This unaudited Pro Forma Condensed Consolidated Balance Sheet should be read
in conjunction with the historical financial statements of PTR for 1995, set
forth on Form 10-K, as amended by Form 10-K/A No. 1, filed with the Securities
and Exchange Commission, which is incorporated herein by reference and, the
PTR-Homestead Village Group, Atlantic-Homestead Village Group and SCG-
Homestead Village Group historical combined financial statements presented in
the Homestead Prospectus attached to this Proxy Statement and Prospectus. In
management's opinion, all adjustments necessary to reflect the effects of
theses transactions have been made.
The unaudited Pro Forma Condensed Consolidated Balance Sheet, described
above, does not give effect to the sale on August 5, 1996 of $100 million of
long term debt. Management of PTR believes that inclusion of the effects of
this transaction would not have a material effect on the pro forma balance
sheet as the proceeds, for pro forma purposes, would have been used to reduce
the outstanding balance of PTR's line of credit borrowings.
The unaudited Pro Forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what PTR's actual financial position would have been
assuming these transactions had been completed as of March 31, 1996, nor does
it purport to represent the future financial position of PTR.
F-2
<PAGE>
PTR
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FORMATION OF
HOMESTEAD
AND MERGER ACQUISITION ACQUISITION
MULTIFAMILY WITH PTR- PTR/ OF ATLANTIC OF SCG
LAND TO PROPERTIES HOMESTEAD HOMESTEAD HOMESTEAD HOMESTEAD OTHER PRO
PTR BE TO BE VILLAGE CONSOLIDATED VILLAGE VILLAGE FORMA
ASSETS HISTORICAL(A) ACQUIRED ACQUIRED GROUP(F) PRO FORMA GROUP(G) GROUP(H) ADJUSTMENTS
------ ------------- -------- ----------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate........ $1,840,474 $11,789(b) $207,193(c) $-- $2,059,456 $24,095 $ 233 $ --
Mortgage notes
receivable......... 14,764 -- -- -- 14,764 -- -- --
---------- ------- -------- ---- ---------- ------- ------- --------
Total
investments..... 1,855,238 11,789 207,193 -- 2,074,220 24,095 233 --
Cash and cash
equivalents........ 8,338 -- (5,708)(d) 1(e) 2,631 27,239 12 (1,000)(i)
Accounts
receivable......... 3,047 -- -- -- 3,047 -- 481 --
Deferred financing
costs.............. -- -- -- -- -- -- -- 8,400(j)
Other assets....... 23,311 -- -- -- 23,311 1,817 19,481 1,500(i)
---------- ------- -------- ---- ---------- ------- ------- --------
Total assets.... $1,889,934 $11,789 $201,485 $ 1 $2,103,209 $53,151 $20,207 $ 8,900
========== ======= ======== ==== ========== ======= ======= ========
LIABILITIES AND
HAREHOLDERS' EQUITYS
- --------------------
Liabilities:
Line of credit.. . $ 36,250 $11,789(b) $137,000(d) $-- $ 185,039 $ -- $ -- $ 500(i)
Long term
unsecured debt.. . 350,000 -- -- -- 350,000 -- -- --
Mortgages
payable......... . 157,570 -- 64,485(d) -- 222,055 -- -- --
Accounts payable . 24,488 -- -- -- 24,488 142 6 --
Accrued expenses
and other
liabilities..... . 26,504 -- -- -- 26,504 1,310 3 --
Deferred revenue . -- -- -- -- -- -- -- --
---------- ------- -------- ---- ---------- ------- ------- --------
Total
liabilities..... 594,812 11,789 201,485 -- 808,086 1,452 9 500
---------- ------- -------- ---- ---------- ------- ------- --------
Minority interest.. -- -- -- -- -- -- -- 71,897(k)
---------- ------- -------- ---- ---------- ------- ------- --------
Shareholders'
equity:
Series A
Cumulative
Preferred shares . 230,000 -- -- -- 230,000 -- -- --
Series B
Cumulative
Redeemable
Perpetual
Preferred shares . 105,000 -- -- -- 105,000 -- -- --
Common shares... . 72,376 -- -- -- 72,376 42 16 (58)(k)
Additional paid-
in capital...... . 952,679 -- -- 1(e) 952,680 51,657 20,182 (71,839)(k)
8,400 (j)
Dividends in
excess of net
earnings........ . (62,996) -- -- -- (62,996) -- -- --
Treasury shares,
at cost......... . (1,937) -- -- -- (1,937) -- -- --
---------- ------- -------- ---- ---------- ------- ------- --------
Total
shareholders'
equity.......... 1,295,122 -- -- 1 1,295,123 51,699 20,198 (63,497)
---------- ------- -------- ---- ---------- ------- ------- --------
Total
liabilities and
shareholders'
equity.......... $1,889,934 $11,789 $201,485 $ 1 $2,103,209 $53,151 $20,207 $ 8,900
========== ======= ======== ==== ========== ======= ======= ========
<CAPTION>
SPIN-OFF OF
SHARES OF
HOMESTEAD
COMMON STOCK TO PTR PRO FORMA
PRO FORMA SHAREHOLDERS RESULTING
BEFORE SPIN-OFF AND FROM
AND DECONSOLIDATION HOMESTEAD
ASSETS DECONSOLIDATION OF HOMESTEAD(L) SPIN-OFF
------ --------------- --------------- -------------
<S> <C> <C> <C>
Real estate........ $2,083,784 $(156,988) $1,926,796
Mortgage notes
receivable......... 14,764 51,563 66,327
--------------- --------------- -------------
Total
investments..... 2,098,548 (105,425) 1,993,123
Cash and cash
equivalents........ 28,882 (28,683) 199
Accounts
receivable......... 3,528 (97) 3,431
Deferred financing
costs.............. 8,400 (8,400) --
Other assets....... 46,109 (24,587) 21,522
--------------- --------------- -------------
Total assets.... $2,185,467 $(167,192) $2,018,275
=============== =============== =============
LIABILITIES AND
HAREHOLDERS' EQUITYS
- --------------------
Liabilities:
Line of credit.. . $ 185,539 $ -- $ 185,539
Long term
unsecured debt.. . 350,000 -- 350,000
Mortgages
payable......... . 222,055 -- 222,055
Accounts payable . 24,636 (4,172) 20,464
Accrued expenses
and other
liabilities..... . 27,817 (2,848) 24,969
Deferred revenue . -- 18,332(m) 18,332
--------------- --------------- -------------
Total
liabilities..... 810,047 11,312 821,359
--------------- --------------- -------------
Minority interest.. 71,897 (71,897) --
--------------- --------------- -------------
Shareholders'
equity:
Series A
Cumulative
Preferred shares . 230,000 -- 230,000
Series B
Cumulative
Redeemable
Perpetual
Preferred shares . 105,000 -- 105,000
Common shares... . 72,376 -- 72,376
Additional paid-
in capital...... . 961,080 (101,323) 859,757
Dividends in
excess of net
earnings........ . (62,996) (5,284) (68,280)
Treasury shares,
at cost......... . (1,937) -- (1,937)
--------------- --------------- -------------
Total
shareholders'
equity.......... 1,303,523 (106,607) 1,196,916
--------------- --------------- -------------
Total
liabilities and
shareholders'
equity.......... $2,185,467 $(167,192) $2,018,275
=============== =============== =============
</TABLE>
See accompanying notes to pro forma condensed consolidated balance sheet.
F-3
<PAGE>
PTR
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(a) Represents the historical consolidated balance sheet of Security Capital
Pacific Trust ("PTR") as of March 31, 1996, as set forth on Form 10-Q, as
amended by Form 10-Q/A No. 1, filed with the Securities and Exchange
Commission which is incorporated herein by reference.
(b) Reflects 10 land parcels under contract to be acquired for cash by the
PTR-Homestead Village Group subsequent to March 31, 1996, and prior to the
date of the Transaction, described in the Prospectus. Such acquisitions
will be funded through borrowings on PTR's line of credit.
(c) Represents PTR's multifamily property acquisitions and three multifamily
properties under contract to be acquired subsequent to March 31, 1996, as
follows:
<TABLE>
<CAPTION>
ACQUISITION
PROPERTY ACQUISITION DATE COST
-------- ---------------- -----------
<S> <C> <C>
Timberline...................................... 4/17/96 $ 7,043
Club Pacifica................................... 4/23/96 14,300
The Crossing.................................... 5/21/96 14,850
Mission Springs................................. 5/31/96 38,500
Quail Ridge..................................... 6/13/96 17,550
Newpointe....................................... 7/10/96 9,400
Brighton........................................ under contract 11,150
Oakwood......................................... under contract 64,800
El Dorado....................................... under contract 29,600
--------
$207,193
========
</TABLE>
(d) Reflects the use of cash on hand of $5,708 and line of credit borrowings
of $137,000 utilized to fund the pro forma acquisition of properties
subsequent to March 31, 1996. Additionally, PTR anticipates assuming
approximately $64,485 in mortgage notes payable upon the purchase of
Oakwood and El Dorado.
(e) Reflects the capitalization of Homestead through the issuance of 1,000
shares of Homestead Common Stock in exchange for $1.
(f) Upon the consummation of the merger of Homestead with PTR-Homestead
Village Group, Homestead will issue to PTR 9,485,727 shares of Homestead
Common Stock in exchange for the net assets of the PTR-Homestead Village
Group. Additionally, PTR will receive 6,363,789 Homestead 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, Security Capital Atlantic
Incorporated ("ATLANTIC") and other affiliates of Security Capital Group
Incorporated ("SCG") ("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 (m) below for a
determination of the value and accounting treatment of the Homestead
Warrants described herein.
As a result of the merger transaction, Homestead will be consolidated into
PTR. Accordingly, the issuance of the shares to PTR has not been reflected
in the accompanying pro forma balance sheet as such shares would be
eliminated in consolidation.
(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
F-4
<PAGE>
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. See "The Transaction--Recommendations
of the PTR Board and Reasons for the Transaction." 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>
Real estate.......................... $10,437 $13,658 (i) $24,095
Cash and cash equivalents............ 72 27,167 (ii) 27,239
Other assets......................... 1,817 -- 1,817
------- ------- -------
Total assets....................... 12,326 40,825 53,151
------- ------- -------
Accounts payable..................... 142 -- 142
Accrued expenses and other
liabilities......................... 1,310 -- 1,310
Intercompany debt.................... 9,295 (9,295)(iii) --
------- ------- -------
Total liabilities.................. 10,747 (9,295) 1,452
------- ------- -------
Total shareholders' equity......... 1,579 50,120 (iv) 51,699
------- ------- -------
Total liabilities and shareholders'
equity............................ $12,326 $40,825 $53,151
======= ======= =======
</TABLE>
--------
(i) Reflects estimated costs of $9,582 relating to the acquisition of eight
parcels of land under contract to be acquired for cash, subsequent to
March 31, 1996 and prior to the date of the Transaction. 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 real estate 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 real estate was estimated using a premium
over cost, which Management believes is reasonable considering value
added during the development process. Also see "The Transaction--
Recommendations of the PTR Board and Reasons for the Transaction" for
further discussion of the determination of estimated fair market value.
(ii) Reflects, for pro forma purposes, cash of $27,167 contributed by
ATLANTIC as partial consideration for shares of Homestead Common Stock
received. The cash payment is necessary to facilitate ATLANTIC's
receipt of its entire share of Homestead 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 expected to be incurred
between March 31, 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 a determination of the value and accounting treatment of the
Homestead Warrants described herein.
F-5
<PAGE>
(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>
Real estate (furniture and equipment,
net)................................ $ 233 $ -- $ 233
Cash and cash equivalents............ 12 -- 12
Accounts receivable.................. 481 -- 481
Other assets......................... 76 19,405 (i) 19,481
------- ------- -------
Total assets....................... $ 802 $19,405 $20,207
======= ======= =======
Accounts payable..................... $ 6 $ -- $ 6
Accrued expenses and other
liabilities......................... 494 (491)(ii) 3
Intercompany debt.................... 2,043 (2,043)(iii) --
------- ------- -------
Total liabilities.................. 2,543 (2,534) 9
------- ------- -------
Total shareholders' equity......... (1,741) 21,939 (iv) 20,196
------- ------- -------
Total liabilities and shareholders'
equity............................ $ 802 $19,405 $20,207
======= ======= =======
</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, 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 Homestead Common Stock. At the
date of the Transaction, SCG will receive a pro rata portion
(1,640,786) of the total shares, based upon the ratio (40.4%) of actual
funding provided by PTR and ATLANTIC to Homestead as of March 31, 1996
to the total expected funding to be provided, as more fully described
in the Transaction (The 1,640,786 shares issued to SCG is expected to
increase to 1,819,750 shares issued at the Closing Date as a result of
development costs expected to be incurred between March 31, 1996 and
the Closing Date). Correspondingly, the proportional amount of the
estimated fair market value recorded at the date of the Transaction is
approximately $20,198, of which approximately $19,405 has been
attributed to the trademarks and other intangible assets listed above
which Homestead's management intends to amortize on a straight-line
basis over a 20 year period. The $19,405 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 $793 ($20,198-$19,405)
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. Also see "The Transaction--Recommendations
of the PTR Board and Reasons for the Transaction" for further
discussion of the determination of estimated 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 Homestead Common Stock. See (j)
below for a determination of the value and accounting treatment of the
Homestead Warrants described herein.
F-6
<PAGE>
(i) Reflects estimated of $1,500 incurred in connection with the Transaction,
which for PTR pro forma purposes are assumed to be paid $1,000 from cash
on hand and $500 through borrowing on PTR's line of credit.
(j) Reflects financing costs incurred by Homestead resulting from the issuance
of Homestead Warrants to ATLANTIC (2,818,517) and SCG (817,694) in
exchange for commitments to provide fundings and the commitment to provide
office facilities by SCG, as described in (g) and (h) above. The amount of
the financing costs equals the value of the Homestead Warrants which was
measured as the excess of the Assumed Value of the Homestead Common Stock
over the $10 exercise price times the Homestead Warrants received. The
value of the Homestead Warrants was accounted for as additional paid-in
capital by Homestead. The financing costs related to ATLANTIC ($6,511)
will be amortized as an adjustment to the effective interest rate on the
fundings over the term of the convertible mortgage notes. The financing
costs related to SCG ($1,889) will be amortized over a period not to
exceed one year.
(k) Represents the minority interest in Homestead's shareholders' equity
resulting from shares issued to ATLANTIC and SCG in connection with the
acquisitions described in (g) and (h) above.
(l) Reflects the distribution to PTR shareholders of shares of Homestead
Common Stock and Homestead Warrants PTR received from the Mergers. Also
reflects deconsolidation of Homestead from PTR as a result of the
distribution of all of its shares of Homestead Common Stock to PTR
shareholders. Amounts primarily represent the sum of the acquisition
balance sheets of Atlantic-Homestead Village Group and SCG-Homestead
Village Group presented herein, plus the historical combined balance sheet
of PTR-Homestead Village Group included in this Proxy Statement and
Prospectus. Per the terms of the Transaction, as of March 31, 1996 PTR
will retain $51,563 in convertible mortgage notes due from Homestead. Such
amount was calculated in accordance with the terms of the Merger
Agreement.
The following analysis is provided to reconcile the Homestead Pro Forma
Condensed Consolidated Balance Sheet as of March 31, 1996 reflected on page
F-4 of the Homestead Prospectus to the amounts reflected in the spin-off of
shares of Homestead Common Stock to PTR Shareholders column on page F-3.
<TABLE>
<CAPTION>
SPIN-OFF OF SHARES
HOMESTEAD PRO FORMA OF HOMESTEAD COMMON
CONDENSED CONSOLIDATED STOCK
COLUMN--HOMESTEAD TO PTR SHAREHOLDERS
PROSPECTUS PAGE F-4 COLUMN--PAGE F-3 DIFFERENCE
---------------------- ------------------- ----------
<S> <C> <C> <C>
Assets.................. $238,270 $167,192 $71,078
======== ======== =======
Liabilities............. 59,766 (11,312) 71,078
Shareholders' equity and
minority interest...... 178,504 178,504 --
-------- -------- -------
Total liabilities and
shareholders' equity
and minority
interest............. $238,270 $167,192 $71,078
======== ======== =======
</TABLE>
The difference represents $51,563 in convertible mortgage notes due to PTR
from Homestead and $1,183 in related accrued interest receivable as of
March 31, 1996 and $18,332 (see note (m)) below classified as deferred
revenue by PTR and correspondingly, deferred financing costs by Homestead.
(m) Reflects the value of the Homestead Warrants received by PTR from
Homestead ($14,700) calculated as described in (j) above (such warrants
were distributed to the PTR shareholders as described in (l) above.) and
the value of the common stock conversion feature in the $51,563
convertible mortgage notes ($3,632). The value of the conversion feature
was measured as the excess of the Assumed Value of the Homestead Common
Stock over the $11.50 conversion price times the number of shares into
which the mortgage notes could be converted, which is based on one share
for every $11.50 of principle outstanding on the mortgage notes (4,484
shares). The total additional value of $18,332, described above, has been
accounted for as deferred revenue and will be amortized as an adjustment
to the effective interest rate on the convertible mortgage notes over the
term of the notes. The adjusted effective interest rate on these notes is
12.42%.
F-7
<PAGE>
PTR
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
The unaudited Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 1995 and the three months ended March 31, 1996, of
Security Capital Pacific Trust ("PTR") are presented as if the following
transactions had occurred as of January 1, 1995: (i) PTR-Homestead Village
Group acquires land parcels which were under contract to be acquired as of
March 31, 1996 and are expected to close prior to the Transaction; (ii) PTR
acquires multifamily properties which were acquired or under contract to be
acquired subsequent to March 31, 1996, all of which are expected to close
prior to the closing of the Transaction; (iii) Homestead Village Incorporated
("Homestead") was capitalized and the PTR-Homestead Village Group merged into
Homestead; (iv) The net assets of Atlantic-Homestead Village Group and SCG-
Homestead Village Group were acquired by Homestead through the issuance of
additional shares of Homestead Common Stock and Homestead Warrants; and (v)
PTR distributes all of the Homestead Common Stock and Homestead Warrants it
received from the merger with Homestead to the PTR shareholders. These
unaudited Pro Forma Condensed Consolidated Statements of Operations should be
read in conjunction with the historical financial statements of PTR for 1995,
set forth on Form 10-K, as amended by Form 10-K/A No. 1, filed with the
Securities and Exchange Commission, which is incorporated herein by reference
and, the PTR-Homestead Village Group historical combined financial statements
presented in the Homestead Prospectus attached to this Proxy Statement and
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,
described above, do not give effect to the sale on August 5, 1996 of $100
million of long term unsecured debt. Management of PTR believes that inclusion
of the effects of this transaction would not have a material effect on the pro
forma statements of operations as the proceeds, for pro forma purposes, would
have been used to reduce the outstanding balance of PTR's line of credit
borrowings and, the interest rate differential between the line of credit and
the long term debt would result in an immaterial impact on interest expense
and net earnings attributable to common shares.
These unaudited Pro Forma Condensed Consolidated Statements of Operations
are not necessarily indicative of what PTR's actual results of operations
would have been for the year ended December 31, 1995 or for the three month
period ended March 31, 1996 assuming such transactions had been completed as
of January 1, 1995, nor do they purport to present the results of operations
for future periods for PTR. Additionally, the Pro Forma Condensed Consolidated
Statement of Operations for the three months ended March 31, 1996 is not
necessarily indicative of the results of operations for the full year.
F-8
<PAGE>
PTR
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PTR PRO FORMA
HISTORICAL PRO FORMA RESULTING FROM
------------------- ADJUSTMENTS PTR-HOMESTEAD ACQUISITION OF
MULTIFAMILY FOR VILLAGE GROUP HOMESTEAD MULTIFAMILY
PROPERTIES PROPERTIES INCLUDED IN SPIN-OFF PROPERTIES AND
TO BE TO BE HOMESTEAD PRO FORMA HOMESTEAD
PTR(A) ACQUIRED(B) ACQUIRED SUBTOTAL SPIN-OFF(H) ADJUSTMENTS SPIN-OFF
------- ----------- ----------- -------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income.......... $75,809 $9,040 $ -- $84,849 $(6,753) $ -- $78,096
Interest & other
income................ 547 -- (74)(c) 473 (115) 1,601 (i) 1,959
------- ------ ------- ------- ------- ------ -------
76,356 9,040 (74) 85,322 (6,868) 1,601 80,055
------- ------ ------- ------- ------- ------ -------
Expenses:
Rental expenses........ 27,443 3,605 -- 31,048 (2,946) -- 28,102
Property management
fee paid to
affiliates............ 2,854 359 (26)(d) 3,187 (500) -- 2,687
Depreciation........... 10,618 -- 1,174 (e) 11,792 (859) -- 10,933
Interest............... 6,520 1,241 2,846 (f) 10,607 (961) 243 (j) 12,035
2,146 (l)
REIT management fee
paid to affiliate..... 5,555 -- 151 (g) 5,706 (362) (39)(k) 4,962
(343)(l)
General and
administrative........ 276 -- -- 276 (175) -- 101
Other.................. 170 -- -- 170 (26) -- 144
------- ------ ------- ------- ------- ------ -------
Total expenses....... 53,436 5,205 4,145 62,786 (5,829) 2,007 58,964
------- ------ ------- ------- ------- ------ -------
Earnings from
operations............. 22,920 3,835 (4,219) 22,536 (1,039) (406) 21,091
Gain on sale of
investments, net....... 2,923 -- -- 2,923 -- -- 2,923
------- ------ ------- ------- ------- ------ -------
Net earnings............ 25,843 3,835 (4,219) 25,459 (1,039) (406) 24,014
Less Preferred share
dividends.............. 6,388 -- -- 6,388 -- -- 6,388
------- ------ ------- ------- ------- ------ -------
Net earnings
attributable to
common shares....... $19,455 $3,835 $(4,219) $19,071 $(1,039) $ (406) $17,626
======= ====== ======= ======= ======= ====== =======
Weighted average common
shares outstanding..... 72,211 72,211
------- -------
Per share net earnings
attributable to common
shares................. $ 0.27 $ 0.24
======= =======
</TABLE>
See accompanying notes to pro forma condensed consolidated statement of
operations.
F-9
<PAGE>
PTR
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) Represents the historical consolidated statement of operations of Security
Capital Pacific Trust ("PTR") for the three months ended March 31, 1996,
set forth on Form 10-Q, as amended by Form 10-Q/A No. 1, filed with the
Securities and Exchange Commission, which is incorporated herein by
reference.
(b) Reflects historical revenues and certain expenses, including mortgage
interest if applicable, on properties acquired in 1996, or under contract
to be acquired subsequent to March 31, 1996, for the period from January
1, 1996 to the earlier of the respective dates of acquisition or March 31,
1996. Historical revenues and certain expenses exclude amounts which would
not be comparable to the proposed future operations of the properties such
as certain interest expense, interest income, income taxes and
depreciation. The following table reconciles the historical financial
information for the Group A Properties and the Group B Properties (as
defined on F-14) to the pro forma condensed consolidated statement of
operations:
<TABLE>
<CAPTION>
PROPERTY
RENTAL RENTAL MANAGEMENT INTEREST
INCOME EXPENSE FEES EXPENSE
------ ------- ---------- --------
<S> <C> <C> <C> <C>
For the period January 1, 1996 to the
earlier of the date of acquisition or
March 31, 1996:
Group A Properties (i)................... $4,702 $1,849 $208 $ 923
Group B Properties (ii).................. 4,338 1,756 151 318
------ ------ ---- ------
Totals................................. $9,040 $3,605 $359 $1,241
====== ====== ==== ======
</TABLE>
(c) Reflects the elimination of interest income earned on cash and cash
equivalents, which for pro forma purposes was utilized to fund property
acquisitions:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED 3/31/96
-------------
<S> <C>
Pro Forma utilization of cash and cash equivalents................ $(5,708)
Current interest rate............................................. 5.22%
Proration factor.................................................. .25
-------
Pro Forma interest income adjustment.............................. $ (74)
=======
</TABLE>
(d) Reflects the difference between historical property management fee expense
and PTR's management fee expense.
F-10
<PAGE>
(e) Reflects pro forma depreciation expense adjustment resulting from acquired
properties, or properties under contract to be acquired, based on the
depreciable basis of PTR's acquisition cost, assuming asset lives ranging
from 10 to 40 years. The pro forma depreciation expense adjustment amounts
by property are as follows:
<TABLE>
<CAPTION>
ACQUISITION
---------------------- THREE MONTHS
PROPERTY DATE COSTS ENDED 3/31/96
- -------- -------------- ------- -------------
<S> <C> <C> <C>
Westcourt Village.......................... 3/27/96 $12,762 $ 61
Ocean Crest................................ 3/29/96 15,600 77
Timberline................................. 4/17/96 7,043 35
Club Pacifica.............................. 4/23/96 14,300 72
The Crossing............................... 5/21/96 14,850 74
Missions Springs........................... 5/31/96 38,500 192
Quail Ridge................................ 6/13/96 17,550 87
Newpointe.................................. 7/10/96 9,400 47
El Dorado.................................. under contract 29,600 148
Brighton................................... under contract 11,150 56
Oakwood.................................... under contract 64,800 325
------
$1,174
======
</TABLE>
(f) Represents the pro forma interest expense adjustments related to
utilization of line of credit borrowings that would have been required if
the property acquisitions had occurred at January 1, 1995:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED 3/31/96
-------------
<S> <C>
Pro forma line of credit borrowings for operating properties
acquired or under contract to be acquired, subsequent to March
31, 1996........................................................ $137,000
Line of credit borrowings required for 1996 acquisitions made
prior to March 31, 1996......................................... 28,558
--------
Total pro forma line of credit borrowings........................ 165,558
Current interest rate............................................ 6.875%
Proration factor................................................. .25
--------
Pro forma interest expense adjustment............................ $ 2,846
========
</TABLE>
(g) Reflects adjustment to PTR's REIT management fee expense related to the
increase in cash flow resulting from acquisition of multifamily properties
and adjustments discussed in (c), (d) and (f) above:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED 3/31/96
-------------
<S> <C>
Historical earnings from operations from acquisitions............. $3,835
Pro Forma adjustments:.
Interest income................................................. (74)
Property management fees paid to affiliates..................... 26
Interest expense................................................ (2,846)
------
941
REIT management fee percentage.................................... 16%
------
Pro Forma REIT management fee expense adjustment.................. $ 151
======
</TABLE>
(h) Reflects the historical combined statement of operations of the PTR-
Homestead Village Group for the three months ended March 31, 1996, which
is presented elsewhere in this Proxy Statement and Prospectus.
(i) The pro forma adjustment reflects interest income earned at the effective
interest rate of 12.42% on $51,563 convertible mortgage notes assumed by
Homestead in connection with the merger with PTR. See note (m) on F-7 for
discussion of the effective interest rate.
F-11
<PAGE>
(j) Represents interest expense at 8.25% incurred on line of credit borrowings
by PTR in connection with convertible mortgage note fundings to Homestead
for the acquisition of land by Homestead.
(k) Reflects the reduction of the 16% REIT management fee attributable to the
increased interest expense in (j) above. The REIT Management Agreement
between PTR and the REIT Manager will be amended to exclude income
received from the convertible mortgage notes from the definition of income
subject to REIT management fee.
(l) Assuming the merger and spin-off transactions had occurred as of January
1, 1995, the costs incurred to acquire the assets existing at March 31,
1996 are also all assumed to have been incurred as of January 1, 1995
prior to the spin-off by PTR. Further, as the debt incurred by PTR to
finance the assets would not be retired as a result of the spin-off, such
financing would, for pro forma purposes, remain outstanding for the entire
three months ended March 31, 1996.
Additionally, it is assumed that properties under development would have
been debt financed 100% via PTR's line of credit and that operating
properties would have been debt financed 70% based on the leverage ratio
which is expected to exist within Homestead after the Funding Commitment
Agreements have been fulfilled. Based upon these assumptions, following is
the interest expense and REIT management fee adjustments, for the three
months ended March 31, 1996, related to the financing of the $125,187 of
gross historical cost of real estate assets (prior to accumulated
depreciation existing as of March 31, 1996).
<TABLE>
<CAPTION>
PTR-HOMESTEAD VILLAGE PROPERTIES
---------------------------------------
OPERATING UNDER DEVELOPMENT TOTAL
--------- ----------------- --------
<S> <C> <C> <C>
March 31, 1996 gross historical
cost of real estate assets (prior
to accumulated depreciation)...... $89,508 $35,679 $125,187
Assumed financing percentage....... 70% 100% 78.55%
------- ------- --------
Assumed amount financed............ 62,656 35,679 98,335
Assumed interest rate.............. 9.00%(1) 8.25%(2) 8.73%
One-quarter of year................ .25 .25 .25
------- ------- --------
Pro forma interest adjustment (3).. $ 1,410 $ 736 2,146
======= =======
Pro forma REIT management fee
adjustment (16%).................. (343)
--------
Net pro forma adjustment........... $ 1,803
========
</TABLE>
--------
(1) Represents interest rate on convertible mortgage notes payable.
(2) Represents weighted average interest rate on PTR's line of credit
borrowings for the year.
(3) The pro forma interest adjustment reflects the financing costs for the
entire period as the actual historical interest expense was eliminated
in adjustment (h) above.
F-12
<PAGE>
PTR
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PTR PRO
FORMA
RESULTING
FROM
ACQUISITION
HISTORICAL OF
-------------------- PTR-HOMESTEAD MULTIFAMILY
MULTIFAMILY PRO FORMA VILLAGE GROUP HOMESTEAD PROPERTIES
PROPERTIES ADJUSTMENTS INCLUDED IN SPIN-OFF AND
TO BE FOR PROPERTIES HOMESTEAD PRO FORMA HOMESTEAD
PTR(A) ACQUIRED(B) TO BE ACQUIRED SUBTOTAL SPIN-OFF(H) ADJUSTMENTS SPIN-OFF
-------- ----------- -------------- -------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental Income.......... $262,473 $35,277 $ -- $297,750 $(18,690) $ -- $279,060
Interest............... 2,400 -- (298)(c) 2,102 (13) 6,404(i) 8,493
-------- ------- -------- -------- -------- ------ --------
264,873 35,277 (298) 299,852 (18,703) 6,404 287,553
-------- ------- -------- -------- -------- ------ --------
Expenses:
Rental expenses........ 95,134 13,763 -- 108,897 (7,600) -- 101,297
Property management
fee paid to
affiliates............ 8,912 1,381 (59)(d) 10,234 (1,018) -- 9,216
Depreciation........... 36,685 -- 4,716(e) 41,401 (2,343) -- 39,058
Interest............... 19,584 4,998 11,382(f) 35,964 (2,958) 943(j) 41,421
7,472(l)
REIT management fee
paid to affiliate..... 20,354 -- 562(g) 20,916 (989) (151)(k) 18,580
(1,196)(l)
General and
administrative........ 952 -- -- 952 (798) -- 154
Provision for possible
loss on investments... 420 -- -- 420 -- -- 420
Other.................. 1,136 -- -- 1,136 (146) -- 990
-------- ------- -------- -------- -------- ------ --------
Total expenses....... 183,177 20,142 16,601 219,920 (15,852) 7,068 211,136
-------- ------- -------- -------- -------- ------ --------
Earnings from
operations............. 81,696 15,135 (16,899) 79,932 (2,851) (664) 76,417
Gain on sale of
investments, net....... 2,623 -- -- 2,623 -- -- 2,623
-------- ------- -------- -------- -------- ------ --------
Net earnings............ 84,319 15,135 (16,899) 82,555 (2,851) (664) 79,040
Less preferred share
dividends.............. 21,823 -- -- 21,823 -- -- 21,823
-------- ------- -------- -------- -------- ------ --------
Net earnings
attributable to
common shares....... $ 62,496 $15,135 $(16,899) $ 60,732 $ (2,851) $ (664) $ 57,217
======== ======= ======== ======== ======== ====== ========
Weighted average common
shares outstanding..... 67,062 67,062
======== ========
Per share net earnings
attributable to common
shares................. $ 0.93 $ 0.85
======== ========
</TABLE>
See accompanying notes to pro forma condensed consolidated statement of
operations.
F-13
<PAGE>
PTR
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) Represents the historical consolidated statement of operations of Security
Capital Pacific Trust ("PTR") for the year ended December 31, 1995, set
forth on Form 10-K, as amended by Form 10-K/A No. 1, filed with the
Securities and Exchange Commission, which is incorporated herein by
reference.
(b) Reflects historical revenues and certain expenses, including mortgage
interest if applicable, on properties acquired in 1996, or under contract
to be acquired subsequent to March 31, 1996, for the year ended December
31, 1995. Historical revenues and certain expenses exclude amounts which
would not be comparable to the proposed future operations of the
properties such as certain interest expense, interest income, income taxes
and depreciation. The following table reconciles the historical financial
information for the Group A Properties and the Group B Properties (as
defined below) to the pro forma condensed consolidated statement of
operations:
<TABLE>
<CAPTION>
PROPERTY
RENTAL RENTAL MANAGEMENT INTEREST
INCOME EXPENSE FEES EXPENSE
------- ------- ---------- --------
<S> <C> <C> <C> <C>
Group A Properties (i)................... $18,119 $ 7,227 $ 743 $3,725
Group B Properties (ii).................. 17,158 6,536 638 1,273
------- ------- ------ ------
Totals............................... $35,277 $13,763 $1,381 $4,998
======= ======= ====== ======
</TABLE>
(i) Group A Properties consist of the following properties for which a
combined statement of revenues and certain expenses for the year ended
December 31, 1995 was audited.
<TABLE>
<CAPTION>
PROPERTY LOCATION DATE ACQUIRED
-------- -------- -------------
<S> <C> <C>
Timberline........................ Portland, Oregon 4/17/96
Club Pacifica..................... San Diego, California 4/23/96
The Crossing...................... Corona, California 5/21/96
Newpointe......................... Orange County, California 7/10/96
Brighton.......................... Portland, Oregon under contract
Oakwood........................... San Jose, California under contract
</TABLE>
(ii) Group B Properties consist of the following unaudited properties:
<TABLE>
<CAPTION>
PROPERTY LOCATION DATE ACQUIRED
-------- -------- -------------
<S> <C> <C>
Westcourt Village................ San Bernardino, California 3/27/96
Ocean Crest...................... San Diego, California 3/29/96
Mission Springs.................. Ontario, California 5/31/96
Quail Ridge...................... San Francisco, California 6/13/96
El Dorado........................ San Diego, California under contract
</TABLE>
(c) Reflects the elimination of interest income earned on cash and cash
equivalents, which for pro forma purposes was utilized to fund property
acquisitions:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED 12/31/95
--------------
<S> <C>
Pro Forma utilization of cash and cash equivalents............ $(5,708)
Current interest rate......................................... 5.22%
Proration factor.............................................. 1.0
-------
Pro Forma interest income adjustment.......................... $ (298)
=======
</TABLE>
F-14
<PAGE>
(d) Reflects the difference between historical property management fee expense
and PTR's management fee expense.
(e) Reflects pro forma depreciation expense adjustment resulting from acquired
properties, or properties under contract to be acquired, based on the
depreciable basis of PTR's acquisition cost, assuming asset lives ranging
from 10 to 40 years. The pro forma depreciation expense adjustment amounts
by property are as follows:
<TABLE>
<CAPTION>
ACQUISITION
---------------------- TWELVE MONTHS
PROPERTY DATE COSTS ENDED 12/31/95
- -------- -------------- ------- --------------
<S> <C> <C> <C>
Westcourt Village......................... 3/27/96 $12,762 $ 256
Ocean Crest............................... 3/29/96 15,600 316
Timberline................................ 4/17/96 7,043 140
Club Pacifica............................. 4/23/96 14,300 286
The Crossing.............................. 5/21/96 14,850 297
Missions Springs.......................... 5/31/96 38,500 771
Quail Ridge............................... 6/13/96 17,550 351
Newpointe................................. 7/10/96 9,400 188
El Dorado................................. under contract 29,600 592
Brighton.................................. under contract 11,150 223
Oakwood................................... under contract 64,800 1,296
------
$4,716
======
</TABLE>
(f) Represents the pro forma interest expense adjustments related to
utilization of line of credit borrowings that would have been required if
the property acquisitions had occurred at January 1, 1995:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED 12/31/95
--------------
<S> <C>
Pro forma line of credit borrowings for operating properties
acquired or under contract to be acquired, subsequent to March
31, 1996....................................................... $137,000
Line of credit borrowings required for 1996 acquisitions made
prior to March 31, 1996........................................ 28,558
--------
Total pro forma line of credit borrowings....................... 165,558
Current interest rate........................................... 6.875%
Proration factor................................................ 1.0
--------
Pro forma interest expense adjustment........................... $ 11,382
========
</TABLE>
(g) Reflects adjustment to PTR's REIT management fee expense related to the
increase in cash flow resulting from acquisition of multifamily properties
and adjustments discussed in (c), (d) and (f) above:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED 12/31/95
--------------
<S> <C>
Historical earnings from operations from acquisitions............ $ 15,135
Pro Forma adjustments:
Interest income................................................ (298)
Property management fees paid to affiliates.................... 59
Interest expense............................................... (11,382)
--------
3,514
REIT management fee percentage................................... 16%
--------
Pro Forma REIT management fee expense adjustment................. $ 562
========
</TABLE>
(h) Reflects the historical combined statement of operations of the PTR-
Homestead Village Group for the year ended December 31, 1995, which is
presented in the Prospectus.
F-15
<PAGE>
(i) The pro forma adjustment reflects interest income earned at the effective
interest rate of 12.42% on $51,563 convertible mortgage notes assumed by
Homestead in connection with the merger with PTR. See note (m) on F-7 for
discussion of the effective interest rate.
(j) Represents interest expense at 8.0% incurred on line of credit borrowings
by PTR in connection with convertible mortgage note fundings to Homestead
for the acquisition of land by Homestead.
(k) Reflects the reduction of the 16% REIT management fee attributable to the
increased interest expense in (j) above. The REIT Management Agreement
between PTR and the REIT Manager will be amended to exclude income
received from the convertible mortgage notes from the definition of income
subject to the REIT management fee.
(l) Assuming the merger and spin-off transactions had occurred as of January
1, 1995, the costs incurred to acquire the assets existing at March 31,
1996 are also all assumed to have been incurred as of January 1, 1995
prior to the spin-off by PTR. Further, as the debt incurred by PTR to
finance the assets would not be retired as a result of the spin-off, such
financing would, for pro forma purposes, remain outstanding for the entire
year ended December 31, 1995.
Additionally, it is assumed that properties under development would have
been debt financed 100% via PTR's line of credit and that operating
properties would have been debt financed 70% based on the leverage ratio
which is expected to exist within Homestead after the Funding Commitment
Agreements have been fulfilled. Based upon these assumptions, following is
the interest expense and REIT management fee adjustments, for the year
ended December 31, 1995, related to the financing of the $125,187 of gross
historical cost of real estate assets (prior to accumulated depreciation
existing as of March 31, 1996).
<TABLE>
<CAPTION>
PTR-HOMESTEAD VILLAGE PROPERTIES
---------------------------------------
OPERATING UNDER DEVELOPMENT TOTAL
--------- ----------------- --------
<S> <C> <C> <C>
March 31, 1996 gross historical
cost of real estate assets (prior
to accumulated depreciation)...... $89,508 $35,679 $125,187
Assumed financing percentage....... 70% 100% 78.55%
------- ------- --------
Assumed amount financed............ 62,656 35,679 98,335
Assumed interest rate.............. 7.37%(1) 8.00%(2) 7.60%
------- ------- --------
Pro forma interest adjustment(3)... $ 4,618 $ 2,854 7,472
======= =======
Pro forma REIT management fee
adjustment (16%).................. (1,196)
--------
Net pro forma adjustment........... $ 6,276
========
</TABLE>
--------
(1) Represents the interest rate on PTR's long term unsecured debt.
(2) Represents weighted average interest rate on PTR's line of credit
borrowings for the year.
(3) The pro forma interest adjustment reflects the financing costs for the
entire period as the actual historical interest expense was eliminated
in adjustment (h) above.
F-16
<PAGE>
[ATLANTIC LETTERHEAD]
To the Shareholders of Security Capital Atlantic Incorporated ("ATLANTIC"):
You are invited to attend a special meeting of ATLANTIC shareholders to be
held in Atlanta, Georgia on Friday, September 13, 1996 at 10:00 a.m. local
time.
At the meeting you will be asked to consider and vote upon a proposed Merger
and Distribution Agreement which contemplates (i) the contribution, through a
series of merger transactions, by ATLANTIC of its Homestead Village properties
to a newly formed company, Homestead Village Incorporated ("Homestead"), in
exchange for shares of Homestead common stock, (ii) the receipt of warrants to
purchase shares of Homestead common stock in exchange for the agreement of
ATLANTIC to finance, through convertible mortgage loans to Homestead, the
acquisition and development of certain properties being contributed by
ATLANTIC to Homestead and (iii) the distribution, pro rata, of all of the
Homestead common stock and warrants ATLANTIC receives to ATLANTIC
shareholders. If the foregoing proposal is approved, each holder of ATLANTIC
common stock will (1) retain his or her existing shares of ATLANTIC common
stock and (2) receive shares of Homestead common stock and warrants to
purchase shares of Homestead common stock. The transaction and certain related
matters are described in detail in the accompanying Information Statement and
Prospectus. Please review it carefully.
After careful consideration, the ATLANTIC Board of Directors, by unanimous
vote of directors who are not officers of ATLANTIC or directors, officers or
employees of ATLANTIC's largest shareholder, Security Capital Group
Incorporated ("SCG"), or its affiliates, has approved the transaction and
recommends that all shareholders vote for its approval. The affirmative vote
of holders of a majority of the outstanding shares of ATLANTIC common stock
will be necessary for approval of the transaction.
SCG, which owns approximately 64.1% of the outstanding shares of ATLANTIC
common stock, has agreed, subject to certain conditions, to vote its shares of
ATLANTIC common stock in favor of the Merger Agreement. Therefore, approval of
the proposal is assured.
YOU ARE NOT BEING ASKED TO SUBMIT A PROXY AND ONE IS NOT BEING SOLICITED.
Very truly yours,
Constance B. Moore
Co-Chairman
James C. Potts
Co-Chairman
<PAGE>
[ATLANTIC LETTERHEAD]
Notice Is Hereby Given that a special meeting of shareholders of Security
Capital Atlantic Incorporated ("ATLANTIC") will be held on Friday, September
13, 1996, commencing at 10:00 a.m., local time, at ATLANTIC's executive
offices at Six Piedmont Center, Suite 600, Atlanta, Georgia, for the following
purposes:
1. To consider and vote upon the approval of a Merger and Distribution
Agreement dated as of May 21, 1996 (the "Merger Agreement"), among
ATLANTIC, Homestead Village Incorporated, a Maryland corporation
("Homestead"), Security Capital Pacific Trust, a Maryland real estate
investment trust ("PTR"), and Security Capital Group Incorporated, a
Maryland corporation ("SCG"), pursuant to which, among other matters, (i)
ATLANTIC, PTR and SCG would contribute, through a series of merger
transactions, all of their respective assets related to the Homestead
Village properties in exchange for shares of Homestead common stock, (ii)
ATLANTIC and PTR would agree to finance, through convertible mortgage loans
to Homestead, the acquisition and development of certain properties being
contributed by them in exchange for warrants to purchase shares of
Homestead common stock, (iii) SCG would agree to finance the acquisition
and development of certain Homestead Village properties in exchange for
warrants to purchase shares of Homestead common stock and (iv) ATLANTIC and
PTR would distribute such Homestead securities pro rata to their respective
shareholders, all as more fully described in the accompanying Information
Statement and Prospectus;
2. To transact any other business that may properly come before the
special meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is set forth as Annex I to the Information
Statement and Prospectus attached hereto and is incorporated herein by
reference.
The Board of Directors of ATLANTIC has fixed the close of business on August
12, 1996 as the record date for the determination of stockholders entitled to
notice of and to vote at the special meeting. The affirmative vote of the
holders of a majority of the outstanding shares of common stock of ATLANTIC
entitled to vote at the special meeting is necessary to approve and adopt the
proposal set forth above. Holders of shares of ATLANTIC common stock are not
entitled to dissenters' rights under Maryland law in connection with the
transaction.
YOU ARE NOT BEING ASKED TO SUBMIT A PROXY AND ONE IS NOT BEING SOLICITED.
By Order of the Board of Directors,
Jeffrey A. Klopf
Secretary
Atlanta, Georgia
August , 1996
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS INFORMATION STATEMENT AND PROSPECTUS SHALL NOT +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL +
+THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED AUGUST 6, 1996
SECURITY CAPITAL ATLANTIC INCORPORATED
INFORMATION STATEMENT
-----------
HOMESTEAD VILLAGE INCORPORATED
PROSPECTUS
-----------
This Information Statement and Prospectus relates to (i) a proposed
transaction pursuant to which Security Capital Atlantic Incorporated
("ATLANTIC"), Security Capital Pacific Trust ("PTR") and Security Capital Group
Incorporated ("SCG") will each contribute, through a series of merger
transactions (the "Mergers"), their Homestead Village(R) extended-stay lodging
assets to Homestead Village Incorporated ("Homestead") in exchange for
Homestead common stock, $0.01 par value per share ("Homestead Common Stock"),
all as contemplated by the terms of a Merger and Distribution Agreement dated
as of May 21, 1996 (the "Merger Agreement"); (ii) the receipt of warrants, each
to purchase one share of Homestead Common Stock, at an exercise price of $10.00
per share ("Homestead Warrants" and, together with the Homestead Common Stock,
the "Homestead Securities"), by ATLANTIC and PTR in exchange for the agreement
of ATLANTIC and PTR to finance the acquisition and development of certain
properties being contributed by them to Homestead through convertible mortgage
loans to Homestead; (iii) the receipt of Homestead Warrants by SCG in exchange
for the agreement of SCG to provide certain financing to Homestead; and (iv)
the subsequent distribution (the "Distribution") by ATLANTIC and PTR of such
Homestead Securities to their respective shareholders (collectively, the
"Transaction"). The Distribution will result in a taxable dividend to
shareholders of ATLANTIC. See "The Transaction--Federal Income Tax
Consequences."
A Special Meeting of Shareholders of ATLANTIC is scheduled to be held on
September 13, 1996 and at any adjournment or postponement thereof (the
"ATLANTIC Special Meeting") to consider the matters described above. A copy of
the Merger Agreement is attached to this Information Statement and Prospectus
as Annex I and is incorporated herein by reference. ATLANTIC is not soliciting
proxies to be used at the ATLANTIC Special Meeting. SCG owns approximately
64.1% of the outstanding shares of ATLANTIC common stock, $0.01 par value per
share ("ATLANTIC Common Stock"), and it has agreed, subject to certain
conditions, to vote all of its shares of ATLANTIC Common Stock in favor of the
Merger Agreement. Therefore, approval of the proposal is assured.
This Information Statement and Prospectus constitutes both the information
statement of ATLANTIC relating to the matters to be addressed at the ATLANTIC
Special Meeting, and the prospectus of Homestead (the "Homestead Prospectus")
with respect to 4,201,220 shares of Homestead Common Stock and Homestead
Warrants to purchase 2,818,517 shares of Homestead Common Stock to be
distributed to the ATLANTIC shareholders. The amount of Homestead Securities to
be received by each ATLANTIC shareholder in the Distribution will depend on the
number of shares of ATLANTIC Common Stock outstanding on the record date to be
established for the Distribution (the "Distribution Record Date"). Based on the
number of shares of ATLANTIC Common Stock outstanding on August 1, 1996, each
ATLANTIC shareholder would receive 0.063748 shares of Homestead Common Stock
and 0.042768 Homestead Warrants for each share of ATLANTIC Common Stock held.
Cash will be paid in lieu of any fractional shares of Homestead Common Stock
and fractional Homestead Warrants. Thus, an ATLANTIC shareholder who owns 100
shares of ATLANTIC Common Stock on the Distribution Record Date would receive
six shares of Homestead Common Stock and four Homestead Warrants plus cash for
fractional shares and warrants. ATLANTIC has filed with the Securities and
Exchange Commission (the "Commission") a registration statement with respect to
an initial public offering (the "ATLANTIC IPO") of shares of ATLANTIC Common
Stock. If the ATLANTIC IPO occurs prior to the Distribution Record Date, the
number of shares of ATLANTIC Common Stock outstanding on the Distribution
Record Date will increase, which will result in a proportionate reduction in
the amount of Homestead Securities to be received by each ATLANTIC shareholder.
Information concerning Homestead is set forth in the Homestead Prospectus
hereto and is incorporated herein by reference. This Information Statement and
Prospectus is first being sent to shareholders of ATLANTIC on or about August
, 1996.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
SEE "RISK FACTORS" AT PAGE 13 OF THIS INFORMATION STATEMENT AND PROSPECTUS
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING THE
TRANSACTION.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS INFORMATION STATEMENT AND
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 INFORMATION STATEMENT AND 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.
-----------
The date of this Information Statement and Prospectus is August , 1996.
<PAGE>
AVAILABLE INFORMATION
Homestead has filed with the Commission a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Homestead Securities to be issued pursuant to the Merger
Agreement and the Transaction. This Information Statement and Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby
made to the Registration Statement.
As a result of the Transaction, Homestead will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(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 be
obtained from the Commission's web site at http://www.sec.gov.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Information Statement and Prospectus, and if given or made, such information
or representations should not be relied upon as having been authorized. This
Information Statement and Prospectus does not constitute an offer to sell, or
a solicitation of an offer to purchase, the securities offered by this
Information Statement and Prospectus, or the solicitation of a proxy, in any
jurisdiction to or from any person to whom or from whom it is unlawful to make
such offer, solicitation of an offer or proxy solicitation in such
jurisdiction. Neither the delivery of this Information Statement and
Prospectus nor any distribution of securities pursuant to this Information
Statement and Prospectus shall, under any circumstances, create any
implication that there has been no change in the information set forth or
incorporated herein by reference or in the affairs of ATLANTIC since the date
of this Information Statement and Prospectus. However, if any material change
occurs during the period that this Information Statement and Prospectus is
required to be delivered, this Information Statement and Prospectus will be
amended and supplemented accordingly. All information regarding ATLANTIC in
this Information Statement and Prospectus has been supplied by ATLANTIC, and
all information regarding Homestead in this Information Statement and
Prospectus has been supplied by Homestead.
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................... i
SUMMARY.................................................................... 2
RISK FACTORS............................................................... 13
Significant Influence of Principal Shareholder........................... 13
Determination of Relative Ownership Percentages.......................... 13
Risks in Valuation and Allocation........................................ 14
Conflicts of Interest in the Transaction................................. 14
Taxability of Distribution............................................... 15
Absence of Prior Public Market........................................... 15
Risks of Investments in Mortgages and Funding Commitment................. 15
Impact of Transaction on Funds From Operations........................... 15
Competition.............................................................. 15
Limited Operating History................................................ 15
THE TRANSACTION............................................................ 16
General.................................................................. 16
The Distribution......................................................... 16
Foreign Shareholders..................................................... 16
Background............................................................... 16
Recommendations of the ATLANTIC Board and Reasons for the Transaction.... 24
Fairness Opinion......................................................... 29
Federal Income Tax Consequences.......................................... 33
Interests of Certain Persons in the Transaction.......................... 38
The Merger Agreement..................................................... 39
Protection of Business Agreement......................................... 44
SCG Investor Agreement................................................... 44
Funding Commitment Agreements............................................ 45
ATLANTIC and PTR Investor Agreements..................................... 46
Administrative Services Agreement........................................ 46
Escrow Agreement......................................................... 46
Regulatory Filings and Approvals......................................... 47
Restrictions on Sales by Affiliates...................................... 47
Accounting Treatment..................................................... 47
Expenses................................................................. 47
Dissenters' Rights....................................................... 48
Board Recommendation..................................................... 48
THE SPECIAL MEETING........................................................ 48
Purpose of the Meeting................................................... 48
Date, Time and Place; Record Date........................................ 48
Voting Rights............................................................ 48
Other Matters............................................................ 48
INFORMATION CONCERNING ATLANTIC............................................ 49
General.................................................................. 49
Employees................................................................ 49
Legal Proceedings........................................................ 49
Competition.............................................................. 50
ATLANTIC REIT MANAGEMENT................................................... 50
ATLANTIC PROPERTIES........................................................ 51
Properties Owned......................................................... 51
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ATLANTIC SELECTED FINANCIAL INFORMATION................................... 53
ATLANTIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 54
Overview................................................................ 54
Results of Operations................................................... 55
Environmental Matters................................................... 56
Liquidity and Capital Resources......................................... 57
REIT Management Agreement............................................... 61
ATLANTIC PER SHARE DISTRIBUTIONS.......................................... 62
ATLANTIC POLICIES WITH RESPECT TO CERTAIN ACTIVITIES...................... 63
Investment Policies..................................................... 63
Financing Policies...................................................... 64
Conflict of Interest Policies........................................... 64
Policies Applicable to the ATLANTIC REIT Manager and Officers and
Directors of ATLANTIC.................................................. 64
Policies With Respect to Other Activities............................... 65
PRINCIPAL SHAREHOLDERS.................................................... 66
FEDERAL INCOME TAX CONSIDERATIONS......................................... 67
Taxation of ATLANTIC.................................................... 67
Taxation of the Shareholders of ATLANTIC................................ 68
Backup Withholding...................................................... 69
COMPARISON OF RIGHTS OF HOLDERS OF ATLANTIC COMMON STOCK AND HOMESTEAD
COMMON STOCK............................................................. 69
Preferred Shares........................................................ 69
Restrictions on Transfer and Redemption of Shares....................... 70
Directors............................................................... 71
Vacancies Among Directors............................................... 72
Limitation on Director Liability........................................ 72
Indemnification of Directors and Officers............................... 72
Special Shareholders' Meetings.......................................... 73
Advance Notice of Directors' Nominations and New Business............... 73
LEGAL MATTERS............................................................. 73
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AND EXPERTS...................... 73
EXPENSES OF SOLICITATION.................................................. 74
INDEX TO ATLANTIC FINANCIAL STATEMENTS.................................... F-1
Homestead Prospectus
ANNEX I--Merger and Distribution Agreement
ANNEX II--Opinion of J.P. Morgan Securities Inc.
</TABLE>
iii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Information Statement and Prospectus
(including the Homestead Prospectus attached hereto and the Annexes hereto).
Shareholders are urged to review the entire Information Statement and
Prospectus, the Homestead Prospectus and the Annexes hereto. Unless otherwise
noted, share ownership information is as of August 1, 1996 and does not take
into account any shares of ATLANTIC Common Stock which may be issued by
ATLANTIC as a result of an initial public offering of its common stock (which
is expected to occur prior to the Distribution Record Date). In addition,
unless the context otherwise requires, references to "Homestead" refer to
Homestead Village Incorporated and its subsidiaries. All references to
Homestead Village Incorporated's operations include ATLANTIC, PTR and SCG
operations with respect to the Homestead Village properties. Homestead
Village(R) is a registered trademark of SCG, which will be assigned to
Homestead as part of the Transaction. The term "Homestead Village" as used
herein shall include a reference to such registered trademark. Except as
otherwise specifically described, all property and other information regarding
ATLANTIC includes its Homestead Village properties.
SECURITY CAPITAL ATLANTIC INCORPORATED
ATLANTIC engages in the development, acquisition, operation and long-term
ownership of multifamily properties in the southeastern United States.
ATLANTIC's objective is to be the preeminent real estate operating company
focusing on multifamily properties in its primary target market. ATLANTIC,
through its REIT manager, Security Capital (Atlantic) Incorporated (the
"ATLANTIC REIT Manager" or "ATLANTIC REIT Management"), is an Atlanta-based,
fully integrated operating company with 96 professionals dedicated to
implementing its highly focused operating strategy. At June 30, 1996,
ATLANTIC's portfolio consisted of 28,231 multifamily units, including 11,122
units under construction and in planning, in 16 metropolitan areas and 41
submarkets in the premier growth areas of the southeastern United States. The
aggregate investment cost of these 116 properties, including planned
renovations and total budgeted development expenditures, is $1.46 billion.
ATLANTIC has filed a registration statement relating to an initial public
offering of up to $115,000,000 of shares of ATLANTIC Common Stock (the
"ATLANTIC IPO").
ATLANTIC has elected to be taxed as a real estate investment trust ("REIT")
for federal income tax purposes. ATLANTIC executive offices are located at Six
Piedmont Center, Atlanta, Georgia 30305, and its telephone number is (404) 237-
9292. ATLANTIC is a Maryland corporation. Its predecessor was formed in October
1993 as a Delaware corporation, and ATLANTIC was re-formed in Maryland in April
1994.
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 ATLANTIC, PTR 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.
2
<PAGE>
Homestead currently has a total of 80 facilities either in operation, under
construction or in pre-development planning. Homestead operates 29 facilities,
has begun construction of 12 additional facilities and has an additional 39
properties in pre-development planning. 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 to
take approximately eight to ten months to construct.
The average length of stay for a customer is in excess of four weeks. For the
quarter ended March 31, 1996, average physical occupancy and average weekly
rate for 17 stabilized properties was 87% and $217 per week, respectively, and,
for the same quarter, average physical occupancy and average weekly rate for
seven pre-stabilized properties was 59% and $217 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.
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 ATLANTIC and PTR,
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 ATLANTIC and PTR (described herein), under
which ATLANTIC and PTR have agreed to provide funding of $111 million
and $129 million, respectively, and to receive convertible mortgage
notes of $98 million and $144 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 in the Transaction with an aggregate
exercise price of approximately $51 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 "The Transaction--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 of a higher quality 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.
3
<PAGE>
RISK FACTORS
In considering whether to approve the matters described herein, ATLANTIC
shareholders should consider the following matters in addition to the matters
described in greater detail herein under "Risk Factors." ADDITIONALLY, ATLANTIC
SHAREHOLDERS SHOULD CONSIDER THOSE MATTERS DESCRIBED UNDER THE CAPTION "RISK
FACTORS," BEGINNING ON PAGE A-8 IN THE HOMESTEAD PROSPECTUS ATTACHED HERETO,
WITH RESPECT TO THE OWNERSHIP OF HOMESTEAD SECURITIES.
. There may be alternative methods of calculating the relative ownership
percentages of the various parties in Homestead which, if used, could
have resulted in different relative amounts of consideration being
received by ATLANTIC, PTR or SCG.
. The terms of the Transaction were not determined based on arm's length
negotiations.
. Since SCG controls all of the parties to the Transaction, conflicts of
interest exist.
. SCG will exercise significant influence over the business and policies
of ATLANTIC, PTR and Homestead after consummation of the Transaction due
to its (i) existing ownership of shares of ATLANTIC and PTR and of their
respective REIT Managers and expected ownership of shares of Homestead
Common Stock, (ii) right to nominate up to three members of the board of
directors of ATLANTIC (the "ATLANTIC Board"), the board of trustees of
PTR (the "PTR Board") and two members of the Homestead Board, and (iii)
right of prior consultation regarding certain Homestead matters,
including annual operating budgets and substantial deviations therefrom.
. ATLANTIC will be subject to the risks inherent in making mortgage loans
if the Transaction is approved, including the risk that Homestead may
not be able to make debt service payments or pay principal when due and
the risk that the value of the mortgaged properties may be less than the
amounts owed.
. Homestead and the Homestead Village properties have a limited operating
history.
. Prior to the Distribution, there will not be an established trading
market for the Homestead Securities and there is no assurance of the
price at which the Homestead Securities will trade.
. Because ATLANTIC's Homestead Village properties are in earlier stages of
development than PTR's Homestead Village properties, and in order to
assure that ATLANTIC receives all of its shares of Homestead Common
Stock at the closing of the Mergers (the "Closing Date") rather than
being received in smaller increments over time as funds are expended for
Homestead Village properties contributed by ATLANTIC, ATLANTIC will
provide an estimated cash payment of $18.6 million to Homestead at the
Closing.
THE SPECIAL MEETING
THE MEETING
The ATLANTIC Special Meeting is scheduled to be held at 10:00 a.m., local
time, on Friday, September 13, 1996, at ATLANTIC's executive offices at Six
Piedmont Center, Suite 600, Atlanta, Georgia. The ATLANTIC Board has fixed the
close of business on August 12, 1996 as the record date for the determination
of holders of shares of ATLANTIC Common Stock entitled to notice of and to vote
at the ATLANTIC Special Meeting. See "The Special Meeting."
THE PROPOSALS
At the ATLANTIC Special Meeting, shareholders will be asked to consider and
vote upon the approval of the Merger Agreement and the Transaction.
THE ATLANTIC BOARD, BY UNANIMOUS VOTE OF DIRECTORS, APPROVED THE MERGER
AGREEMENT AND THE TRANSACTION AND RECOMMENDS THAT ATLANTIC SHAREHOLDERS VOTE
"FOR" THE APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTION. SEE "THE
TRANSACTION--RECOMMENDATIONS OF THE ATLANTIC BOARD AND REASONS FOR THE
TRANSACTION."
4
<PAGE>
REQUIRED VOTE
The affirmative vote of the holders of at least a majority of the outstanding
shares of ATLANTIC Common Stock is required to approve and adopt the Merger
Agreement and the Transaction. As of August 1, 1996, SCG beneficially owned
approximately 64.1% of the outstanding shares of ATLANTIC Common Stock. See
"The Special Meeting--Voting Rights." SCG has agreed, subject to certain
conditions, to vote all shares of ATLANTIC Common Stock owned by it in favor of
the proposal. Therefore, assuming such conditions are satisfied, approval of
the proposal is assured.
THE TRANSACTION
GENERAL
ATLANTIC has traditionally focused on multifamily assets in the southeastern
United States and PTR has focused on multifamily assets in the western United
States. Since 1992, PTR has developed and operated 28 Homestead Village
properties and, since 1995 ATLANTIC has developed one Homestead Village
property. At its meeting on March 12, 1996, the ATLANTIC Board began
considering ways to maximize shareholder value with respect to the Homestead
Village properties. On May 21, 1996, ATLANTIC, PTR, Homestead and SCG entered
into the Merger Agreement.
The Transaction is expected to result in:
. Enhanced market valuation placed on the Homestead Village operations by
allowing the financial markets the ability to focus on the distinct
characteristics of ATLANTIC's multifamily property operations and
Homestead's moderate priced, extended-stay lodging business.
. Homestead Village properties being more effectively and profitably
utilized and developed due to the elimination of certain restrictions
applicable to real estate investment trusts ("REITs").
. Enhanced ability of Homestead to access external capital markets
necessary to carry out its business plan.
FORMATION OF HOMESTEAD
Assuming that the requisite shareholder vote is received and that all other
conditions to the Merger Agreement have been satisfied or waived, each of
ATLANTIC, PTR and SCG will contribute, through a series of merger transactions,
all of their respective assets related to Homestead Village properties in
return for shares of Homestead Common Stock as follows:
. 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 Merger (the "Closing Date"). This payment is required
because ATLANTIC's Homestead Village properties are in earlier stages of
development than PTR's Homestead Village 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.
. 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.
. SCG will contribute to Homestead its anticipated future cash flows from
the ATLANTIC REIT Management Agreement (defined herein) and a similar
management agreement with PTR (the "PTR REIT Management Agreement") 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
5
<PAGE>
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 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 ATLANTIC and PTR 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, ATLANTIC and PTR
will receive 2,818,517 and 6,363,789 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, ATLANTIC and
PTR will agree to provide secured financing to Homestead and receive up
to $98,028,471 and $144,044,620, respectively, in convertible mortgage
notes. These notes will have a term of approximately ten years, 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 adjustment. The ATLANTIC
mortgage loans and PTR mortgage loans will be used to finance the
acquisition and development of properties contributed by ATLANTIC and
PTR, 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 8,524,215 and 19,246,402
shares of Homestead Common Stock would be issued to ATLANTIC and PTR,
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 ATLANTIC, PTR 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 28.00%, 63.21% 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 ATLANTIC
and PTR 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 Distribution of the Homestead Securities by
ATLANTIC and PTR, 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 ATLANTIC and PTR, SCG would own approximately 50.6% of the
outstanding Homestead Common Stock.
THE DISTRIBUTION
The Homestead Securities received by ATLANTIC will be distributed, pro rata,
to ATLANTIC shareholders. The Distribution of the Homestead Securities will be
declared following approval of the proposals by ATLANTIC shareholders and PTR
shareholders, subject to the satisfaction of certain conditions to the Merger
Agreement. The Distribution will be made to holders of shares of ATLANTIC
Common Stock of record at the close of business on the Distribution Record
Date. The amount of Homestead Securities to be received by each ATLANTIC
shareholder in the Distribution will depend on the number of shares of
ATLANTIC Common Stock outstanding on the Distribution Record Date. Based on
the number of shares of ATLANTIC Common Stock
6
<PAGE>
outstanding on August 1, 1996, each ATLANTIC shareholder would receive 0.063748
shares of Homestead Common Stock and 0.042768 Homestead Warrants for each share
of ATLANTIC Common Stock held. If the ATLANTIC IPO occurs prior to the
Distribution Record Date, it will result in a proportionate reduction in the
amount of Homestead Securities to be received by each ATLANTIC shareholder.
No certificates or scrip representing fractional shares of Homestead Common
Stock or fractional Homestead Warrants will be issued directly to ATLANTIC
shareholders as a part of the Distribution. The Distribution Agent (defined
herein) will, as soon as practicable after the Distribution Record Date,
aggregate and sell all fractional shares of Homestead Common Stock and
Homestead Warrants on any national securities exchange or interdealer quotation
system on which the Homestead Securities are then listed or quoted at then
prevailing market prices and remit the net proceeds (after deduction of
brokerage fees) to ATLANTIC shareholders who would otherwise be entitled to
receive fractional shares or warrants. No assurances can be given as to the
price at which such securities can be sold or the proceeds to shareholders from
such sales.
NO HOLDER OF SHARES OF ATLANTIC COMMON STOCK WILL BE REQUIRED TO PAY ANY CASH
OR OTHER CONSIDERATION FOR THE HOMESTEAD SECURITIES RECEIVED IN THE
DISTRIBUTION OR TO SURRENDER OR EXCHANGE SHARES OF ATLANTIC COMMON STOCK IN
ORDER TO RECEIVE HOMESTEAD SECURITIES. THE DISTRIBUTION WILL NOT AFFECT THE
NUMBER OF, OR THE RIGHTS ATTACHING TO, OUTSTANDING SHARES OF ATLANTIC COMMON
STOCK.
The following diagram shows the contributions to be made by, and the
consideration to be distributed with respect to, each of PTR and its
shareholders, ATLANTIC and its shareholders, SCG and Homestead, respectively:
[CHART APPEARS HERE]
Homestead Properties Homestead Properties
-------------------- --------------------
28 In Operation 1 In Operation
8 Under Construction 4 Under Construction
18 In Pre-Development 21 In Pre-Development
Planning Planning
$129 million Funding $18.6 million in cash(1)
Commitment $111 million Funding
Commitment
- ----------- ----------- -----------
--------------- ---------------
PTR HOMESTEAD ATLANTIC
--------------- ---------------
- ----------- ----------- -----------
Homestead Securities Homestead Securities
-------------------- --------------------
9,485,727 9,485,727 Shares of 4,201,220 Shares of 4,201,220
Shares of Homestead Common Homestead Common Shares of
Homestead Stock Stock Homestead
Common $144 Million $98 Million Common
Stock Convertible Mortgages(2) Convertible Mortgages Stock
6,363,789 6,363,789 Homestead 2,818,517 Homestead 2,818,517
Homestead Warrants Warrants Homestead
Warrants (63.2% Ownership (3)) (28.0% Ownership (3)) Warrants
Homestead Securities
--------------------
4,062,788 Shares of
Homestead Common Stock(4)
817,694 Homestead Development Properties
Warrants Homestead Trademarks
(8.8% Ownership (3)(5)) Operating Systems
Personnel
- --------------- ----------- ---------------
--------------- ---------------
PTR SCG ATLANTIC
SHAREHOLDERS(5) --------------- --------------- SHAREHOLDERS(5)
- --------------- ----------- ---------------
(1) Subject to adjustment pursuant to the terms of the Merger Agreement.
(2) In addition, at closing of the Mergers, it is expected that an additional
$77 million of convertible mortgage notes will be held by PTR.
(3) Ownership percentages assume full conversion of mortgages and exercise of
all warrants.
(4) 2,243,038 of these shares will be placed in escrow and released as funds
are advanced under the Funding Commitment Agreements.
(5) SCG beneficially owns 37.8% and 64.1% of PTR and ATLANTIC, respectively, at
August 1, 1996.
7
<PAGE>
RECOMMENDATIONS OF THE ATLANTIC BOARD AND REASONS FOR THE TRANSACTION
A special committee of the independent directors of the ATLANTIC Board (the
"ATLANTIC Special Committee") unanimously approved the Merger Agreement as
being fair and reasonable to ATLANTIC. The ATLANTIC Special Committee
recommended that the ATLANTIC Board approve the Merger Agreement and the
Transaction. The ATLANTIC Board approved the Merger Agreement and the
Transaction as being fair and reasonable. The ATLANTIC Board considered a
number of factors including the recommendation of the ATLANTIC Special
Committee and the reasons emphasized by the ATLANTIC Special Committee, the
goals and objectives of Homestead, SCG's stated objective of maximizing
shareholder value, the relative contributions of ATLANTIC, PTR and SCG, the
premium that ATLANTIC must pay for its convertible notes under the Financing
Commitment Agreement, the sources of funding for ATLANTIC's obligations under
the Financing Commitment Agreement, the impact of the Transaction on ATLANTIC's
estimated funds from operations and balance sheet, the financial structure of
Homestead giving effect to the Transaction, the impact of the REIT rules on
continued operation of the Homestead Village properties by ATLANTIC, the terms
of the Homestead Securities and the tax impact of the Distribution on ATLANTIC
and its shareholders. Finally, the ATLANTIC Board considered the condition to
the Merger that the ATLANTIC Special Committee receive a written opinion from
an investment banking firm satisfactory to the ATLANTIC Special Committee that
the consideration to be received by ATLANTIC in connection with the Merger
Agreement and the transactions contemplated thereby and by the Related
Agreements (as defined in the Merger Agreement) is fair, from a financial point
of view, to ATLANTIC's shareholders (other than SCG). The ATLANTIC Board did
not quantify or otherwise attempt to assign relative weights to the specific
factors considered in making its determination. For a discussion of ATLANTIC's
reasons for the Transaction and the factors considered by the ATLANTIC Board in
making its recommendation, see "The Transaction--Recommendations of the
ATLANTIC Board and Reasons for the Transaction."
INTERESTS OF CERTAIN PERSONS
ATLANTIC's directors and officers who own ATLANTIC Common Stock or PTR Common
Shares (as hereafter defined) will, in the aggregate, receive a total of 21,535
shares of Homestead Common Stock and 14,445 Homestead Warrants as a result of
the Transaction. SCG and its directors and executive officers who own ATLANTIC
Common Stock or PTR Common Shares will, in the aggregate, receive a total of
10,460,177 shares of Homestead Common Stock (including 2,243,038 shares being
held in escrow) and 5,109,575 Homestead Warrants as a result of the
Transaction. Each of the foregoing persons will receive cash in lieu of
fractional shares of Homestead Common Stock and fractional Homestead Warrants.
Certain officers of ATLANTIC and the ATLANTIC REIT Manager will become officers
and employees of Homestead and may receive grants of options to acquire
Homestead Common Stock and may be offered the opportunity to purchase shares of
Homestead Common Stock under Homestead's Long-Term Incentive Plan. See "The
Transaction--Interests of Certain Persons in the Transaction."
FAIRNESS OPINION
On May 17, 1996 J.P. Morgan Securities Inc. ("J.P. Morgan") delivered its
oral opinion to the ATLANTIC Special Committee to the effect that, as of such
date and based upon and subject to the assumptions made, the consideration to
be received by ATLANTIC in connection with the Merger Agreement and the
transactions contemplated thereby and by the Related Agreements (as defined in
the Merger Agreement) is fair, from a financial point of view, to the
shareholders of ATLANTIC (other than SCG). J.P. Morgan subsequently confirmed
its opinion by delivery of a written opinion dated the date of this Information
Statement and Prospectus. A copy of such opinion is attached hereto as Annex II
and is incorporated herein by reference. SHAREHOLDERS OF ATLANTIC ARE URGED TO
READ THE OPINION OF J.P. MORGAN IN ITS ENTIRETY. For additional information
concerning the assumptions made, matters considered and limits of the review by
J.P. Morgan in reaching its opinion and the fees to be received by it, see "The
Transaction--Fairness Opinion."
8
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The Mergers have been structured to constitute a transaction subject to
Section 351 or the reorganization provisions of the Internal Revenue Code of
1986, as amended to the date hereof (the "Code"), and related provisions.
ATLANTIC will recognize taxable gain on the Mergers if ATLANTIC is treated as
having received property or cash ("boot") in the Mergers and will recognize
gain on the Distribution in an amount equal to the excess of the sum of (i) the
fair market value of the Homestead Securities on the Distribution Date and (ii)
cash distributed in lieu of fractional shares of Homestead Common Stock and
fractional Homestead Warrants over ATLANTIC's basis immediately prior to the
Distribution in the Homestead Securities it receives in the Mergers (ATLANTIC's
and its subsidiaries' tax basis in the Homestead Village properties immediately
prior to the Transaction is estimated to be approximately $47,622,293). The
earnings and profits of ATLANTIC will be increased by the amount of any such
gain recognized in the Mergers or the Distribution. ATLANTIC will also
recognize income with respect to the value of the Homestead Warrants received
by it in exchange for entering into the Funding Commitment Agreement, which
will increase ATLANTIC's earnings and profits.
The Distribution of the Homestead Securities and cash in lieu of fractional
shares of Homestead Common Stock and fractional Homestead Warrants will
constitute a taxable dividend to ATLANTIC shareholders, taxable as ordinary
income, to the extent of the earnings and profits of ATLANTIC allocable to such
Homestead Securities and cash. The amount of the Distribution which exceeds the
allocated earnings and profits of ATLANTIC will be treated as a nontaxable
reduction (although not below zero) of a shareholder's tax basis in its
ATLANTIC Common Stock. To the extent that the Distribution exceeds such
shareholder's adjusted tax basis in its ATLANTIC Common Stock, the excess will
be taxed as gain to such shareholder. See "The Transaction--Federal Income Tax
Consequences."
CONDITIONS TO THE TRANSACTION
The obligations of ATLANTIC to consummate the Transaction are subject to the
satisfaction or waiver of certain conditions, including, among others, (i)
obtaining the requisite approvals of the ATLANTIC shareholders and PTR
shareholders, (ii) the absence of any injunction prohibiting the consummation
of the Transaction, (iii) the receipt of all governmental consents, orders and
approvals legally required for consummation of the Transaction, (iv) the
receipt of certain legal opinions or Internal Revenue Service ("IRS") rulings
with respect to the tax consequences of the Transaction, effects of the
Transaction on REIT qualification and certain other legal matters, (v) the
continuing accuracy of the representations and warranties of each party and
(vi) the performance of certain other specified obligations by each party. See
"The Transaction--The Merger Agreement--Conditions to the Transaction."
TERMINATION
The Merger Agreement may be terminated at any time prior to the Closing Date
(i) by mutual consent of ATLANTIC, PTR, SCG and Homestead; (ii) by any of
ATLANTIC, PTR, SCG or Homestead after December 31, 1996, if the Transaction has
not been consummated on or before such date (so long as the party terminating
has not breached its obligations under the Merger Agreement except for such
breaches that are immaterial); (iii) unilaterally by any of ATLANTIC, PTR, SCG
or Homestead if (a) any other party fails to perform any covenant or agreement
in the Merger Agreement in any material respect and does not cure such failure
in all material respects within 15 business days after receipt of written
notice of the alleged failure from another party, (b) any other party fails to
fulfill or complete a condition to the obligations of that party (which
condition is not waived) by reason of a breach by that party of its obligations
in the Merger Agreement or (c) any condition to the obligations of any other
party is not satisfied (other than by reason of a breach by that party of its
obligations under the Merger Agreement), and it reasonably appears that the
condition cannot be satisfied prior to December 31, 1996; (iv) unilaterally by
any of PTR, SCG or Homestead if ATLANTIC, through the ATLANTIC Board or the
ATLANTIC Special Committee, either fails to recommend to ATLANTIC's
shareholders the approval of the
9
<PAGE>
Merger Agreement and the Transaction or withdraws, modifies or amends such
recommendation; and (v) unilaterally by any of ATLANTIC, SCG or Homestead if
PTR, through the PTR Board or the special committee of the PTR Board (the "PTR
Special Committee"), either fails to recommend to PTR's shareholders the
approval of the Merger Agreement and the Transaction or withdraws, modifies or
amends such recommendation.
AMENDMENT AND WAIVER
Subject to compliance with applicable law, the Merger Agreement may be
amended by the written agreement of ATLANTIC, PTR, SCG and Homestead. However,
the Merger Agreement may not be amended in any material respect subsequent to
obtaining the approval of the shareholders of ATLANTIC and PTR. See "The
Transaction--The Merger Agreement--Amendment and Waiver."
REGULATORY REQUIREMENTS
Consummation of the Transaction is subject to compliance with the provisions
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), for which early termination of the applicable waiting period was
granted on June 14, 1996.
DISSENTERS' RIGHTS
Under the Maryland General Corporation Law (the "MGCL"), holders of shares of
ATLANTIC Common Stock are not entitled to dissenters' rights in connection with
the Transaction. See "The Transaction--Dissenters' Rights."
10
<PAGE>
ATLANTIC HISTORICAL AND PRO FORMA SUMMARY FINANCIAL INFORMATION
The following table sets forth: (i) historical summary financial information
for the periods indicated and as of the dates indicated for ATLANTIC and (ii)
pro forma summary financial information for the periods indicated and as of the
dates indicated, giving effect to the Transaction and other events as if they
had occurred on January 1, 1995 for income statement information and on March
31, 1996 for balance sheet information. Pro forma adjustments made to arrive at
the pro forma amounts are based on the purchase method of accounting. The
following information should be read in conjunction with and is qualified in
its entirety by the financial statements and accompanying notes of ATLANTIC
included elsewhere in this Information Statement and Prospectus and the pro
forma financial statements and accompanying discussion and notes set forth in
the ATLANTIC Pro Forma Financial Statements. The pro forma summary information
is intended for informational purposes and is not necessarily indicative of the
future financial position or future results of operations of ATLANTIC or of the
financial position or the results of operations of ATLANTIC that would have
actually occurred had the Transaction been completed as of the dates or for the
periods presented.
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
------------------------- --------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED MARCH 31, YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, ------------------ ------------------------------
1996 1995 1996 1995 1995 1994 1993(1)
------------ ------------ -------- -------- --------- --------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental Income.......... $ 32,941 $ 125,118 $ 30,809 $ 22,952 $ 103,634 $ 55,071 $ 156
Property Management
Fees Paid to
Affiliate............. 998 4,322 920 717 3,475 1,536 --
General and
Administrative
Expenses.............. 168 583 187 105 646 266 1
REIT Management Fee
Paid to Affiliate..... 2,247 8,356 2,123 1,515 6,923 3,671 12
Net Earnings........... 7,044 24,657 6,650 4,175 19,639 9,926 38
Net Earnings per Share. 0.11 0.43 0.12 0.11 0.45 0.41 $ 0.07
Distributions Declared
and Paid.............. 11,667 35,119 11,667 7,426 35,119 14,648 --
Distributions Declared
and Paid per Share.... $ 0.21 $ 0.80 $ 0.21 $ 0.20 $ 0.80 $ 0.60 --
Weighted Average Shares
Outstanding........... 62,714 57,450 55,555 37,133 43,889 24,454 572
<CAPTION>
PRO FORMA HISTORICAL
------------ --------------------------------------------------
MARCH 31, DECEMBER 31,
MARCH 31, ------------------ ------------------------------
1996 1996 1995 1995 1994 1993
------------ -------- -------- --------- --------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real Estate Owned, at
cost.................. $ 975,463 $936,129 $678,564 $ 888,928 $ 631,260 $ 31,005
Total Assets........... 963,909 929,318 678,683 885,824 637,846 31,850
Line of Credit (3)..... 184,043 226,000 181,000 190,000 153,000 --
Mortgages Payable...... 129,291 123,291 115,317 118,524 107,347 --
Total Liabilities...... 346,187 376,967 310,334 328,886 271,216 178
Total Shareholders'
Equity................ $ 617,722 $552,351 $368,349 $ 556,938 $ 366,630 $ 31,672
Number of Shares
Outstanding........... 65,903 55,570 37,588 55,526 37,133 3,163
<CAPTION>
PRO FORMA HISTORICAL
------------------------- --------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED MARCH 31, YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, ------------------ ------------------------------
1996 1995 1996 1995 1995 1994 1993(1)
------------ ------------ -------- -------- --------- --------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net Earnings........... $ 7,044 $ 24,657 $ 6,650 $ 4,175 $ 19,639 $ 9,926 $ 38
Add: Depreciation...... 5,078 18,660 4,804 3,605 15,925 8,770 28
-------- --------- -------- -------- --------- --------- --------
Funds from
Operations(2)......... $ 12,122 $ 43,317 $ 11,454 $ 7,780 $ 35,564 $ 18,696 $ 66
Net Cash Provided
(Used) by Operating
Activities............ 18,679 52,988 18,011 12,954 45,235 26,205 (492)
Net Cash Used by
Investing Activities.. (47,201) (321,082) (47,201) (39,177) (240,652) (392,718) (31,005)
Net Cash Provided by
Financing Activities.. 28,743 273,032 29,249 24,579 195,649 372,638 31,634
</TABLE>
- -------
(1) For the period from October 26, 1993 (the date of ATLANTIC's inception) to
December 31, 1993.
(2) ATLANTIC believes that funds from operations is helpful in understanding a
property portfolio in that such calculation reflects cash flow from
operating activities and the properties' ability to support interest
payments and general operating expenses. For an explanation of funds from
operations, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Funds from operations should not be considered as an alternative to net
income or any other generally accepted accounting principles ("GAAP")
measurement of performance as an indicator of ATLANTIC's operating
performance or as an alternative to cash flows from operating, investing or
financing activities as a measure of liquidity. On January 1, 1996,
ATLANTIC adopted the National Association of Real Estate Investments
Trusts' ("NAREIT") new definition of funds from operations. Under this new
definition, loan cost amortization is not added back to net earnings in
determining funds from operations. For comparability, funds from operations
for the periods prior to January 1, 1996 give effect to this new
definition. The funds from operations measure presented by ATLANTIC may not
be comparable to other similarly titled measures of other REITs.
(3) At August 1, 1996, ATLANTIC had $191 million outstanding under its $350
million line of credit.
11
<PAGE>
RECENT OPERATING RESULTS
The following table sets forth preliminary unaudited Total Revenues, Net
Earnings, Net Earnings per Share, Distributions Paid per Share, Weighted
Average Shares Outstanding and Funds from Operations for the six months ended
June 30, 1996 and 1995 for ATLANTIC.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
------------ ------------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C>
Total Revenues................................. $ 63,861 $ 47,378
Net Earnings................................... 16,397 9,131
Net Earnings per Share......................... 0.28 0.23
Distributions Paid per Share................... $ 0.42 $ 0.40
Weighted Average Shares Outstanding............ 58,171 40,226
Reconciliation of Funds from Operations:
Net Earnings................................. $ 16,397 $ 9,131
Gain on Disposition of Investments, net...... (662) --
Depreciation................................. 9,597 7,359
------------ ------------
Funds from Operations...................... $ 25,332 $ 16,490
============ ============
</TABLE>
COMPARATIVE PER SHARE DATA
The following sets forth for ATLANTIC Common Stock and Homestead Common Stock
certain historical and pro forma summary per share financial information for
the three months ended March 31, 1996 and the year ended December 31, 1995. The
pro forma summary amounts included in the table below are based on the purchase
method of accounting. The following information should be read in conjunction
with and is qualified in its entirety by (i) the financial statements and
accompanying notes of ATLANTIC included elsewhere in this Information Statement
and Prospectus, (ii) the consolidated financial statements and accompanying
notes of Homestead contained in the Homestead Prospectus attached to this
Information Statement and Prospectus and (iii) the pro forma summary financial
statements and accompanying discussion and notes set forth above under "--
ATLANTIC Historical and Pro Forma Summary Financial Data."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
ATLANTIC COMMON STOCK:
Net earnings per share:
Historical........................... $ 0.12 $ 0.45
Pro forma............................ 0.11 0.43
Distributions per share:
Historical........................... 0.21 0.80
Pro forma............................ 0.21 0.80
Book value per share:
Historical........................... 9.94 10.03
Pro forma............................ 9.37 9.45
HOMESTEAD COMMON STOCK:
Net Income per share:
Historical........................... N/A N/A
Pro forma............................ $(0.003) $(0.116)
Dividends per share:
Historical........................... N/A N/A
Pro forma............................ N/A N/A
Book value per share:
Historical........................... N/A N/A
Pro forma............................ $5.54 N/A
</TABLE>
12
<PAGE>
RISK FACTORS
Holders of ATLANTIC Common Stock should consider carefully the specific
factors set forth below as well as the other information contained in this
Information Statement and Prospectus in evaluating the Transaction.
Additionally, holders of ATLANTIC Common Stock should consider the factors set
forth in the Homestead Prospectus attached hereto under the caption "Risk
Factors" with respect to an investment in Homestead Securities.
SIGNIFICANT INFLUENCE OF PRINCIPAL SHAREHOLDER
As of August 1, 1996, SCG beneficially owned approximately 64.1% of the
issued and outstanding shares of ATLANTIC Common Stock and 37.8% of the issued
and outstanding common shares of beneficial interest, $1.00 par value per
share (the "PTR Common Shares"), of PTR. As a result, SCG currently controls
approximately 64.1% and 37.8% of the vote on matters submitted for ATLANTIC
and PTR shareholder action, respectively, including the Transaction. No other
shareholder may hold more than 9.8% of the shares of ATLANTIC or PTR. SCG has
the right to nominate up to three directors to the ATLANTIC Board and three
trustees to the PTR Board, depending upon its level of ownership of shares.
The trustees and directors so elected are in a position to exercise
significant influence over the affairs of ATLANTIC and PTR if they were to act
together.
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 "The Transaction--Escrow Agreement." As a result of the distributions by
ATLANTIC and PTR to their respective shareholders, SCG expects to beneficially
own an additional 2,693,842 and 3,588,965 shares of Homestead Common Stock,
respectively, for a total of 8,102,557 shares of Homestead Common Stock or
approximately 45.6% of the outstanding shares of Homestead Common Stock.
Through its beneficial ownership of Homestead Common Stock, it is expected
that SCG will control 45.6% 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" in the Homestead Prospectus attached hereto. 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%.
SCG will also own Homestead Warrants to purchase an additional 5,032,707
shares of Homestead Common Stock which, if fully exercised, would increase
SCG's beneficial ownership of Homestead Common Stock to 57.7%. 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 "The Transaction--PTR and ATLANTIC
Investor Agreements" and "--SCG Investor Agreement."
The ATLANTIC REIT Manager is a wholly owned subsidiary of SCG and is
responsible for the day-to-day operations of ATLANTIC. ATLANTIC has no
employees and all of ATLANTIC's officers are also officers or employees of the
ATLANTIC REIT Manager.
DETERMINATION OF RELATIVE OWNERSHIP PERCENTAGES
In structuring a combination of the Homestead Village properties and
operations which are separately owned and operated by ATLANTIC, PTR and SCG, a
method had to be used to determine the relative ownership percentages of each
of the parties in the new Homestead entity. The objectives of SCG in
structuring the Transaction were to compensate each party fairly for the
assets to be contributed, to determine the group of assets to be contributed
to the new entity and to use a discounted cash flow method of determining the
relative fair value of the assets to be contributed to the new entity. After
examining a variety of methods of determining relative fair values for the
Homestead Village assets of ATLANTIC, PTR and SCG, SCG determined to use as
the basis for the contributions of each party a total of 80 identified
Homestead properties in operation, under
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construction or in pre-development planning as of July 1, 1996 (of which
ATLANTIC would contribute 26 and PTR would contribute 54), the projected cash
flows from those properties for 1996, 1997 and 1998, and the projected REIT
management fees and property management fees from such properties net of
operating overhead for 1996, 1997 and 1998.
SCG determined the present values of the projected cash flows from these 80
properties and the projected REIT management fees and property management fees
payable under existing agreements assuming the agreements were in effect
throughout the relevant periods using discount rates and capitalization rates
which SCG deemed reasonable. The present values of the respective cash flows
were totalled and the relative contributions to the new entity were determined
as follows: ATLANTIC--28.18%, PTR--63.64%, and SCG--8.18%. SCG determined the
amount and type of securities to be issued to each party, with ATLANTIC and
PTR receiving Homestead Common Stock, Homestead Warrants and convertible
mortgages and SCG receiving Homestead Common Stock and Homestead Warrants.
SCG determined the relative contributions of each party. The projected cash
flows to be received by ATLANTIC, PTR and SCG and the present values of those
projected cash flows were determined by SCG and reviewed by the ATLANTIC
Special Committee and its advisers. The inclusion or exclusion of certain
Homestead Village properties and the use of different discount rates or
capitalization rates would have resulted in different percentage ownership
interests in Homestead. The present values of the respective contributions of
the parties do not, and are not intended to, reflect what any party could
obtain in an actual sale of their contributed assets. The relative ownership
percentages were not based on actual or projected costs of any Homestead
Village property or the book value of any Homestead Village property. SCG did
not obtain an appraisal or any other third party valuation of any Homestead
Village property or the projected cash flow anticipated to be received by SCG
under the ATLANTIC or PTR REIT Management Agreement or property management
agreements. See "The Transaction--Recommendations of the ATLANTIC Board and
Reasons for the Transaction."
RISKS IN VALUATION AND ALLOCATION
SCG is contributing its REIT management and property management operations
relating to the Homestead Village properties. In determining SCG's relative
ownership interest in Homestead, SCG projected net operating cash flows
through 1998 and discounted these cash flows back to July 1, 1996. See "The
Transaction--Recommendations of the PTR Board and Reasons for the
Transaction." Although SCG believes these operations will be profitable once
all 80 properties are operational, to date these operations have not been
profitable because SCG has invested in operating systems to develop and manage
over 200 Homestead Village properties. In issuing its fairness opinion, J.P.
Morgan did not opine as to the fairness of the allocation to be received by
the parties. See "The Transaction--Fairness Opinion."
CONFLICTS OF INTEREST IN THE TRANSACTION
The Transaction has been initiated and structured by individuals who are
executive officers or directors of ATLANTIC and PTR, the ATLANTIC REIT Manager
and Security Capital Pacific Incorporated (the "PTR REIT Manager") and are
affiliated with SCG. As a result, the terms of the Transaction have not been
negotiated at arms' length. No independent representatives have been retained
to negotiate the terms of the Transaction on behalf of ATLANTIC. If such
representatives had been retained, the terms of the Transaction might have
been more favorable to the shareholders of ATLANTIC. Although independent
representatives were not retained by ATLANTIC, the ATLANTIC Board created the
ATLANTIC Special Committee consisting of Messrs. Ned S. Holmes and Manuel A.
Garcia, III. The ATLANTIC Special Committee engaged King & Spalding as its
legal counsel and J.P. Morgan to advise it in analyzing and evaluating the
fairness of the Transaction. Neither of the members of the ATLANTIC Special
Committee is an officer of ATLANTIC or a director or officer of the ATLANTIC
REIT Manager. Mr. Holmes beneficially owns 120,000 shares of ATLANTIC Common
Stock, 1,055 PTR Common Shares and 67 shares of SCG Common Stock. Mr. Garcia
beneficially owns 20,000 shares of ATLANTIC Common Stock and does not own any
PTR Common Shares or shares of SCG Common Stock. Directors of ATLANTIC other
than members of the ATLANTIC Special Committee beneficially own, in the
aggregate, 48,839 shares of ATLANTIC Common Stock, 57,745 PTR Common Shares
and 6,449 shares of SCG Common Stock.
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TAXABILITY OF DISTRIBUTION
The Distribution will be taxable to ATLANTIC shareholders. See "The
Transaction--Federal Income Tax Consequences."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Distribution, there will be no public market for the Homestead
Securities. Application has been made to list the Homestead Common Stock and
the Homestead Warrants on the American Stock Exchange, although there can be
no assurance that such application will be granted or that, if granted, 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.
RISKS OF INVESTMENTS IN MORTGAGES AND FUNDING COMMITMENT
Pursuant to its Funding Commitment Agreement, ATLANTIC will agree to provide
Homestead aggregate funding in an amount up to $111 million. ATLANTIC will
receive convertible mortgage notes in respect of such fundings in a stated
amount of $98 million. ATLANTIC will make these loans primarily to develop the
properties contributed to Homestead by ATLANTIC. See "The Transaction--Funding
Commitment Agreements." The obligation to provide this funding and the terms
thereof have been fixed as of the date of the Merger Agreement. There can be
no assurance that ATLANTIC could not obtain better terms for such mortgage
loans with an independent third party borrower or if the terms were to be
determined on the date a mortgage loan is made to Homestead. Mortgage
investments are subject to certain risks, including the risk that Homestead,
as the borrower, may not be able to make debt service payments or pay
principal when due, the risk that the value of the mortgaged properties may be
less than the amounts owed, and the risk that interest rates payable on the
mortgages may be lower than ATLANTIC's cost of funds. If any of the foregoing
occur, ATLANTIC's ability to make distributions to shareholders could be
adversely affected.
IMPACT OF TRANSACTION ON FUNDS FROM OPERATIONS
As of March 31, 1996, the Homestead Village properties owned by ATLANTIC
constituted 1.1% of ATLANTIC's total assets. ATLANTIC has one Homestead
Village property currently in operation. The spin-off of the Homestead
properties from ATLANTIC may have a dilutive effect on ATLANTIC's funds from
operations, however, this impact is expected to be offset in part by new
ATLANTIC multifamily properties under development or which are expected to be
acquired, and by income received from the convertible mortgages to be issued
to Homestead. As a result of an amendment to the ATLANTIC REIT Management
Agreement, income received from the convertible mortgage loans is excluded
from the definition of cash flow on which the ATLANTIC REIT Management fee is
based.
COMPETITION
The moderate priced, extended-stay market is rapidly evolving, although
there is no single competitor or small number of competitors of Homestead that
is or are dominant in this industry. Competition in the moderate priced,
extended-stay market is generally based on price, convenience of location,
range of services and guest amenities offered, and quality of service.
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.
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. Additionally, Homestead has no operating
history except during the recent economic expansion. There can be no assurance
that Homestead will be profitable in the future.
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THE TRANSACTION
GENERAL
The following is a summary of the material aspects of the Transaction. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which is attached to this Information
Statement and Prospectus as Annex I and is incorporated herein by reference.
THE DISTRIBUTION
The Homestead Securities received by ATLANTIC will be authorized and
distributed, pro rata, to ATLANTIC shareholders. The Distribution of the
Homestead Securities will be declared following approval of the proposals by
ATLANTIC shareholders, subject to the satisfaction of certain conditions to
the Merger Agreement. The Distribution will be made to holders of shares of
ATLANTIC Common Stock of record at the close of business on the Distribution
Record Date. The amount of Homestead Securities to be received by each
ATLANTIC shareholder in the Distribution will depend on the number of shares
of ATLANTIC Common Stock outstanding on the Distribution Record Date. Based on
the number of shares of ATLANTIC Common Stock outstanding on August 1, 1996,
each ATLANTIC shareholder would receive 0.063748 shares of Homestead Common
Stock and 0.042768 Homestead Warrants for each share of ATLANTIC Common Stock
held. To the extent that the ATLANTIC IPO occurs prior to the Distribution
Record Date, it will result in a proportionate reduction in the amount of
Homestead Securities to be received by each ATLANTIC shareholder.
No certificates or scrip representing fractional shares of Homestead Common
Stock or fractional Homestead Warrants will be issued directly to ATLANTIC
shareholders as a part of the Distribution. The Distribution Agent will, as
soon as practicable after the Distribution Record Date, aggregate and sell all
fractional shares of Homestead Common Stock and Homestead Warrants on any
national securities exchange or interdealer quotation system on which the
Homestead Securities are listed or quoted or otherwise at then prevailing
market prices and remit the net proceeds (after deduction of brokerage fees)
to ATLANTIC shareholders who would otherwise be entitled to receive fractional
shares or warrants.
NO HOLDER OF SHARES OF ATLANTIC COMMON STOCK WILL BE REQUIRED TO PAY ANY
CASH OR OTHER CONSIDERATION FOR THE HOMESTEAD SECURITIES RECEIVED IN THE
DISTRIBUTION OR TO SURRENDER OR EXCHANGE SHARES OF ATLANTIC COMMON STOCK IN
ORDER TO RECEIVE HOMESTEAD SECURITIES. SEE HOWEVER "--FOREIGN SHAREHOLDERS"
BELOW. THE DISTRIBUTION WILL NOT AFFECT THE NUMBER OF, OR THE RIGHTS ATTACHING
TO, OUTSTANDING SHARES OF ATLANTIC COMMON STOCK.
FOREIGN SHAREHOLDERS
In the Distribution, Homestead Securities will not be mailed immediately to
ATLANTIC shareholders of record whose mailing addresses are outside the United
States ("Foreign Shareholders") but instead will be held by the Distribution
Agent for such shareholders' accounts. As described under the heading "Federal
Income Tax Consequences--Tax Consequences to ATLANTIC Shareholders--Foreign
Withholding." ATLANTIC is subject to a withholding obligation with respect to
the Homestead Securities to be distributed to Foreign Shareholders. On the
Distribution Record Date, the Distribution Agent will mail a notice to each
Foreign Shareholder announcing the Distribution as well as seeking
instructions from the Foreign Shareholder electing between the following
options: (i) providing a check to the Distribution Agent in the amount to be
withheld and receiving his or her full share of Homestead Securities or (ii)
having the Distribution Agent sell that amount of Homestead Securities
necessary to satisfy the withholding obligations and receiving his or her
remaining share of Homestead Securities. Within ten business days after the
Distribution Record Date, the Distribution Agent will mail an additional
notice to each Foreign Shareholder setting forth the amount of the withholding
obligation. A Foreign Shareholder must deliver to the Distribution Agent his
or her instructions and, if option (i) is elected, a check in the proper
amount of the withholding must be received by the Distribution Agent within 20
business days of the date of the Distribution Record Date. If no instructions
are received from a Foreign Shareholder by the end of such period, the
Distribution Agent will take the actions specified in option (ii) in
satisfying the withholding obligations with respect to such shareholder.
BACKGROUND
In 1991, PTR was approached by a third party who was interested in entering
into a collaborative relationship with PTR for the development of moderate
priced, extended-stay lodging facilities. In order to
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evaluate this proposal, PTR and SCG did extensive research on the industry and
competitors in the industry and retained consultants to advise them on this
business. In 1991, PTR entered into various agreements with this individual or
his affiliates for the site selection and development of several facilities.
By 1992, PTR had constructed its first moderate priced, extended-stay facility
in Texas. This development was undertaken as part of PTR's multifamily
business and not operated as a separate business.
During 1993, PTR constructed additional facilities in Texas and gained
additional experience in operating these facilities and knowledge of this
segment of the lodging business. By the end of 1994, PTR had gained enough
experience in the business and had done enough research on the overall market
to determine that the Homestead Village business constituted a significant
growth opportunity and that additional personnel and resources were needed to
support and expand such business. Additionally, by the end of 1994, PTR and
the original third party had entered into various agreements which altered
their relationship. See "Certain Relationships and Transactions--Finder's
Agreements" in the Homestead Prospectus.
During 1995, a distinct and separate management team was created by the PTR
REIT Manager to manage and grow the Homestead Village business. Additional
personnel were hired and additional employees were assigned by SCG to increase
development efforts and obtain additional sites. Personnel experienced in the
lodging industry were also recruited and employed by SCG. Because of the
geographical focus of PTR's primary business, it was determined that Homestead
Village properties developed in the southeastern United States would be
developed by ATLANTIC.
Since 1991, the fees received by the REIT managers and property managers for
the Homestead Village operations have been less than the overhead necessary to
fund their Homestead Village operations. See "Financial Statements--SCG
Homestead Village Group" in the Homestead Prospectus. SCG has been willing to
bear this expense while the Homestead Village concept was being developed
because SCG believed Homestead Village would be accepted in the marketplace
which would result in additional funds from operations for the benefit of PTR
and ATLANTIC shareholders. In addition, SCG believed that as more Homestead
Village properties became operational, the fees generated by the additional
properties would cover such overhead. SCG believes that under the current REIT
management agreements and property management agreements for the PTR and
ATLANTIC Homestead Village properties, it would generate substantial fees from
the 80 properties which are to be contributed to Homestead.
In mid-1995, SCG was contacted by another operator of extended-stay
facilities to discuss a possible business relationship involving PTR's
Homestead Village facilities. Several telephone calls and a meeting were held
but no terms were discussed.
In September 1995, management of SCG made a presentation to the SCG board of
directors (the "SCG Board") regarding the Homestead Village business and its
future direction. The SCG Board instructed SCG management to create a plan for
a structure which would maximize shareholder values for ATLANTIC, PTR and SCG
and to present alternatives to achieve this goal. Management then began to
actively explore means of achieving this goal. At the December 1995 meeting of
the SCG Board, SCG management reported that it had various alternatives under
review but that it was not prepared to make any recommendations at that time.
After this meeting, SCG and the PTR REIT Manager began actively to consider
and analyze various alternatives for the Homestead Village operations.
In December 1995, PTR decided, in anticipation of the possibility of the
formation of Homestead and a potential business combination involving the
Homestead Village business, to place convertible mortgage loans on the
Homestead Village properties. The decision to place the convertible mortgage
loans on the Homestead Village properties was based on PTR's desire to retain
a substantial portion of the value of and a substantial portion of the upside
potential of the Homestead Village business in the event of such a business
combination. On January 24, 1996, approximately $77,289,000 of convertible
mortgage loans were placed on the Homestead Village properties by PTR.
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In January 1996, the PTR REIT Manager discussed with the PTR Board various
alternatives for PTR's Homestead Village operations. By the end of January,
PTR trustees instructed the PTR REIT Manager to actively pursue examination of
various alternatives. On January 31, 1996, as part of its press release
discussing results of operations for 1995, PTR made the following statement
(the "January Press Release"):
". . . after a detailed review of Homestead Village's successful
performance, PTR's Board of Trustees has asked management to evaluate all
options relating to the operation of Homestead Village assets in order to
maximize PTR shareholder value. This would include an analysis of whether
Homestead assets should continue to be developed within PTR, be spun out as
a new stand-alone entity with a target market extending beyond PTR's
current market area, or be offered for sale, merger or disposition to a
national operator. The Board asked that this analysis be completed during
1996. Goldman, Sachs & Co. has been engaged to advise the Board on this
matter. It is possible that certain actions, if pursued, may require
approval of PTR's Board of Trustees and a possible shareholder vote."
Following the January Press Release, PTR held several discussions with
Goldman, Sachs regarding a possible spin-off of the Homestead Village
business. In February 1996, the PTR REIT Manager was contacted by a national
operator of extended-stay facilities to discuss a possible transaction. One
meeting was held in February 1996 in which the PTR REIT Manager discussed
valuation of the Homestead Village business and general terms of a possible
transaction. Management provided the other party with certain information
regarding the Homestead Village operations. Management had several telephone
calls with that party later in February 1996 but no written offer was
solicited or received.
In February 1996, the PTR REIT Manager also received four unsolicited
telephone calls from several other owners or operators of lodging businesses
to discuss PTR's interest in selling its Homestead Village operations. No
formal written offers were received. In addition, Goldman, Sachs received
several unsolicited telephone calls in February 1996 from other parties
inquiring about PTR's Homestead Village operations, but no formal written
offers were received.
During February 1996, SCG management reviewed the options of continuing the
Homestead Village operations within ATLANTIC and PTR or disposing of the
Homestead Village assets. For the reasons discussed below under "--
Recommendations of the ATLANTIC Board and Reasons for the Transaction," SCG
management concluded that continuing the Homestead Village operations within
ATLANTIC and PTR would not maximize value for ATLANTIC and PTR shareholders.
SCG management reviewed the various inquiries it had received regarding the
PTR Homestead Village assets and determined that the purchase proposals it
would likely receive would include securities of the purchaser which would
value the Homestead Village assets on a private company basis and that the
consideration that PTR would receive would be equity securities in a public
company which SCG would not control. The PTR REIT Manager believed that such
result would not maximize shareholder values. The PTR REIT Manager also
determined that its existing Homestead Village operations and those under
construction or in pre-development planning were substantially larger than the
operations of other entities which were focused on the moderate priced,
extended-stay segment of the lodging business. SCG management also had to
consider the impact of a possible sale of the Homestead Village assets on the
recently assembled management team which had been put in place to develop the
Homestead Village concept. SCG management was concerned that the Homestead
Village properties and operations would suffer from defections by the
Homestead Village management if a sale were to be pursued and that the
Homestead Village properties and operations could not be sold at an attractive
price unless management remained intact. For these reasons, SCG management and
the PTR REIT Manager did not actively pursue a sale of the Homestead Village
business.
By March 1996, SCG management had prepared and distributed materials to the
SCG Board, the ATLANTIC Board and the PTR Board describing in detail the
various alternatives for the Homestead Village operations and the advantages
and disadvantages of each alternative.
On March 12, 1996, members of SCG's management made a presentation to the
ATLANTIC Board as part of a regularly scheduled meeting. SCG's management
presented to the ATLANTIC Board information prepared by SCG regarding
alternatives available for the ATLANTIC Homestead Village operations,
including leaving
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the properties in ATLANTIC, a sale of the business or a spin-off of the
business, the advantages and disadvantages of each alternative and SCG's
recommendation that a spin-off be pursued. SCG presented detailed information
regarding the lodging industry, the advantages of a spin-off to ATLANTIC's
shareholders, competition in the lodging industry, a proposed combination of
ATLANTIC's and PTR's Homestead Village businesses and the means of funding
those businesses, a method by which the relative ownership interests of
ATLANTIC, PTR and SCG in the new entity would be determined, and legal
requirements to accomplish a combination and spin-off. Following the
discussion, the ATLANTIC Board authorized the ATLANTIC REIT Manager to pursue
a spin-off of ATLANTIC's Homestead Village business and a combination of
ATLANTIC's and PTR's Homestead Village businesses.
Because of SCG's significant ownership of ATLANTIC Common Stock and PTR
Common Shares and SCG's direct interest in the possible spin-off, the ATLANTIC
Board appointed the ATLANTIC Special Committee, consisting of ATLANTIC's
independent directors, Messrs. Holmes and Garcia, to consider the proposed
transaction and recommend action with respect to any such proposed transaction
to the ATLANTIC Board.
On March 14, 1996, SCG management made a presentation to the PTR Board. SCG
management discussed the opportunity in the extended-stay market, competition
in the lodging industry, means by which the Homestead Village concept could
become national, and historical results for the Homestead Village operations.
SCG management discussed three options available to PTR for its Homestead
Village operations, including leaving its Homestead Village properties in PTR,
a sale of the business or a spin-off, the advantages and disadvantages of each
option and SCG's recommendation that the PTR Board pursue a spin-off of the
Homestead Village properties. SCG management presented information regarding a
proposed capital structure of a new Homestead Village entity, a method by
which the relative ownership interests of PTR, ATLANTIC and SCG in the new
entity would be determined and possible value creation for PTR shareholders.
Following the discussion, the PTR Board authorized the PTR REIT Manager to
pursue a spin-off of its Homestead Village operations to a new entity in
exchange for securities of the new entity. Because of SCG's significant
ownership of PTR Common Shares and ATLANTIC Common Stock and SCG's direct
interest in the possible spin-off, the PTR Board appointed the PTR Special
Committee, consisting of three of PTR's independent trustees, Messrs. John C.
Schweitzer, James A. Cardwell and Calvin Kessler, to consider the proposed
transaction and recommend action with respect to any such proposed transaction
to the PTR Board. The PTR Special Committee retained Goldman, Sachs as
financial advisor to the PTR Special Committee.
On March 20, 1996, the PTR Special Committee approved the retention of
Munger, Tolles & Olson as legal counsel to the PTR Special Committee.
On March 20, 1996, SCG management made a presentation to the SCG Board
regarding the alternatives available to ATLANTIC, PTR and SCG regarding the
Homestead Village operations, which presentation was similar to the
presentations made to the ATLANTIC Board and the PTR Board. After discussion,
the SCG Board authorized SCG management to proceed with a spin-off of its
Homestead Village business. No special committee of directors of SCG was
formed and no separate counsel or financial advisors were retained by SCG in
connection with the Transaction.
On March 22, 1996, the ATLANTIC Special Committee approved the retention of
King & Spalding as legal counsel to the ATLANTIC Special Committee. On March
29, 1996, the ATLANTIC Special Committee approved retaining J.P. Morgan to
deliver an opinion as to the fairness, from a financial point of view, to the
shareholders of ATLANTIC (other than SCG) of the consideration to be paid to
ATLANTIC in connection with the proposed Transaction.
Between March 20 and April 8, 1996, SCG management met and had numerous
telephone conversations with J.P. Morgan and Goldman, Sachs to discuss the
proposed spin-off, valuation issues, the terms of the proposed securities to
be issued by Homestead and related matters. During that same period, Mayer,
Brown & Platt, counsel for PTR, ATLANTIC, SCG and Homestead, had several
discussions with King & Spalding and Munger, Tolles & Olson regarding the
structure and the documentation of the proposed transaction.
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On April 8, 1996, a special meeting of the PTR Board was held which was
devoted entirely to the proposed spin-off. SCG management made a detailed
presentation to the entire PTR Board regarding the proposed spin-off, pro
forma historical and projected financial information regarding Homestead,
comparisons of multiples for large multifamily REITs and extended-stay lodging
operators, competition in the extended-stay lodging market, reasons why
management believed PTR shareholders would benefit from the proposed spin-off,
terms of the proposed transaction, including terms of the proposed warrants
and convertible mortgages, tax treatment of the proposed transaction, expected
value creation resulting from the spin-off, relative ownership interests of
PTR, ATLANTIC and SCG in the new entity as calculated by SCG, estimated impact
of the spin-off on PTR's funds from operations and estimated impact of the
spin-off on the financial condition of PTR. There followed an extensive
discussion by the entire PTR Board of the proposed transaction, the relative
valuation of SCG's contribution, the terms of the convertible mortgage loans
and warrants, and the assumptions used by SCG in calculating the relative
valuation of the contributions of each party.
At the same meeting Goldman, Sachs made a presentation regarding the
methodologies it would use in reviewing the proposed spin-off and arriving at
its opinion, the issues it would examine in arriving at its opinion and the
form of its opinion.
Such special meeting was adjourned, at which time the PTR Special Committee
met separately with its counsel and, for portions of the meeting, Goldman,
Sachs and SCG management. The PTR Special Committee discussed with its counsel
its legal duties as a committee of "independent trustees." Additionally, it
discussed the presentations at the PTR Board meeting and additional
information it wanted to review in connection with the proposed transaction.
The PTR Special Committee then met with Goldman, Sachs and reviewed the scope
of Goldman, Sachs' opinion, the analysis to be performed by Goldman, Sachs,
and the timing of receiving Goldman, Sachs' opinion. Next, the PTR Special
Committee met with SCG management to discuss SCG's analysis and presentation.
Later that day, the PTR Board meeting reconvened at which time the PTR Special
Committee members stated that they would have further meetings to discuss the
proposed spin-off and requested additional information from SCG regarding the
methodology used in calculating valuations, assumptions used in SCG's
projections and Homestead Village properties expected to be in operation or
under development by the end of 1997.
On April 11, 1996, the PTR Special Committee met with its counsel and SCG
management to discuss SCG's analysis from which SCG structured the proposed
transaction. At the meeting, the parties extensively discussed the extended-
stay lodging market, the assumptions and methodology underlying SCG's
analysis, the rationale and reasonableness of such assumptions and
methodology, the sensitivity of the analysis to various changes, and the value
and terms of the Homestead Securities and convertible mortgage loans to be
received by PTR in the proposed transaction.
On April 16, 1996, a special meeting of the ATLANTIC Board was held at which
SCG management made a detailed presentation regarding the proposed spin-off
which focused on the following matters: the opportunity to expand Homestead on
a national scope; a description of the segments and competition within the
extended-stay lodging business; comparisons of multiples for large multifamily
REITs and extended-stay lodging operators; the reasons why management believed
ATLANTIC shareholders would benefit from the proposed spin-off; the terms of
the proposed transaction, including the contributions of properties and other
assets by each party for common stock, warrants and convertible mortgage
loans, and the terms of such securities; the expected value creation from the
spin-off; the resulting relative ownership interests of ATLANTIC, PTR and SCG
in the new Homestead entity; the impact of the spin-off on ATLANTIC's results
of operations and financial condition; and the schedule of the spin-off in
regards to a proposed initial public offering by ATLANTIC. Following the
presentation by SCG management, the ATLANTIC Board engaged in an extensive
discussion with SCG management regarding the proposed transaction and its
impact on ATLANTIC.
Following such discussion, at the same ATLANTIC Board meeting,
representatives of J.P. Morgan made a presentation regarding the methodologies
they were using in reviewing the proposed spin-off and their approach to
evaluating the fairness of the transaction, which included an extensive
discussion of valuation methodologies, the terms of the proposed Homestead
securities and the allocation of ownership.
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In addition, on April 16, 1996, the ATLANTIC Special Committee met with its
counsel and J.P. Morgan to discuss the financial terms of the proposed
transaction. The ATLANTIC Special Committee discussed with its counsel its
legal duties under Maryland law as a committee of "independent directors."
Among other things, the parties discussed the reasonableness of the terms of
the Homestead Securities and the convertible mortgage loans, the allocation of
ownership in Homestead among ATLANTIC, PTR and SCG, and J.P. Morgan's fairness
analysis and opinion. Next, the ATLANTIC Special Committee discussed with its
counsel the proposed terms of the Merger Agreement and the related agreements,
proposed revisions to such agreements, and the status of the negotiations of
such agreements.
SCG originally had proposed to the PTR Board and ATLANTIC Board in March
1996 a transaction involving a total of 73 Homestead Village properties.
Because of ongoing development by PTR and ATLANTIC of Homestead Village
facilities, in April 1996 SCG revised the proposed transaction to include a
total of 80 Homestead Village facilities. The effect of this change was to
alter the ownership interests of PTR, ATLANTIC and SCG in Homestead and to
increase the aggregate amount of Homestead Securities to be issued.
SCG originally had proposed to the PTR Board and the ATLANTIC Board that the
convertible mortgage loans have a term of 25 years with no call provision and
that the conversion premium be 10% above the expected price of the Homestead
Common Stock, and that the Homestead Warrants have a term of 18 months. As a
result of negotiations between members of the PTR Special Committee, Goldman,
Sachs, the ATLANTIC Special Committee, J.P. Morgan and SCG, which occurred
throughout April and early May 1996, certain terms of the proposed Homestead
Securities were changed. The term of the convertible mortgage loans was
reduced from 25 years to ten years; a provision was added to permit Homestead
to call the convertible mortgage loans after five years; the conversion
premium on the convertible mortgage loans was increased from 10% to 15%; and
the term of the Homestead Warrants was reduced from 18 months to 12 months. In
addition, SCG agreed to have a portion of its Homestead Common Stock placed in
escrow to be released as funding is made by PTR or ATLANTIC under the Funding
Commitment Agreements.
On April 17, 1996, the PTR Special Committee met with its counsel, and
Goldman, Sachs and its counsel to discuss the financial terms of the proposed
transaction. Among other things, the parties discussed the reasonableness of
the terms of the Homestead Securities and the convertible mortgage loans, the
allocation of ownership in Homestead among PTR, ATLANTIC and SCG, and Goldman,
Sachs' fairness analysis and opinion. Next, the PTR Special Committee
discussed with its counsel the proposed terms of the Merger Agreement and the
related agreements, proposed revisions to such agreements, and how to proceed
in negotiations of such agreements.
During the course of the negotiation of the documents covering the
Transaction, the PTR Special Committee and its counsel requested numerous
changes to the documents because of the related-party nature of the
Transaction. The PTR Special Committee requested that SCG vote its PTR Common
Shares (which represented 37.9% of the outstanding PTR Common Shares as of May
20, 1996) in favor of the proposal only if a majority of the PTR shareholders
not affiliated with SCG voted in favor of the proposal. This voting proposal
is not required under Maryland law. Counsel for the PTR Special Committee also
requested that the Merger Agreement be subject to approval by the holders of
two-thirds of the outstanding PTR Common Shares. Under Maryland law, the
amendment to the PTR Declaration of Trust requires the approval of the holders
of two-thirds of the outstanding shares while the Merger Agreement requires
the approval of the holders of a majority of the outstanding PTR Common
Shares. After several discussions with the PTR Special Committee and its
counsel, SCG declined the request of the PTR Special Committee that it vote
its PTR Common Shares only upon the affirmative vote of the majority of the
non-SCG shareholders since a two-thirds vote requirement would mean that
approval of the Transaction would require a substantial number of shareholders
not affiliated with SCG voting in favor of the Transaction; SCG however did
agree to have the Merger Agreement subject to approval by the holders of two-
thirds of the outstanding PTR Common Shares. Counsel for the PTR Special
Committee also discussed with SCG the terms of the convertible mortgage loans,
the methodology from which the allocation of ownership in Homestead among PTR,
ATLANTIC and SCG was derived, and the discussions SCG had with unaffiliated
third parties with respect to potential transactions involving PTR's Homestead
Village assets.
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Counsel for the PTR Special Committee also requested that SCG not receive
indemnification under the Merger Agreement for misstatements made in the
Merger Agreement or in the Registration Statement which are attributable to
PTR, ATLANTIC or Homestead, because SCG controls and manages all these
entitles. SCG agreed to this request.
On May 14, 1996, the PTR Special Committee met with its counsel, and for a
portion of the meeting, with a senior officer of SCG to discuss the status of
outstanding issues, changes in the terms of the Merger Agreement and the
related agreements, and the structure of the fairness opinion to be received
by the PTR Special Committee from Goldman, Sachs.
On May 15, 1996, the ATLANTIC Special Committee met with its counsel, J.P.
Morgan and SCG management. At such meeting, SCG management discussed with the
ATLANTIC Special Committee the following changes to the terms of the proposed
transaction: an increase in the number of Homestead Village facilities to 80;
the need for ATLANTIC to fund $18.6 million in cash at Closing in order to
assure that ATLANTIC receives all of its shares of Homestead Common Stock at
closing; the changes to the terms of convertible mortgage notes regarding
maturity date, the conversion premium, and the ability of Homestead to call
the convertible mortgage loans; the terms of the Funding Commitment
Agreements; and the terms of the Homestead Warrants. J.P. Morgan then reviewed
the impact of these changes on their view of the fairness of the transaction.
The ATLANTIC Special Committee discussed with SCG management and J.P. Morgan
the terms of the proposed transaction, including the accounting treatment of
the transaction, the impact on ATLANTIC's REIT status and the ability of
ATLANTIC to meet its funding obligations under its Funding Commitment
Agreement.
On May 17, 1996, the ATLANTIC Special Committee met with its counsel and
J.P. Morgan to consider the Transaction. At such meeting, counsel for the
ATLANTIC Special Committee and J.P. Morgan discussed the terms of the Merger
Agreement and the related agreements. After extended discussions, J.P. Morgan
delivered an oral fairness opinion to the ATLANTIC Special Committee that, as
of such date, the consideration to be paid to ATLANTIC in the Transaction was
fair, from a financial point of view, to ATLANTIC shareholders (other than
SCG). Following such discussion, the ATLANTIC Special Committee unanimously
resolved that the Merger Agreement in the form presented and the transactions
as contemplated thereby are approved as being fair and reasonable to ATLANTIC,
and the ATLANTIC Special Committee recommended that the ATLANTIC Board approve
the Merger Agreement and the transactions contemplated thereby as being fair
and reasonable to ATLANTIC.
On May 17, 1996, the ATLANTIC Board held a telephonic board meeting with all
directors in attendance. Also present at the meeting were representatives of
J.P. Morgan, counsel to the ATLANTIC Special Committee and senior officers of
SCG and the ATLANTIC REIT Manager. Mr. Holmes reported that the ATLANTIC
Special Committee had met earlier that day with representatives of J.P. Morgan
and King & Spalding to discuss the Transaction and the various documents
relating to the Transaction and that the ATLANTIC Special Committee had
received an oral fairness opinion from J.P. Morgan. Mr. Holmes further
reported that, based on its review of the Transaction, its discussions with
counsel and the oral fairness opinion of J.P. Morgan, the ATLANTIC Special
Committee recommended to the ATLANTIC Board that the Merger Agreement and the
Transaction be approved as fair and reasonable to the ATLANTIC shareholders
(other than SCG). The entire ATLANTIC Board then discussed the terms of the
Transaction, the changes in the terms of the Transaction since it had been
originally proposed to the ATLANTIC Board, the reasons for the cash payment to
be made by ATLANTIC for the Homestead Common Stock at the Closing Date, the
reasons for the premium which ATLANTIC would pay for the Homestead convertible
mortgage notes it would receive, the impact of that premium on ATLANTIC's
future financial results, the reasons for the projected difference in the
investments by PTR and ATLANTIC in their respective Homestead Village
properties, the ability of ATLANTIC to fund its obligations under the Funding
Commitment Agreement, the mechanics of the Distribution and the disposition of
the convertible mortgage loans ATLANTIC would receive. After these
discussions, the ATLANTIC Board approved the Merger Agreement and the
Transaction as fair and reasonable to the ATLANTIC shareholders and
recommended its approval by the ATLANTIC shareholders.
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On May 20, 1996, the PTR Special Committee met with its counsel, and for a
portion of the meeting, with Goldman, Sachs and its counsel. At such meeting,
Goldman, Sachs discussed material changes in the terms and conditions of the
proposed transaction since it last met with the PTR Special Committee and how
such changes affected Goldman, Sachs' analysis underlying its opinion. After
extended discussions, Goldman, Sachs delivered an oral fairness opinion to the
PTR Special Committee to the effect that, as of the date of such opinion, the
PTR Transaction was fair to PTR. See "--Fairness Opinion." The PTR Special
Committee requested that its counsel review further with SCG information
regarding discussions between SCG and third parties with respect to the
Homestead Village business.
On May 20, 1996, counsel for the PTR Special Committee reviewed with senior
officers of SCG and Goldman, Sachs the inquiries that each had received
regarding PTR's Homestead Village facilities, the responses to those inquiries
and the reasons why SCG and the PTR REIT Manager, as described earlier, had
decided not to pursue a sale of the Homestead Village facilities. Later that
day, the PTR Special Committee except Mr. Cardwell reconvened and met with
their counsel to discuss their respective conversations with SCG management
and Goldman, Sachs regarding potential transactions with unaffiliated third
parties. Following such discussions, the PTR Special Committee resolved that,
subject to final documentation, (a) the Merger Agreement and the Transaction
are fair and reasonable to PTR and on terms and conditions not less favorable
to PTR than those available from unaffiliated third parties, and (b) the PTR
Special Committee recommends that the PTR Board approve the Merger Agreement
and the Transaction as being fair and reasonable to PTR and on terms and
conditions not less favorable to PTR than those available from unaffiliated
third parties and that the PTR Board recommend to the shareholders of PTR
their approval of the same.
On May 21, 1996, the PTR Board held a meeting at which all trustees were
present, except James Cardwell. The purpose of the meeting was to discuss the
Merger Agreement and the Transaction. Members of SCG management outlined the
terms of the Transaction, discussed the terms of the Homestead Warrants and
convertible mortgage notes, discussed Homestead and answered trustees'
questions. Mr. Schweitzer then
discussed the activities of the PTR Special Committee. He stated that the PTR
Special Committee had met six times and that he had held extensive discussions
with the PTR REIT Manager regarding the Transaction. He reviewed the changes
in the Transaction from the terms originally proposed to the PTR Board,
including the change to the conversion premium for the convertible mortgages.
Mr. Schweitzer stated that the PTR Special Committee had examined in detail
the terms of the convertible mortgage notes and had concluded that the terms
were very favorable to PTR compared to other convertible securities which were
available in the market. He also discussed the PTR Special Committee's review
of the allocation of the ownership interests in Homestead among PTR, ATLANTIC
and SCG. He then reviewed the oral fairness opinion which Goldman, Sachs had
delivered to the PTR Special Committee. Mr. Schweitzer concluded by stating
that the PTR Special Committee recommended to the PTR Board that the Merger
Agreement and Transaction be approved as fair to PTR.
The trustees next discussed the timing of the Transaction and the conditions
to completion of the Transaction. The trustees then reviewed and discussed the
tax consequences of the Merger Agreement and the Distribution to PTR and its
shareholders. The trustees next reviewed and discussed the terms of the
Homestead Warrants and the future overhang on the Homestead Common Stock
created by the Homestead Warrants and the convertible mortgage notes.
SCG management then reviewed with the trustees the terms of the Merger
Agreement and each of the related agreements. SCG management also reviewed
with the trustees the proposed changes to the PTR REIT Management Agreement
and the PTR Declaration of Trust. SCG management explained that the reason for
the change to the PTR REIT Management Agreement and the PTR Declaration of
Trust was to permit the Transaction to occur but to preserve the restrictions
on interested party transactions in other situations and SCG's recommendations
that the PTR REIT Management Agreement be changed to exclude income derived
from the convertible mortgage loans from the formula for computing the REIT
management fee. After discussing these documents and the recommendations of
the PTR Special Committee, the PTR Board unanimously approved the Merger
Agreement and Transaction as being fair and reasonable and on terms not less
favorable to PTR than those available from unaffiliated third parties and
recommended to the shareholders that they vote in favor of the
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Merger Agreement and the Transaction and the amendment to the PTR Declaration
of Trust and further approved the amendment to the PTR REIT Management
Agreement. The trustees also authorized the PTR REIT Manager to proceed with
the Transaction.
On May 23, 1996, the PTR Special Committee held a telephone meeting with all
members in attendance. At such meeting, the PTR Special Committee by unanimous
vote ratified the resolutions adopted by the PTR Special Committee at its May
20, 1996 meeting.
RECOMMENDATIONS OF THE ATLANTIC BOARD AND REASONS FOR THE TRANSACTION
SCG Recommendations and Reasons.
By early 1996, SCG had determined that the Homestead Village operations were
yielding very favorable returns, which were higher than returns on ATLANTIC's
and PTR's multifamily properties, and could be operated more effectively as a
separate business. Based on the reasons described below, SCG believed that it
would be in the best interests of ATLANTIC and its shareholders for the
Homestead Village operations to be separated from ATLANTIC and spun-off to its
shareholders, as ATLANTIC increased its development of Homestead Village
properties. Because of the interests of ATLANTIC, PTR and SCG in the various
parts of the Homestead Village operations, management's goal was to combine
the various parts of the Homestead Village operations and spin off the
resulting entity to the various parties in a manner which would maximize
shareholder values for each party while being fair to each entity and its
shareholders.
The following reasons were emphasized by SCG in recommending to the ATLANTIC
Board that it approve a spin-off of the Homestead Village operations.
. PUBLIC MARKET VALUATION. SCG examined the public market valuations of
PTR, other large public multifamily REITs and public extended-stay
lodging facility operators and concluded that although the PTR Homestead
Village operations have been very successful, the public market
valuation of PTR would not reflect the value of the Homestead Village
operations within PTR. SCG reviewed the funds from operations multiple
of PTR as of December 31, 1995, prior to the January Press Release, and
the funds from operations multiples of several other larger multifamily
REITs, which multiples were comparable. This comparability of funds from
operations multiples demonstrated to SCG that a public market valuation
of PTR would give no additional value to the Homestead Village
operations within PTR beyond their funds from operations contribution.
SCG also examined the earnings before interest, taxes, depreciation and
amortization ("EBITDA") multiple of PTR for 1995 with EBITDA multiples,
based on market prices of two publicly held operators of extended-stay
lodging facilities, which were greater than PTR's EBITDA multiple. This
difference in multiples lead SCG to conclude that shareholder value for
PTR shareholders would be maximized if the Homestead Village operations
could be separated from PTR's traditional core business of owning and
operating garden apartments and spun off. SCG believes this analysis
would be true for ATLANTIC as it continues to increase its development
of Homestead Village properties.
. NATIONAL SCOPE. SCG has determined that in order for the Homestead
Village concept to be highly successful, the Homestead Village
operations should be national in scope. The Homestead Village trademark,
operating system and management are owned or provided by SCG. ATLANTIC
has Homestead Village facilities under construction or in pre-
development planning in several of its target markets in the
southeastern United States. PTR has Homestead Village facilities which
are operating, under construction or in pre-development planning in
several of its target markets in the western United States. By combining
all of the Homestead Village facilities in operation, under construction
or in pre-development planning with management, operating system and the
Homestead Village trademark in a single entity, SCG believed that the
resulting entity would be stronger, have greater geographic
diversification, be more focused, achieve greater economies of scale and
be national in scope.
. FOCUS OF ATLANTIC'S PRIMARY BUSINESS. SCG believes that the capital
markets place a premium on REITs which are focused on a single product.
ATLANTIC's objective is to be the preeminent real
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estate operating company focusing on multifamily property in its
southeastern United States target market. The Homestead Village concept
was initially created as a byproduct of the multifamily development
activities of PTR. Because of PTR's success with the Homestead Village
concept, ATLANTIC began development of its first Homestead Village
property in 1995 and as of March 31, 1996 Homestead Village properties
constituted 1.1% of ATLANTIC's assets. As the Homestead Village
properties continue to become an increasingly greater percentage of
ATLANTIC's operations, ATLANTIC could be perceived as no longer focused
on its primary business of owning and operating multifamily properties.
Further, as discussed above, SCG does not believe that the market would
appropriately value the Homestead Village concept within ATLANTIC. By
spinning off the Homestead Village assets, SCG believes ATLANTIC can get
the dual benefit of focusing on its primary business while obtaining an
enhanced valuation for its Homestead Village business.
. REIT RULES IMPACT ON OPERATION OF HOMESTEAD VILLAGE PROPERTIES. The REIT
rules impose restrictions on the types of services that a REIT may
offer. Homestead Village operations generally involve the provision of
maid services to its guests. These services are considered "non-
customary" under the REIT rules. If a REIT provides "non-customary"
services in connection with the rental of real estate, then all or part
of the associated rents will fail to qualify as rents from real property
for REIT purposes and, if nonqualified gross income (which includes
nonqualified rents) exceed 5% of the REIT's gross income, the REIT will
lose its REIT status under the Code. Through various methods, ATLANTIC
could ensure that rents received from Homestead Village operations
qualify as rents from real property for REIT purposes. However, these
methods would result in inefficiencies in operation of the Homestead
Village properties or loss of certain revenues from the properties. By
spinning off the Homestead Village assets, these inefficiencies would be
eliminated and ATLANTIC's REIT status would remain unaffected.
Based primarily on these reasons, SCG recommended a spin-off to the ATLANTIC
Board. By consolidating the Homestead Village operations in the Transaction,
SCG has attempted to eliminate the issues of lack of market valuation for the
Homestead Village properties, impediments to a national scope of the Homestead
Village concept, diffusion of ATLANTIC's focus on multifamily properties, and
REIT compliance matters, while at the same time permitting ATLANTIC
shareholders to participate in the future growth of the Homestead Village
concept.
In structuring the Transaction, SCG sought to address the issue of the
impact on ATLANTIC's funds from operations caused by the spin-off of the
Homestead Village assets through the issuance of the convertible mortgage
notes. These mortgages will have a dual purpose. First, they will provide a
source of funding for Homestead's future development activities. Second, they
will provide a means by which ATLANTIC can retain capital. It is expected that
at full funding in 1998, assuming all planned Homestead Village properties
which ATLANTIC has committed to finance are developed and there are no
conversions of any mortgage notes, ATLANTIC will have an aggregate of
approximately $98 million in mortgage notes outstanding. These mortgage loans
will bear interest at 9% per annum, have a term of 10 years, cannot be called
for the first five years and will be convertible into shares of Homestead
Common Stock at $11.50 per share. In addition, a portion of the shares of
Homestead Common Stock to be received by SCG will be issued to and placed with
State Street Bank and Trust Company ("Escrow Agent") and will only be released
to SCG as mortgage loans are made by ATLANTIC or PTR under their Funding
Commitment Agreements. See "--Escrow Agreement."
The methodology used in determining the relative ownership percentages of
PTR, ATLANTIC and SCG in Homestead was established by SCG 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, as described in the succeeding paragraph; 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
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operating overhead, as described below. For purposes of the foregoing
calculations, SCG assumed that at July 1, 1996, PTR would have 28 properties
in operation, seven properties under construction and 19 properties in pre-
development planning, and that ATLANTIC would have no properties in operation,
five properties under construction and 21 properties in pre-development
planning. At August 1, 1996, PTR actually had 28 properties in operation,
eight properties under construction and 18 properties in pre-development
planning, and ATLANTIC actually had one property in operation, four properties
under construction and 21 properties in pre-development planning.
For purposes of determining the relative ownership interests of PTR and
ATLANTIC in Homestead, SCG projected the net operating income for each of
these properties for the 18 months ended December 31, 1997, capitalized 1998
(the first year in which all 80 Homestead Village properties are assumed to be
stabilized) projected net operating income at 11%, and discounted both cash
flows back to July 1, 1996, using a discount rate of 11%. SCG projected a net
operating income for each of the 80 Homestead Village properties through the
end of 1998 based on the historical income and expense experience of the
Homestead Village properties currently in operation, its current development
plans for each such Homestead Village property, and its extensive experience
in the market and submarket in which each such Homestead Village property is
or will be located. In addition, the material underlying economic assumptions
used by SCG in projecting net operating income for each of the Homestead
Village properties were as follows: a 5% increase in the average weekly rental
rate beginning 18 months after the opening of a property and every 12 months
thereafter; a 28% occupancy rate for the first three months of operation, a
70% occupancy rate for the second three months of operation, and an 83%
stabilized occupancy rate thereafter; an annual 5% increase in expenses every
12 months after the opening of a property; and a capital reserve for each
property at a rate of 5% of gross revenue for the property. The capitalization
rate of 11% applied to 1998 net operating income for each Homestead Village
property contributed by PTR and ATLANTIC reflects SCG's estimate of current
real estate market capitalization rates for non-branded lodging facilities
based on its review of publicly available industry information. The discount
rate of 11% applied to PTR and ATLANTIC cash flows reflects SCG's estimate of
the rate appropriate to the moderate priced, extended-stay lodging industry.
For purposes of determining the relative ownership interest of SCG in
Homestead, SCG calculated the projected ATLANTIC and PTR REIT Management fees
and property management fees which SCG would have received under existing
agreements with ATLANTIC and PTR for the 80 Homestead Village properties
assuming that such agreements were in effect throughout the relevant periods,
net of operating overhead of SCG related to those properties, for the 18
months ended December 31, 1997, multiplied projected 1998 net operating net
income derived from such fees by nine, and discounted all cash flows back to
July 1, 1996 using a discount rate of 17.5%. The 9.0x multiple for 1998 net
operating income for SCG was based on a publicly available report prepared by
an independent third party (The Future of Money Management in America,
Bernstein Research, 1995 Ed.) of private and public companies in the financial
services sector after adjusting for growth expectations and business
objectives for each company. A discount rate of 17.5% was applied to SCG's
cash flow between 1996 and 1998 to reflect SCG's belief that a higher level of
uncertainty exists regarding the profitability of financial services
operations during a period of rapid growth. SCG anticipates that it would
rapidly increase its management operations relating to the Homestead Village
properties during the next three years as 51 additional properties are
developed and become stabilized. The REIT Management fees and property
management fees were calculated using the same projected net operating income
through the end of 1998 for the 80 Homestead Village properties used to
calculate the present values of the cash flows contributed by PTR and
ATLANTIC. No separate consideration was attributed to the Homestead Village
trademark, operating system or rights for planned facilities to be contributed
by SCG, as the trademark and operating system would be necessary to achieve
the anticipated fees.
These present values of cash flows were prepared solely for the purpose of
determining the relative ownership interests of ATLANTIC, PTR and SCG in
Homestead. These contributions were totalled and the resulting percentages of
the contributions are as follows: ATLANTIC-28.18%; PTR-63.64%; and SCG-8.18%.
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,
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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 effect of these provisions of the ATLANTIC
Funding Commitment Agreement is that ATLANTIC will fund $1,133,535 for each
$1,000,000 principal amount of convertible mortgage loans. The convertible
mortgage loans will be recorded for financial reporting purposes at a premium
of approximately $13 million which will be amortized and recorded as an
adjustment to interest income over the ten-year term of the mortgage loans
using the effective interest method. As described above, the relative
ownership percentages of ATLANTIC, PTR 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.
ATLANTIC and PTR 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 ATLANTIC and PTR 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. 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. 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 the Homestead
Village Incorporated Pro Forma Condensed Consolidated Balance Sheet in the
Homestead Prospectus attached hereto) 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.
The ATLANTIC REIT Management Agreement prohibits the ATLANTIC REIT Manager
from proposing transactions which, among other things, involve the sale or
purchase of properties by ATLANTIC to or from the ATLANTIC REIT Manager or its
affiliates. In connection with the Transaction, both ATLANTIC and PTR have
waived such provisions of their respective REIT Management Agreements.
Additionally, the ATLANTIC REIT Management fees payable are based upon
ATLANTIC's cash flow (as defined in the ATLANTIC REIT Management Agreement).
ATLANTIC's cash flow includes interest payable on loans made by ATLANTIC.
Because SCG's contribution is based upon discounted cash flows expected to be
generated from the Homestead Village properties contributed by ATLANTIC
(including Homestead Village properties to be funded by ATLANTIC pursuant to
its Funding Commitment Agreement), ATLANTIC and the ATLANTIC REIT Manager have
amended the ATLANTIC REIT Management Agreement to exclude from the calculation
of the ATLANTIC REIT Management fee the interest income on the mortgage loans
made by ATLANTIC to Homestead.
ATLANTIC Board Recommendations and Reasons.
At a special meeting of the ATLANTIC Board on May 17, 1996, following a
review of the information considered by SCG and a review of terms of the
Merger Agreement and the Transaction, as well as consideration of the
recommendation of the ATLANTIC Special Committee, the ATLANTIC Board approved
the Merger Agreement and the Transaction and recommended that ATLANTIC
shareholders vote for approval of the Merger Agreement and the Transaction. As
noted below, the ATLANTIC Board considered the determination by the ATLANTIC
Special Committee that the Merger Agreement and the Transaction are fair and
reasonable to ATLANTIC and their recommendation that the ATLANTIC Board
approve the Merger Agreement and the Transaction.
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In making its determination with respect to the Transaction, the ATLANTIC
Board considered the following material factors in approving the Merger
Agreement and the Transaction:
(i) The reasons emphasized by SCG in making its recommendations. The
ATLANTIC Board considered the concern of SCG management that the public
market valuation of ATLANTIC would not reflect the value of the Homestead
Village assets within ATLANTIC, that the capital markets place a premium on
REITs which are focused on a particular product and that the presence of
Homestead Village properties has caused a concern for the rating agencies.
(ii) The goals and objectives of Homestead, the projected growth in the
number of Homestead Village properties in operation, the current ownership
of Homestead Village properties by ATLANTIC and PTR, the services provided
by SCG, the gross revenues and net operating income of the combined
Homestead Village operations, the funds from operations multiple of PTR as
compared to its competitors and the EBITDA multiple of PTR and competitors
in the extended-stay market and the expected comparable result to ATLANTIC.
(iii) SCG's stated objective of maximizing shareholder value for the
shareholders of each of ATLANTIC, PTR and SCG, both separately and
individually, related to the Homestead Village operations while pursuing a
course of action that is fair to each shareholder group; and the expected
benefit resulting from a spin-off of the Homestead Village operations based
upon the number of operating Homestead Village properties at the end of
1997, the projected EBITDA for Homestead in 1998, and an assumed EBITDA
multiple and the proportionate interest of each of ATLANTIC, PTR and SCG in
the net benefit and in the 80 properties to be combined and the national
scope of the new Homestead entity.
(iv) The proposed contributions by ATLANTIC, PTR and SCG using discounted
cash flow analysis of projected net operating income for the 80 properties
in operation and under development, as well as the methodology for
calculating the amount of the contribution by SCG using discounted cash
flow analysis of REIT management and property management fees for the
Homestead Village operations that SCG would have received from ATLANTIC and
PTR, net of projected operating overhead of SCG related to the 80 Homestead
Village properties. In particular, the ATLANTIC Board considered the
requirement that ATLANTIC contribute to Homestead $18.6 million in cash in
order to assure that ATLANTIC receive all of its shares of Homestead Common
Stock at the Closing Date, rather than receiving shares in smaller
increments over time as funds are expended for Homestead Village properties
contributed by ATLANTIC. The ATLANTIC Board examined SCG's methodology in
determining those contributions, the projections employed by SCG, the
assumptions underlying the projections, the mathematical accuracy of the
projections, and the resulting percentages of the contributions of each of
ATLANTIC, PTR and SCG and found them to be reasonable.
(v) The estimated impact of the proposed transaction on the shareholders
of ATLANTIC comparing the estimated value of a share of common stock of
ATLANTIC based upon 1997 estimated funds from operations and the current
funds from operations multiple to the estimated value of the various
Homestead Securities which shareholders would own directly or indirectly as
a result of the Transaction, with no weight attributed to the Homestead
Warrants.
(vi) The estimated impact of the proposed Transaction on ATLANTIC and
ATLANTIC's balance sheet, having reviewed historical performance of
ATLANTIC, internal forecasts assuming no spin-off and internal forecasts
assuming a spin-off as of January 1996, and the impact of the proposed
Transaction on ATLANTIC's covenants under its loan agreements.
(vii) The balance sheets of Homestead giving effect to the proposed
Transaction and full funding of the convertible mortgage debt, the capital
structure of Homestead at cost and the Homestead Warrants. In particular,
the ATLANTIC Board considered whether the number of shares issuable upon
exercise of the Homestead Warrants and conversion of the convertible
mortgage loans might restrict appreciation in the per share price of
Homestead Common Stock for an extended period.
(viii) The impact of the Transaction on ATLANTIC's projected funds from
operations and ATLANTIC's ability to continue to make cash distributions to
shareholders at the current level. The
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ATLANTIC Board considered the fact that projected funds from operations for
1996 and 1997 would be impacted by the Transaction but noted that the
amendment to the ATLANTIC REIT Management Agreement to exclude income from
the convertible mortgage loans as a basis for ATLANTIC REIT Manager
compensation would in part offset the potential decrease in funds from
operations caused by the Transaction.
(ix) The impact of the REIT tax rules on the operation of Homestead
Village properties by ATLANTIC. The ATLANTIC Board was advised that the
current methods of operation under the REIT tax rules would impose certain
inefficiencies in operation of the Homestead Village properties by ATLANTIC
or loss of certain revenues from the properties.
(x) The terms of the convertible mortgage loans and the Homestead
Warrants. The ATLANTIC Board considered the value of the continued
investment by ATLANTIC in Homestead Village facilities through the
convertible mortgage loans, the obligations of ATLANTIC under the Funding
Commitment Agreement and ATLANTIC's source of funding. The ATLANTIC Board
considered the difference in the amount of its funding obligation to the
stated amount of the convertible mortgage notes it will receive under the
Funding Commitment Agreement.
(xi) The Distribution will result in a taxable dividend to shareholders.
The ATLANTIC Board considered the estimated amount of such tax in light of
the value to be created by the spin-off. For a description of the estimated
amount of the taxable dividend based on certain assumptions and on various
assumed values of the Homestead Securities, see "--Federal Income Tax
Consequences--Tax Consequences to ATLANTIC Shareholders--The Distribution."
(xii) The substantial ownership interest of SCG in ATLANTIC and PTR and
the impact that such ownership interest was likely to have on SCG in
structuring the Transaction.
(xiii) The ATLANTIC Board considered the condition to the Merger
Agreement that the ATLANTIC Special Committee receive a written opinion
from an investment banking firm satisfactory to the ATLANTIC Special
Committee that the consideration to be paid to ATLANTIC in the proposed
Transaction was fair from a financial point of view to ATLANTIC
shareholders (other than SCG).
(xiv) As noted above, the ATLANTIC Board considered the recommendation of
the ATLANTIC Special Committee. In reaching its determination, the ATLANTIC
Special Committee considered the same factors described herein which were
considered by the ATLANTIC Board as a whole. The ATLANTIC Special Committee
consulted with SCG management as well as with its legal counsel and with
J.P. Morgan. In addition, the ATLANTIC Special Committee considered the
opinion, analyses and presentations of J.P. Morgan described below under
"--Fairness Opinion" including the opinion of J.P. Morgan to the effect
that, as of the date of such opinion, and based upon and subject to certain
matters stated therein, the consideration to be paid to ATLANTIC in the
proposed Transaction was fair from a financial point of view to ATLANTIC
shareholders (other than SCG). In this respect, while the ATLANTIC Special
Committee did not explicitly adopt J.P. Morgan's financial analyses, the
ATLANTIC Special Committee placed special emphasis on such analyses in its
overall evaluation of the Transaction and viewed such analyses as favorable
to its determination.
In view of the wide variety of factors considered by the ATLANTIC Board, the
ATLANTIC Board did not quantify or otherwise attempt to assign relative
weights to the specific factors considered in making its determination.
FAIRNESS OPINION
Pursuant to an engagement letter dated April 1, 1996 (the "Engagement
Letter"), ATLANTIC retained J.P. Morgan to deliver a fairness opinion in
connection with the proposed Transaction.
At the meeting of the ATLANTIC Special Committee on May 17, 1996, J.P.
Morgan rendered its oral opinion to the ATLANTIC Special Committee that, as of
such date, the consideration to be paid to ATLANTIC in the proposed
Transaction was fair from a financial point of view to ATLANTIC shareholders
(other than
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SCG). J.P. Morgan has confirmed its May 17, 1996 oral opinion by delivering
its written opinion to the ATLANTIC Special Committee, dated as of the date of
this Information Statement and Prospectus, that, as of such date, the
consideration to be paid to ATLANTIC in the proposed Transaction was fair from
a financial point of view to ATLANTIC shareholders (other than SCG). No
limitations were imposed by the ATLANTIC Special Committee upon J.P. Morgan
with respect to the investigations made or procedures followed by it in
rendering its opinions.
THE FULL TEXT OF THE WRITTEN OPINION OF J.P. MORGAN DATED AS OF THE DATE OF
THIS INFORMATION STATEMENT AND PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS
ANNEX II TO THIS INFORMATION STATEMENT AND PROSPECTUS AND IS INCORPORATED
HEREIN BY REFERENCE. ATLANTIC SHAREHOLDERS ARE URGED TO READ THE OPINION IN
ITS ENTIRETY. J.P. MORGAN'S WRITTEN OPINION IS ADDRESSED TO THE ATLANTIC
SPECIAL COMMITTEE, IS DIRECTED ONLY TO THE CONSIDERATION TO BE PAID IN THE
TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY ATLANTIC
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE ATLANTIC SPECIAL
MEETING. THE SUMMARY OF THE OPINION OF J.P. MORGAN SET FORTH IN THIS
INFORMATION STATEMENT AND PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinions, J.P. Morgan reviewed, among other things; in
the case of its May 17, 1996 opinion, a draft of the Merger Agreement and the
Related Agreements (as defined in the Merger Agreement) and, in the case of
its written opinion dated as of the date of this Information Statement and
Prospectus, the Merger Agreement, the Related Agreements (as defined in the
Merger Agreement) and this Information Statement and Prospectus; certain
information concerning Alabama Homestead Incorporated and Atlantic Homestead
Village Incorporated (collectively, the "Portfolio") and Homestead and certain
publicly available information concerning certain other companies engaged in
businesses comparable to those of the Portfolio and Homestead; publicly
available terms of certain transactions involving companies comparable to the
Portfolio and Homestead and the consideration received in connection with such
transactions; the audited financial statements of ATLANTIC for the fiscal year
ended December 31, 1995; and certain internal financial analyses and forecasts
concerning the Portfolio and Homestead prepared by the management of ATLANTIC
and Homestead, respectively. J.P. Morgan also held discussions with certain
members of the management of ATLANTIC and Homestead with respect to certain
aspects of the Transaction, and the past and current business operations of
ATLANTIC and the Portfolio, the financial condition and future prospects and
operations of ATLANTIC, Homestead and the Portfolio, the effects of the
Transaction on the financial condition and future prospects of ATLANTIC and
Homestead and certain other matters believed necessary or appropriate to J.P.
Morgan's inquiry. In addition, J.P. Morgan reviewed such other financial
studies and analyses and considered such other information as it deemed
appropriate for the purposes of its opinions.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or
that was furnished to it by ATLANTIC and Homestead or otherwise reviewed by
J.P. Morgan, and J.P. Morgan has not assumed any responsibility or liability
therefor. J.P. Morgan has not conducted any valuation or appraisal of any
assets or liabilities, nor have any valuations or appraisals been provided to
J.P. Morgan. In relying on financial analyses and forecasts provided to J.P.
Morgan, J.P. Morgan has assumed that they have been reasonably prepared based
on assumptions reflecting the best currently available estimates and judgments
by management of ATLANTIC or Homestead, as applicable, as to the expected
future results of operations and financial condition of ATLANTIC and
Homestead, respectively. J.P. Morgan has also assumed that the Transaction
will have the tax consequences described in this Information Statement and
Prospectus, and in discussions with, and materials furnished to J.P. Morgan
by, representatives of ATLANTIC, and that the other transactions contemplated
by the Merger Agreement and the Related Agreements (as defined in the Merger
Agreement) will be consummated as described in the Merger Agreement, the
Related Agreements (as defined in the Merger Agreement) and this Information
Statement and Prospectus.
The projections furnished to J.P. Morgan for the Portfolio and Homestead
were prepared by the respective management of each company. Neither ATLANTIC
nor Homestead publicly discloses internal management projections of the type
provided to J.P. Morgan in connection with J.P. Morgan's analysis of the
Transaction,
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and such projections were not prepared with a view toward public disclosure.
These projections were based on numerous variables and assumptions that are
inherently uncertain and may be beyond the control of management, including,
without limitation, factors related to general economic and competitive
conditions and prevailing interest rates. Accordingly, actual results could
vary significantly from those set forth in such projections.
J.P. Morgan's opinions are based on economic, market and other conditions as
in effect on, and the information made available to J.P. Morgan as of, the
date of such opinions. Subsequent developments may affect the written opinion
dated as of the date of this Information Statement and Prospectus, and J.P.
Morgan does not have any obligation to update, revise, or reaffirm such
opinion. J.P. Morgan expressed no opinion as to the price at which the
Homestead Securities will trade at any future time.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinions. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its written opinion dated as of the date
of this Information Statement and Prospectus.
Determination of Economic Benefits of Transaction: Using publicly available
information, J.P. Morgan compared selected financial data of Homestead with
similar data for selected publicly traded companies engaged in businesses
which J.P. Morgan judged to be analogous to Homestead. The companies selected
by J.P. Morgan were Studio Plus Hotels, Extended Stay America, Amerihost
Properties, John Q. Hammons, La Quinta Inns, Prime Hospitality, Servico, and
Supertel Hospitality. These companies were selected, among other reasons,
because of their focus on the extended-stay or limited-service hotel markets.
Additionally, using publicly available information, J.P. Morgan compared
selected financial data of ATLANTIC with similar data for selected publicly
traded companies engaged in businesses which J.P. Morgan judged to be
analogous to ATLANTIC. The companies selected by J.P. Morgan were Avalon
Properties, Camden Property Trust, Equity Residential, Evans Withycombe,
Irvine Apartment, Merry Land, Oasis Residential, Post Properties, Smith
Residential Trust, United Dominion, and Wellsford Residential, as well as PTR.
These companies were selected, among other reasons, because of their focus on
the multifamily real estate markets and the size of their public market
capitalization.
With respect to Homestead, for each comparable company, publicly available
financial performance through the twelve months ended December 31, 1995 was
measured. Based on December 31, 1995 stock prices, J.P. Morgan selected the
mean and the median value for EBITDA and earnings per share ("EPS") multiples
(excluding Extended Stay America, which has negative multiples), specifically:
projected 1996 EBITDA (14.6x for Studio Plus and 8.1x to 8.4x for the limited-
service hotels); and projected 1996 EPS (36.8x for Studio Plus and 14.4x to
15.0x for the limited-service hotels). Based on the extended-stay comparables,
multiple ranges of 14.0x to 17.0x on an EBITDA basis, and 30.0x to 40.0x on an
EPS basis, were then applied to Homestead's 1997 EBITDA and EPS, yielding
implied trading values for Homestead Common Stock, on a fully diluted basis,
of approximately $8.96 to $10.88 per share and $8.59 to $11.46 per share,
respectively, at year-end 1996. Based on ATLANTIC's proposed ownership stake
in Homestead, on a fully diluted basis, these implied trading values resulted
in a total Homestead value of $1.15 to $1.63 per ATLANTIC share.
With respect to ATLANTIC, for each comparable company, publicly available
financial performance through the twelve months ended December 31, 1995 was
measured. Based on December 31, 1995 stock prices, J.P. Morgan selected for
those comparable companies (excluding PTR) the mean and the median value for
the 1996 funds from operation multiples, 10.6x and 10.7x, respectively. J.P.
Morgan selected a 1996 funds from operations multiple of 12.1x for PTR. Funds
from operations multiple ranges of 10.7x to 12.1x were then applied to the
difference between ATLANTIC's estimated funds from operations per share at
year-end 1997 including and excluding the Portfolio ($0.06 per share). The
result was a range of value per share attributable to the Portfolio if
retained by ATLANTIC of $0.64 and $0.72 at year-end 1996, as compared to the
total value created for ATLANTIC shareholders of $1.15 to $1.63 per ATLANTIC
share through the Transaction.
Determination of Ownership of Homestead: J.P. Morgan analyzed management's
discounted cash flow ("DCF") analysis which was performed to determine each
party's contribution to Homestead and thus the
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percentage ownership each party would receive in Homestead. Specifically, J.P.
Morgan reviewed and sensitized the underlying assumptions driving each party's
allocation of value as well as analyzed changes in capital market assumptions
which could influence each party's allocation of value relative to the other
parties. The DCF analysis management used to determine the allocation of
ownership for ATLANTIC and PTR used similar operating and cost assumptions
and, as such, similar changes in assumptions for both ATLANTIC and PTR did not
significantly change the proportion of value relative to each other.
Accordingly, J.P. Morgan analyzed SCG's allocation of ownership in Homestead
and determined that such allocation was reasonable and that changes in capital
market assumptions for ATLANTIC's and PTR's DCF analysis did not significantly
affect ATLANTIC's ownership relative to SCG.
Consideration: ATLANTIC and PTR receive the same compensation pro rata (30%
Homestead Common Stock and 70% convertible mortgages, while SCG is receiving
100% of its allocated ownership in Homestead Common Stock). Accordingly, J.P.
Morgan compared the convertible mortgages and the Homestead Common Stock.
In reviewing the convertible mortgages, J.P. Morgan performed two analyses.
First, J.P. Morgan performed a valuation (based on the Black-Scholes model) to
determine the fair value of the convertible mortgages. Second, J.P. Morgan
calculated a five-year Internal Rate of Return ("IRR") for the Homestead
Common Stock and the convertible mortgages under various growth scenarios. The
determination of fair value concluded that the mortgages have a value in
excess of par and the return analysis concluded that the convertible mortgages
have an attractive return relative to the Homestead Common Stock.
In connection with the Homestead Warrants to be received by ATLANTIC in
connection with the Transaction, J.P. Morgan concluded that they provided
additional value to ATLANTIC.
The summary set forth above does not purport to be a complete description of
the analyses or data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. J.P. Morgan believes that the summary set
forth above and their analyses must be considered as a whole and that
selecting portions thereof, without considering all of its analyses, could
create an incomplete view of the processes underlying its analyses and
opinion. J.P. Morgan based its analyses on assumptions that it deemed
reasonable, including assumptions concerning general business and economic
conditions and industry-specific factors. The other principal assumptions upon
which J.P. Morgan based its analyses are set forth above under the description
of each such analysis. J.P. Morgan's analyses are not necessarily indicative
of actual values or actual future results that might be achieved, which values
may be higher or lower than those indicated. Moreover, J.P. Morgan's analyses
are not and do not purport to be appraisals or otherwise reflective of the
prices at which businesses actually could be bought or sold.
As a part of its investment banking business, J.P. Morgan and its affiliates
are continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, investments for passive and control
purposes, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. J.P. Morgan was selected to deliver an opinion to the
ATLANTIC Special Committee with respect to the Transaction on the basis of
such experience and its familiarity with ATLANTIC.
Pursuant to the Engagement Letter, ATLANTIC has agreed to pay J.P. Morgan a
fee of $225,000 for the delivery of its opinion. In addition, ATLANTIC has
agreed to reimburse J.P. Morgan for its expenses incurred in connection with
its services, including the fees and disbursements of counsel, and will
indemnify J.P. Morgan against certain liabilities, including liabilities
arising under the securities laws.
J.P. Morgan and its affiliates maintain banking and other business
relationships with ATLANTIC, PTR and SCG and its affiliates, including Morgan
Guaranty Trust Company of New York acting as the agent bank under ATLANTIC's
existing commercial bank facility, for which it receives customary fees.
Specifically, in 1996 J.P. Morgan acted as financial advisor to SCG in the
private placement of approximately $75 million of equity
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securities, acted as lead manager for Security Capital Industrial Trust
("SCI") in a $200 million bond offering, acted as co-manager for SCI in a $135
million preferred stock issuance, acted as lead manager for PTR in a $150
million bond offering, and performed various exposure management transactions
for SCI. In the ordinary course of their businesses, J.P. Morgan's affiliates
may actively trade the debt and equity securities of ATLANTIC, PTR or SCG or
its affiliates for their own account or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities. Morgan Guaranty Trust Company of New York has received fees of
approximately $2,500,000 since 1994 in connection with ATLANTIC's commercial
bank facility, and J.P. Morgan has received fees in the aggregate of
approximately $4,871,000 in connection with its capital markets and other work
for SCG and affiliates in 1996. In addition, J.P. Morgan is acting as
underwriter for an offering by PTR of $100 million of notes for which it will
receive $800,000 in underwriting discounts and commissions plus reimbursement
of expenses customarily reimbursed in such offerings.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States Federal income tax
consequences of the Transaction to ATLANTIC and ATLANTIC shareholders. To the
extent such summary discusses matters of law, it is based on the opinion of
Mayer, Brown & Platt. The summary is based upon the Code, its legislative
history, administrative pronouncements, judicial decisions and Treasury
regulations, subsequent changes to any of which may affect the tax
consequences described herein or possibly on a retroactive basis. The summary
only applies to persons who hold shares of ATLANTIC Common Stock as capital
assets and does not address tax considerations which may affect the treatment
of certain special status taxpayers such as financial institutions, broker-
dealers, life insurance companies, tax-exempt organizations, investment
companies and foreign taxpayers. The summary does not address the foreign,
state, local or other tax consequences of the Transaction. SHAREHOLDERS ARE
URGED TO CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES TO THEM OF THE TRANSACTION AND AS TO THE FOREIGN,
STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE TRANSACTION.
Tax Consequences to ATLANTIC
The Mergers. In the opinion of Mayer, Brown & Platt, based on certain
representations of ATLANTIC, the Mergers constitute a transaction subject to
Section 351 or the reorganization provisions of the Code and related
provisions. Assuming the Mergers constitute a transaction subject to Section
351 or the reorganization provisions of the Code and related provisions, (i)
ATLANTIC will not recognize gain, income or loss upon the receipt of the
Homestead Common Stock in the Mergers in exchange for the Homestead Village
properties transferred by ATLANTIC to Homestead in the Mergers except to the
extent that ATLANTIC is treated as having received "boot" in the Mergers, (ii)
the tax basis of the Homestead Common Stock received by ATLANTIC will be the
same as ATLANTIC's and its subsidiaries' tax basis in the Homestead Village
properties transferred by ATLANTIC to Homestead in the Mergers reduced by any
liabilities of ATLANTIC's subsidiaries assumed by Homestead in the Mergers,
and (iii) the holding period of the Homestead Common Stock received by
ATLANTIC will be the same as ATLANTIC's and its subsidiaries' holding period
in the Homestead Village properties, allocated among the shares of the
Homestead Common Stock received according to the fair market values of such
properties. To the extent that ATLANTIC is treated as having received "boot"
in the Mergers, ATLANTIC will recognize taxable gain with respect to each of
the Homestead Village properties transferred by ATLANTIC to Homestead in the
Mergers in an amount equal to the lesser of (i) the fair market value on the
date of the Merger of the "boot" received by ATLANTIC allocated to such
Homestead Village property and (ii) the amount by which the fair market value
of such Homestead Village property exceeds ATLANTIC's or its subsidiaries' tax
basis therein. The tax basis of the Homestead Common Stock received by
ATLANTIC will be increased by the amount of any such taxable gain recognized
and will be decreased by the fair market value of the "boot" received.
ATLANTIC's tax basis in any "boot" received will equal the fair market value
on the date of the Merger of such "boot." Any taxable gain recognized by
ATLANTIC as a result of the receipt of "boot" will reduce the amount of gain
recognized by ATLANTIC on the Distribution.
The Distribution. ATLANTIC will recognize gain upon the Distribution of the
Homestead Securities to its shareholders in an amount equal to the excess of
the sum of (i) the fair market value of the Homestead
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Securities on the Distribution Date and (ii) cash distributed in lieu of
fractional shares of Homestead Common Stock and fractional Homestead Warrants
over ATLANTIC's tax basis immediately prior to the Distribution in the
Homestead Securities it receives in the Mergers, and the earnings and profits
of ATLANTIC will be increased by the amount of any such gain recognized.
ATLANTIC's gain on the Distribution will be reduced to the extent that
ATLANTIC recognized gain on the Mergers from the receipt of "boot" and its tax
basis in the Homestead Common Stock was increased thereby. In computing its
taxable income for the year in which the Distribution occurs, ATLANTIC will be
allowed a dividends paid deduction with respect to the Distribution in an
amount equal to the sum of the fair market value on the Distribution Date of
the Homestead Securities distributed and any cash distributed in lieu of
fractional shares of Homestead Common Stock and fractional Homestead Warrants,
but in no event in excess of the earnings and profits of ATLANTIC.
The fair market value of the Homestead Securities on the Distribution Date
will be determined by the best available evidence as to their value on that
date. Assuming there are no aberrations in the trading of the Homestead
Securities, and absent special factors bearing on the value of a particular
holder's Homestead Securities, the best available evidence of the fair market
value of the Homestead Securities on the Distribution Date should be their
value as reflected by their trading prices on the the first day of when issued
trading or within a reasonable period before or after such date. To the extent
the trading price of the Homestead Securities does not reflect their fair
market value because, for example, there are too few trades, the trading is of
a sporadic nature or such securities are not traded, then other relevant data
bearing on the value of the Homestead Securities will be considered in
determining the fair market value of the Homestead Securities.
Thus, as a result of the Transaction, ATLANTIC will recognize gain in an
amount equal to the excess of the value of the Homestead Village properties
transferred by ATLANTIC to Homestead in the Mergers over ATLANTIC's or its
subsidiaries' basis therein (the "net built-in gain"). ATLANTIC will recognize
such gain in one of the following ways: (i) as a result of the receipt of
"boot" in the Mergers, (ii) upon the Distribution, or (iii) in part as a
result of the receipt of "boot" in the Mergers and in part upon the
Distribution. In addition, if the fair market value of any Homestead Village
property transferred by ATLANTIC to Homestead in the Mergers were less than
ATLANTIC's or its subsidiaries' tax basis therein (a "built-in loss") and if
the fair market value of "boot" received by ATLANTIC in the Mergers were to
exceed ATLANTIC's net built-in gain in the Homestead Village properties,
ATLANTIC would recognize additional gain in the Transaction in an amount equal
to the lesser of (i) ATLANTIC's aggregate built-in losses in the Homestead
Village properties and (ii) the excess of the fair market value of the "boot"
received by ATLANTIC in the Mergers over ATLANTIC's net built-in gain in the
Homestead Village properties. However, it is not anticipated that any of the
Homestead Village properties transferred by ATLANTIC in the Mergers will have
a built-in loss.
Mortgages. After consummation of the Transaction, ATLANTIC will hold
mortgage notes of Homestead convertible into shares of Homestead Common Stock.
See "The Transaction--Funding Commitment Agreements." The terms of the Funding
Commitment Agreement provide that ATLANTIC will fund $1,133,535 for each
$1,000,000 principal amount of convertible mortgage loans. Accordingly,
ATLANTIC will be treated as having acquired the convertible mortgage loans at
a premium which ATLANTIC will be entitled to amortize as an offset to interest
income (with a corresponding reduction in ATLANTIC's tax basis) under a
constant yield method over the terms of the convertible mortgage notes if (as
ATLANTIC intends) an election under Section 171 of the Code is made. Interest
paid by Homestead to ATLANTIC on the mortgage notes will constitute qualified
income for purposes of determining whether ATLANTIC meets the gross income
requirements for REIT qualification.
The terms of the mortgages provide for adjustment of the price for
conversion of the mortgages into the Homestead Common Stock if Homestead makes
certain distributions of stock, cash or other property to its shareholders.
While Homestead does not presently contemplate making such a distribution, if
Homestead makes a distribution of cash or property resulting in an adjustment
to the conversion price, ATLANTIC, as a holder of such convertible mortgages,
may be viewed as receiving a "deemed distribution" under Section 305 of the
Code, even if ATLANTIC does not hold any Homestead Common Stock at such time.
The deemed distribution would constitute a taxable dividend, taxable as
ordinary income, to the extent that the earnings and profits of Homestead
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were allocable to the deemed distribution. The amount of the deemed
distribution which exceeded the allocated earnings and profits of Homestead
would be considered a return of capital and would reduce ATLANTIC's tax basis
in the convertible mortgages (but not below zero) by the value of the deemed
distribution. To the extent that the value of the deemed distribution exceeds
ATLANTIC's tax basis in the convertible mortgages, the deemed distribution
would result in gain to ATLANTIC. ATLANTIC's tax basis in the convertible
mortgages would then immediately be increased by the value of the property
deemed to have been distributed.
Except as discussed below with respect to cash received in lieu of
fractional shares, ATLANTIC will not recognize gain or loss upon the exercise
of the conversion right. ATLANTIC's tax basis in the Homestead Common Stock
received upon the conversion will be equal to ATLANTIC's tax basis in the
mortgages converted. Upon conversion of the mortgages, ATLANTIC will receive
cash in lieu of any fractional shares of Homestead Common Stock and will
recognize gain to the extent that the cash received exceeds ATLANTIC's tax
basis in the portion of the mortgages converted for cash in lieu of fractional
shares. In the event that ATLANTIC exercises its conversion right, it is
expected that ATLANTIC, consistent with its status as a REIT, will shortly
thereafter distribute to its shareholders or sell in the open market the
Homestead Common Stock received. ATLANTIC will recognize gain upon such
distribution or sale of the Homestead Common Stock received upon conversion in
an amount equal to the excess of the fair market value of the Homestead Common
Stock over ATLANTIC's tax basis therein, and the earnings and profits of
ATLANTIC will be increased by the amount of any such gain recognized. In
computing its taxable income for the year in which any such Homestead Common
Stock is distributed, ATLANTIC will be allowed a dividends paid deduction in
an amount equal to the fair market value at the time of distribution of the
Homestead Common Stock distributed, but in no event in excess of the earnings
and profits of ATLANTIC.
Commitment Fee Income. The receipt by ATLANTIC of the Homestead Warrants in
consideration for entering into the Funding Commitment Agreement will be
treated as a commitment fee to ATLANTIC for entering into the Funding
Commitment Agreement which will constitute taxable income to ATLANTIC. Such
income will constitute qualified income for purposes of determining whether
ATLANTIC meets the gross income requirements for REIT qualification. The
earnings and profits of ATLANTIC will be increased by the amount of the
commitment fee income, consequently increasing the amount of the Distribution
which will be treated as a fully taxable dividend to ATLANTIC shareholders.
Tax Consequences to Homestead
Assuming the Mergers constitute a transaction subject to Section 351 or the
reorganization provisions of the Code and related provisions, (i) Homestead
will not recognize gain, income or loss as a result of the Transaction, (ii)
the tax bases of the Homestead Village properties received by Homestead from
ATLANTIC and its subsidiaries will be the same as the tax bases of ATLANTIC
and its subsidiaries in such properties increased by the amount of any gain
recognized by ATLANTIC as a result of the receipt by ATLANTIC of "boot" in the
Mergers, and (iii) the holding period of the Homestead Village properties
received by Homestead from ATLANTIC and its subsidiaries will be the same as
the holding period of ATLANTIC and its subsidiaries in such properties.
Tax Consequences to ATLANTIC Shareholders
The Distribution. The amount received by ATLANTIC shareholders in the
Distribution will be equal to the fair market value of the Homestead
Securities received plus the amount of any cash received in lieu of fractional
shares of Homestead Common Stock and fractional Homestead Warrants. The
Distribution will constitute a taxable dividend to ATLANTIC shareholders,
taxable as ordinary income, to the extent of the earnings and profits of
ATLANTIC allocable to such Homestead Securities and cash. The amount of the
distribution which exceeds the allocated earnings and profits of ATLANTIC will
be treated as a nontaxable reduction (although not below zero) of a
shareholder's adjusted tax basis in its ATLANTIC Common Stock. To the extent
that the Distribution exceeds such shareholder's adjusted tax basis in its
ATLANTIC Common Stock, the Distribution will be treated as gain to such
shareholder. Any such gain will constitute capital gain to such
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<PAGE>
shareholder if the shareholder holds its shares of ATLANTIC Common Stock as a
capital asset, and will constitute long-term capital gain if such shareholder
has held such shares for at least one year. As discussed above, gain
recognized by ATLANTIC upon the distribution of the Homestead Securities will
increase ATLANTIC's earnings and profits, thus increasing the portion of the
distributions of ATLANTIC for the taxable year of the Distribution which will
be treated as taxable dividends as opposed to return of capital.
To the extent that ATLANTIC has a net capital gain for the taxable year, it
may designate all or a portion of any dividend distributed as a capital gain
dividend. In this event, shareholders will be provided written notice of such
designation within 30 days after the close of ATLANTIC's taxable year.
Shareholders will be taxed at the long-term capital gains rate on any such
capital gain dividends regardless of the shareholder's holding period of its
ATLANTIC Common Stock. The amount of capital gain dividends which may be
designated by ATLANTIC will be reduced by any capital loss carryovers of
ATLANTIC. Gain recognized by ATLANTIC as a result of the Distribution will
constitute capital gain to the extent attributable to Homestead Village
properties held by ATLANTIC and its subsidiaries in excess of one year prior
to the Mergers and ATLANTIC anticipates that it will designate dividends
attributable to any net capital gain resulting from the Distribution as
capital gain dividends. However, ATLANTIC does not anticipate that it will
derive significant net capital gain from the Distribution.
The following sets forth an estimate of the portion of the Distribution
taxable as a dividend to ATLANTIC shareholders, based upon various assumed
values for the Homestead Securities and the following additional assumptions.
The following information assumes that (i) the total number of outstanding
shares of ATLANTIC Common Stock on the Distribution Record Date is 74,602,446
(since ATLANTIC has not established a price for shares to be issued in the
ATLANTIC IPO, the price at which prior shares have been issued was used for
purposes of computing the number of shares to be issued in the ATLANTIC IPO),
(ii) ATLANTIC will make total cash distributions to shareholders for calendar
year 1996 in an amount equal to $54,740,000, (iii) ATLANTIC's total earnings
and profits other than from the Transaction for calendar year 1996 is
$34,900,000, (iv) ATLANTIC's and its subsidiaries' tax basis in the Homestead
Village properties immediately prior to the Transactions is $47,622,293, (v)
the ATLANTIC IPO is consummated and (vi) no underwriter's overallotment is
exercised in the ATLANTIC IPO. The foregoing assumptions and the assumed
values of Homestead Securities below are intended for informational purposes
only for purposes of computing the Portion of the Distribution Taxable as a
Dividend based upon such assumptions and are not intended as an indication of
the actual number of shares of ATLANTIC Common Stock which will be or are
expected to be outstanding on the Distribution Record Date or which will or
are expected to be issued in the ATLANTIC IPO, actual or expected cash
distributions to be made by ATLANTIC for calendar year 1996, actual or
expected taxable income of ATLANTIC for calender year 1996, actual or expected
tax basis of ATLANTIC and its subsidiaries in the Homestead Village properties
immediately prior to the Transactions, whether the underwriter's overallotment
will or is expected to be exercised in the ATLANTIC IPO, or ATLANTIC's
estimate of the value of the Homestead Securities.
<TABLE>
<S> <C> <C> <C>
ASSUMED ASSUMED ASSUMED VALUE
VALUE OF VALUE OF DISTRIBUTION PORTION OF
ONE SHARE OF OF ONE PER SHARE OF THE DISTRIBUTION
HOMESTEAD HOMESTEAD ATLANTIC TAXABLE AS
COMMON WARRANT COMMON STOCK A DIVIDEND
STOCK --------- --------------- ----------------
- ------------
$10.00 $ 0.00 $0.56 $0.20
$12.50 $ 2.50 $0.79 $0.32
$15.00 $ 5.00 $1.03 $0.50
$17.50 $ 7.50 $1.27 $0.70
$20.00 $10.00 $1.51 $0.90
</TABLE>
Foreign Withholding. For purposes of this discussion, a "non-U.S. holder"
means any PTR shareholder who, for United States income tax purposes, is a
foreign corporation, a nonresident alien, a nonresident alien fiduciary of a
foreign estate or trust, or a foreign partnership which has at least one
member that is, for United
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States Federal income tax purposes, a foreign corporation, a nonresident alien
individual or a nonresident alien fiduciary of a foreign estate or trust. Non-
U.S. holders will be subject to U.S. withholding tax at a rate of 30%, or if
applicable, a lower treaty rate, on the portion of the Distribution not
attributable to capital gains unless the Distribution is effectively connected
with the conduct of a trade or business in the United States by such non-U.S.
holder. In addition, under the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"), any distribution made by ATLANTIC to a non-U.S. holder, to
the extent attributable to gains from dispositions of United States Real
Property Interests ("USRPIs") by ATLANTIC ("USRPI Capital Gains"), will be
considered effectively connected with a U.S. trade or business of the non-U.S.
holder and subject to U.S. income tax at the rates applicable to U.S.
individuals or corporations. ATLANTIC will be required to withhold tax equal
to 35% of the amount of the Distribution to the extent it constitutes USRPI
Capital Gains, without regard to the portion of the Distribution which
ATLANTIC designates as a capital gain dividend. The portion of the
Distribution which constitutes USRPI Capital Gains may also be subject to the
30% branch profits tax (unless reduced by treaty) in the case of a non-U.S.
holder that is a foreign corporation.
Any portion of the Distribution that exceeds both current and accumulated
earnings and profits of ATLANTIC will not be taxed as either an ordinary
dividend or a capital gain dividend. However, because ATLANTIC will not be
able to determine at the time the Distribution is made whether or not the
Distribution will be in excess of ATLANTIC's current and accumulated earnings
and profits, the Distribution will be subject to full withholding. The non-
U.S. holder may seek a refund of over-withholding from the Internal Revenue
Service if it is subsequently determined that the Distribution was, in fact,
in excess of ATLANTIC's current and accumulated earnings and profits. Under
current Treasury Regulations, distributions paid to an address in a foreign
country are presumed to be paid to a resident of that country (unless the
payor has knowledge to the contrary) for foreign withholding purposes and,
under the current interpretation of the Treasury Regulations, for purposes of
determining the applicability of a tax treaty rate. In any case where a
distribution is payable in any medium other than money, the withholding agent
cannot release the property so distributed until the property has been
converted into funds sufficient to enable the withholding agent to pay over in
money the tax required to be withheld. For a discussion of the manner in which
this withholding obligation will be satisfied by ATLANTIC in connection with
the Distribution, see "Foreign Shareholders."
Backup Withholding. Under the backup withholding rules of the Code (which
generally impose a 31% withholding tax on certain persons who fail to furnish
the information required under the United States tax reporting requirements),
a ATLANTIC shareholder who receives Homestead Securities or cash in lieu of
fractional shares of Homestead Common Stock or fractional Homestead Warrants
in the Distribution may be subject to backup withholding with respect to such
Homestead Securities and cash received in the Distribution unless such
shareholder (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (ii) provides a
correct taxpayer identification number and certifies under penalties of
perjury that the taxpayer identification number is correct and that the holder
is not currently subject to backup withholding because of a failure to report
all dividend and interest income. Any amount withheld under these rules will
be credited against the shareholder's Federal income tax liability.
Information Reporting. ATLANTIC is required to report the amount distributed
to shareholders pursuant to the Distribution (and the allocation of such
amount among ordinary dividends, capital gain dividends and return of capital)
to the IRS and each shareholder on Form 1099-DIV.
Homestead Common Stock. A shareholder's tax basis in the Homestead Common
Stock received in the Distribution will be the fair market value of the
Homestead Common Stock on the Distribution Date to be determined as discussed
above. A shareholder's holding period for the Homestead Common Stock received
in the Distribution will begin on the day after the Distribution Record Date.
Upon the sale or exchange of Homestead Common Stock, a Homestead shareholder
will realize gain or loss measured by the difference between the amount
realized on the sale or other disposition and the shareholder's tax basis in
the Homestead Common Stock. Such gain or loss will be a capital gain or loss
to such shareholder if the shareholder holds its Homestead Common Stock as a
capital asset, and will be a long-term capital gain or
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<PAGE>
loss if the Homestead shareholder's holding period with respect to the
Homestead Common Stock sold is more than one year at the time of sale or
exchange.
Homestead Warrants. A shareholder's tax basis in the Homestead Warrants
received in the Distribution will be the fair market value of the Homestead
Warrants on the Distribution Date to be determined as discussed above. A
shareholder's holding period for the Homestead Warrants received in the
Distribution will begin on the day after the Distribution Record Date.
The terms of the Homestead Warrants distributed to ATLANTIC shareholders
pursuant to the Merger Agreement provide for adjustment of the price for
exercise if Homestead makes certain distributions of stock, cash or other
property to its shareholders. While Homestead does not presently contemplate
making such a distribution, if Homestead makes a distribution of cash or
property resulting in an adjustment to the exercise price, the holders of the
Homestead Warrants (the "Warrant Holders") may be viewed as receiving a
"deemed distribution" under Section 305 of the Code even if such Warrant
Holder does not hold any Homestead Common Stock at such time. The deemed
distribution would constitute a taxable dividend, taxable as ordinary income,
to the extent that the earnings and profits of Homestead were allocable to the
deemed distribution. The amount of the deemed distribution which exceeded the
allocated earnings and profits of Homestead would be considered a return of
capital, and would reduce the Warrant Holder's tax basis in the Homestead
Warrants (but not below zero) by the value of the deemed distribution. To the
extent that the value of the deemed distribution exceeds the Warrant Holder's
tax basis in its Homestead Warrants, the deemed distribution would result in
gain to such Warrant Holder. In any event, the Warrant Holder's tax basis in
its Homestead Warrants would then immediately be increased by the amount of
the property deemed to have been distributed.
Except as discussed below with respect to cash received in lieu of
fractional shares, Warrant Holders will not recognize gain or loss upon the
exercise of the Homestead Warrants. The Warrant Holder's tax basis in the
Homestead Common Stock received upon the exercise of the Homestead Warrants
will be equal to the sum of (i) the Warrant Holder's tax basis in the warrants
exercised and (ii) the exercise price paid. Upon the exercise of the Homestead
Warrants, Warrant Holders will receive cash in lieu of any fractional shares
of Homestead Common Stock and will recognize gain to the extent that the cash
received exceeds the Warrant Holder's tax basis in the portion of the
Homestead Warrants exercised for cash in lieu of fractional shares.
Upon a sale or other disposition of a Homestead Warrant, a Warrant Holder
will recognize gain or loss measured by the difference between the amount
realized on the sale or other disposition and the Warrant Holder's tax basis
in the Homestead Warrant. Such gain or loss will be capital gain or loss if
the stock into which the Homestead Warrants are exercisable would be a capital
asset in the Warrant Holder's hands, and will be a short- term capital gain or
loss because the Homestead Warrants expire within one year and therefore the
Warrant Holder's holding period will be one year or less.
If a Warrant Holder's Homestead Warrants expire without being exercised, the
Warrant Holder will recognize a loss at the time such Homestead Warrants
expire equal to its tax basis in the expired Homestead Warrants. In general,
such loss will be a capital loss if the stock into which the warrants were
exercisable would be a capital asset in the Warrant Holder's hands.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Based on the ownership on August 1, 1996, ATLANTIC's directors and executive
officers who own ATLANTIC Common Stock or PTR Common Shares will, in the
aggregate, receive a total of 21,535 shares of Homestead Common Stock and
14,445 Homestead Warrants as a result of the Transaction. SCG and its
directors and executive officers who own ATLANTIC Common Stock and PTR Common
Shares will, in the aggregate, receive a total of 10,460,177 shares of
Homestead Common Stock (including 2,243,038 shares held in escrow) and
5,109,575 Homestead Warrants as a result of the Transaction. They will also
receive cash in lieu of any fractional shares of Homestead Common Stock and
fractional Homestead Warrants. Certain officers of ATLANTIC and the ATLANTIC
REIT Manager, including David Dressler, John Patterson and Mark Riley, will
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<PAGE>
become officers and employees of Homestead. In addition, such officers may
receive options to acquire Homestead Common Stock and may be offered the
opportunity to purchase shares of Homestead Common Stock under Homestead's
Long-Term Incentive Plan. See "Management--Long-Term Incentive Plan" in the
Homestead Prospectus attached hereto.
THE MERGER AGREEMENT
Pursuant to the Merger Agreement, PTR and Homestead shall take all actions
necessary to cause PTR Homestead Village Incorporated, a wholly owned
subsidiary of PTR, to be merged with and into Homestead in exchange for
9,485,727 shares of Homestead Common Stock, ATLANTIC and Homestead shall take
all actions necessary to cause Alabama Homestead Incorporated and Atlantic
Homestead Village Incorporated, wholly owned subsidiaries of ATLANTIC, to be
merged with and into Homestead in exchange for an aggregate of 4,201,220
shares of Homestead Common Stock, and SCG and Homestead shall take all actions
necessary to cause Homestead Village Managers Incorporated, Homestead Realty
Services Incorporated and SCG Homestead Village Incorporated, wholly owned
subsidiaries of SCG, to be merged with and into Homestead in exchange for an
aggregate of 4,062,788 shares of Homestead Common Stock of which 2,243,038
shares will be placed in escrow and released as funds are advanced under the
Funding Commitment Agreements. In addition, pursuant to a warrant purchase
agreement dated as of May 21, 1996 by and among PTR, ATLANTIC, SCG and
Homestead (the "Warrant Purchase Agreement"), PTR and ATLANTIC will receive
6,363,789 and 2,818,517 Homestead Warrants, respectively, in exchange for
entering into their respective Funding Commitment Agreements described below.
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 a period of one year
without charge.
For a description of the amount of Homestead Securities to be received by
ATLANTIC shareholders in the Transaction, see "The Transaction--The
Distribution."
The following is a summary of the Merger Agreement, which is attached as
Annex I to this Information Statement and Prospectus and is incorporated
herein by reference. Such summary is qualified in its entirety by reference to
the Merger Agreement.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties of PTR, ATLANTIC, SCG and Homestead, including,
with respect to PTR, ATLANTIC and Homestead, documents filed with the
Commission and the accuracy of the information contained or incorporated
therein, and with respect to PTR, ATLANTIC, SCG and Homestead, the (i)
preparation of the financial statements in accordance with GAAP applied on a
consistent basis, (ii) absence of undisclosed liabilities, (iii) absence of
certain material adverse events and (iv) accuracy of the information provided
to Homestead with respect to the Registration Statement of which this
Information Statement and Prospectus is a part.
Certain Covenants and Agreements. Pursuant to the Merger Agreement, each of
PTR, ATLANTIC and SCG has agreed that, during the period from the date of the
Merger Agreement until the Closing Date or the earlier termination of the
Merger Agreement, it will, among other things (except as permitted by the
Merger Agreement or as consented to in writing by the other parties): (i)
conduct its extended-stay lodging business in the ordinary and usual course
and consistent with past practice; (ii) use its best efforts to take all
actions reasonably necessary to continue in the ordinary and normal course of
its business and consistent with past practice, with the development or
construction of any extended-stay properties currently in development; (iii)
not issue, sell, pledge or dispose of, or agree to issue, sell, pledge or
dispose of, any shares of, or any options, warrants or rights of any kind to
acquire any shares of stock of certain subsidiaries; (iv) not (a) except as
described in clauses (b) through (e) below, incur or become contingently
liable with respect to any additional indebtedness for borrowed money secured
by the assets to be contributed to Homestead, (b) take any action which would
jeopardize PTR's or ATLANTIC's status as a REIT under the Code, (c) sell any
of the properties to be contributed to Homestead, (d) prepay any existing
convertible mortgage loans (except that PTR may cause one of its subsidiaries
to prepay a portion of the existing convertible mortgage loans to the extent
that the costs
39
<PAGE>
to acquire and develop the properties being contributed to Homestead is less
than the amounts outstanding under such loans), or (e) purchase or acquire any
properties for use as extended-stay facilities; (v) use reasonable efforts to
preserve its extended-stay lodging business organization and goodwill, keep
available the services of its present officers, preserve the goodwill and
business relationships with its lessees, operators, suppliers, distributors,
customers and others, and not engage in any action, directly or indirectly,
with the intent to affect adversely the Transaction; (vi) confer with one or
more representatives of the other parties when requested to report on material
operational matters and the general status of ongoing operations of its
business; and (vii) maintain, in full force and effect, with all premiums due
thereon paid, policies of insurance covering all of its insurable tangible
assets and businesses related to its Homestead Village operations in amounts
and as to foreseeable risks usually insured against by persons operating
similar businesses under valid and enforceable policies of insurance issued by
nationally recognized insurers.
Pursuant to the Merger Agreement, Homestead has agreed that, during the
period from the date of the Merger Agreement until the Closing or the earlier
termination of the Merger Agreement, it will, among other things (except as
permitted by the Merger Agreement or as consented to in writing by the other
parties): (i) except in certain limited circumstances, not issue, sell, pledge
or dispose of, or agree to issue, sell, pledge or dispose of, any additional
shares of, or any options, warrants or rights of any kind to acquire any
shares of stock of Homestead, of any class or any debt or equity securities
convertible into or exchangeable for such stock, or amend or modify the terms
and conditions of any of the foregoing; (ii) not incur or become contingently
liable with respect to any indebtedness for borrowed money or enter into any
contract or arrangement with respect thereto; and (iii) not enter into any
contract, arrangement or understanding relating to the disposition of any
property to be received from PTR, ATLANTIC or SCG, however, it may purchase or
acquire properties for use as extended-stay lodging facilities with the
consent of each of the other parties provided that the funds therefor are
loaned from SCG to Homestead at a rate of interest no greater than the prime
rate of interest as announced by Wells Fargo Realty Advisors, Incorporated
from time to time plus one-half of one percent.
Pursuant to the Merger Agreement, (i) each of PTR, ATLANTIC, SCG and
Homestead shall afford to each other party and their respective accountants,
counsel, financial advisors and other representatives full access during
normal business hours throughout the period prior to the Closing to all
properties, books, contracts, commitments and records of such party, as
appropriate and, during such period, shall furnish promptly to the other, (a)
a copy of each report, schedule and other document filed or received pursuant
to the requirements of federal or state securities laws or filed with the
Commission in connection with the transactions contemplated by the Merger
Agreement, (b) such other information concerning their respective businesses,
properties and personnel which are the subject of the Merger Agreement as
shall be reasonably requested, and (c) a writing indicating any change or
occurrence which may have any material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the properties which are the subject of the Merger
Agreement; (ii) PTR, ATLANTIC and Homestead shall file the Registration
Statement with the Commission as soon as is reasonably practicable after the
date of the Merger Agreement and shall use all reasonable efforts to have the
Registration Statement declared effective by the Commission as promptly as
practicable, and each of them shall also take any action required to be taken
under applicable state blue sky or securities laws in connection with the
Distribution; (iii) in the case of PTR and ATLANTIC, promptly take such action
as is necessary to obtain shareholder approval of the Merger Agreement and the
Transaction; (iv) in the case of PTR and ATLANTIC, use its best efforts to
obtain and deliver to the other certain letters from its principal executive
officers, directors, trustees and "affiliates" as defined under Rule 145 under
the Securities Act agreeing to certain restrictions on resale of Homestead
Securities received in the Transaction; (v) Homestead shall use its best
efforts to effect, at or before the Closing Date, authorization for quotation
or listing on a national securities exchange or interdealer quotation system
upon official notice of issuance, of the Homestead Securities to be issued in
connection with the Distribution; (vi) each of PTR, ATLANTIC, SCG and
Homestead shall cooperate and use its best efforts to take all actions, make
all filings, registrations and submissions, and do all things necessary and
advisable to consummate the Transaction, including, but not limited to,
obtaining all required consents, waivers and approvals from the Commission,
the Department of Justice and any other applicable government entity; (vii)
the parties shall consult with each other prior to issuing any press release
or
40
<PAGE>
any written public statement with respect to the Merger Agreement or the
Transaction and shall not issue any such press release or written public
statement prior to review by the other parties, except that prior review and
approval shall not be required if, in the reasonable judgment of the party
seeking to issue such release or public statement, prior review and approval
would prevent the timely dissemination of such release or public statement in
violation of any applicable law, rule, regulation or policy of a national
securities exchange or interdealer quotation system; (viii) SCG will vote all
PTR Common Shares and all shares of ATLANTIC Common Stock owned by it in favor
of approval and adoption of the Merger Agreement and the Transaction,
provided, however, that SCG will not be obligated to vote any such shares in
favor of such matters in the event the PTR Board or the ATLANTIC Board
withdraws, modifies or amends its recommendation; (ix) ATLANTIC shall file
with the Commission as soon as is reasonably practicable after the date of the
Merger Agreement a registration statement relating to the ATLANTIC IPO of
shares of ATLANTIC Common Stock and shall use all reasonable efforts to have
such registration statement declared effective by the Commission as promptly
as practicable, and shall take any action required to be taken under
applicable state blue sky or securities laws in connection with the ATLANTIC
IPO and, in the event that the ATLANTIC Board determines that it is not
reasonably practicable to file a registration statement relating to the
ATLANTIC IPO, it shall give written notice as promptly as practicable to each
of PTR, SCG and Homestead (x) each party agrees to maintain as confidential
certain information provided to the other parties during the negotiation of
the Merger Agreement and the Transaction; and (xi) SCG shall be responsible
for amounts to employees who will become employees of Homestead for earned but
unpaid salary, wages and benefits for periods prior to the Closing Date.
Conditions to the Transaction. The respective obligations of each of the
parties to effect the Transaction are subject to a number of conditions,
including among others: (i) each other party shall have performed in all
material respects its agreements contained in the Merger Agreement required to
be performed on or prior to the Closing Date and all representations and
warranties of such party shall be true and correct in all material respects on
and as of the date made and the Closing Date; (ii) the Merger Agreement and
the Transaction shall have been approved and adopted by the shareholders of
each of PTR and ATLANTIC; (iii) the PTR Board and the ATLANTIC Board shall
have each declared the dividend contemplated by the Distribution; (iv) the
Registration Statement shall have become effective and no stop order
suspending such effectiveness shall have been issued and remain in effect and
no proceeding shall have been initiated or threatened by the Commission; (v)
each of ATLANTIC and PTR shall have received either an opinion of Mayer, Brown
& Platt or a ruling from the IRS to the effect that, for United States Federal
income tax purposes, the Mergers constitute a transaction subject to Section
351 or the reorganization provisions of the Code and related provisions; (vi)
no preliminary or permanent injunction or other order or decree by any federal
or state court which prevents the consummation of the Transaction shall have
been issued or taken and remain in effect (each party agreeing to use its best
efforts to have any such injunction, order or decree lifted); (vii) all
governmental consents, orders and approvals legally required for the
consummation of the Transaction, shall have been obtained and be in effect at
the Closing Date, and such consents, orders and approvals shall have become
final; (viii) the waiting period applicable to the consummation of the
Transaction under the HSR Act shall have expired or been terminated; (ix) the
Homestead Warrants shall have been issued pursuant to the Warrant Purchase
Agreement; (x) ATLANTIC shall have contributed $18.6 million (subject to
adjustment as provided in the Merger Agreement) in cash to one of its
subsidiaries being merged into Homestead and such subsidiary shall not have
encumbered or otherwise disposed of such funds; (xi) the registration
statement in connection with the ATLANTIC IPO shall have been declared
effective by the Commision or withdrawn by ATLANTIC, or if such registration
statement has not been filed, ATLANTIC shall have given notice that it does
not intend to proceed with the ATLANTIC IPO, (xii) each of PTR, ATLANTIC and
SCG shall have forgiven all indebtedness of their respective subsidiaries
being merged into Homestead (other than the existing convertible mortgage
loans); and (xiii) all material consents from third parties necessary to
consummate the Transaction shall have been obtained.
In addition to the conditions set forth above, the obligations of ATLANTIC
to effect the Transaction are subject to the following conditions: (i) the
receipt of a written legal opinion from Munger, Tolles & Olson, special
counsel to the PTR Special Committee, as to certain legal matters; (ii) the
receipt of a written legal opinion from Mayer, Brown & Platt as to certain
legal matters; (iii) the receipt by the ATLANTIC Special
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<PAGE>
Committee from an investment banking firm of an opinion to the effect that, as
of the date of this Information Statement and Prospectus, the consideration to
be paid to ATLANTIC in connection with the Merger Agreement and the
transactions contemplated by the Merger Agreement and by the Related
Agreements (as defined in the Merger Agreement) was fair, from a financial
point of view, to ATLANTIC's shareholders (other than SCG), which opinion
shall not have been withdrawn, revoked or modified; (iv) the Homestead
Securities to be issued in connection with the Distribution shall have been
authorized for quotation or listing on a national securities exchange or an
interdealer quotation system upon official notice of issuance; (v) the receipt
from Homestead of the executed Funding Commitment Agreement described below;
(vi) the receipt from Homestead of the executed ATLANTIC Investor Agreement
described below; (vii) the receipt of the executed Protection of Business
Agreement described below from each of PTR, Homestead and SCG; (viii) the
receipt of "comfort letters" in form and substance reasonably satisfactory to
ATLANTIC from the independent certified public accountants of PTR, Homestead
and SCG; (ix) no governmental consent, order or approval legally required to
consummate the Transaction shall have any terms which, in the reasonable
judgment of ATLANTIC, when taken together with the terms of all such consents,
orders or approvals, would materially impair the value of the Transaction to
ATLANTIC; (x) no governmental authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations,
would materially impair the value of the Transaction to ATLANTIC; and (xi) the
receipt of an opinion from Mayer, Brown & Platt to the effect that the
performance of the Merger Agreement shall not jeopardize the status of
ATLANTIC as a REIT.
In addition to the conditions set forth above, the obligations of PTR to
effect the Transaction are subject to the following conditions: (i) the
receipt of written legal opinions from King & Spalding, special counsel to the
ATLANTIC Special Committee, as to certain legal matters; (ii) the receipt of a
written legal opinion from Mayer, Brown & Platt as to certain legal matters;
(iii) the receipt by the PTR Special Committee from an investment banking firm
of an opinion to the effect that, as of the date of the PTR Proxy Statement
and Prospectus, the aggregate consideration to be received by PTR pursuant to
the Merger Agreement in exchange for the PTR properties and the agreement by
PTR to enter into the Funding Commitment Agreement was fair to PTR, which
opinion shall not have been withdrawn, revoked or modified; (iv) the Homestead
Securities to be issued in connection with the Distribution shall have been
authorized for quotation or listing on a national securities exchange or an
interdealer quotation system upon official notice of issuance; (v) the receipt
from Homestead of the executed Funding Commitment Agreement described below;
(vi) the receipt from Homestead of the executed PTR Investor Agreement
described below; (vii) the receipt of the executed Protection of Business
Agreements described below from each of ATLANTIC, SCG and Homestead; (vii) the
receipt of "comfort letters" in form and substance reasonably satisfactory to
PTR from the independent certified public accountants of ATLANTIC, Homestead
and SCG; (ix) no governmental consent, order or approval legally required to
consummate the Transaction shall have any terms which, in the reasonable
judgment of PTR, when taken together with the terms of all such consents,
orders or approvals, would materially impair the value of the Transaction to
PTR; (x) no governmental authority shall have promulgated any statute, rule or
regulation which, when taken together with all such promulgations, would
materially impair the value of the Transaction to PTR; and (xi) the receipt of
an opinion from Mayer, Brown & Platt to the effect that the performance of the
Merger Agreement shall not jeopardize the status of PTR as a REIT.
In addition to the conditions set forth above, the obligations of SCG to
effect the Transaction are subject to the following conditions: (i) the
receipt of a written legal opinion from Munger, Tolles & Olson as to certain
legal matters; (ii) the receipt of a written legal opinion from King &
Spalding as to certain legal matters; (iii) the receipt of "comfort letters"
in form and substance reasonably satisfactory to SCG from the independent
certified public accountants of ATLANTIC, PTR and Homestead; (iv) the receipt
from Homestead of the executed SCG Investor Agreement and the executed
Administrative Services Agreement described below; (v) the receipt of the
executed Protection of Business Agreement described below from each of PTR,
ATLANTIC and Homestead; (vi) no governmental consent, order or approval
legally required to consummate the Transaction shall have any terms which, in
the reasonable judgment of SCG, when taken together with the terms of all such
consents, orders or approvals, would materially impair the value of the
Transaction to SCG; and (vii) no governmental authority shall have promulgated
any statute, rule or regulation which, when taken together with all such
promulgations, would materially impair the value of the Transaction to SCG.
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In addition to the conditions set forth above, the obligations of Homestead
to effect the Transaction are subject to the following conditions: (i) the
receipt of a written legal opinion from Munger, Tolles & Olson as to certain
legal matters; (ii) the receipt of a written legal opinion from King &
Spalding as to certain legal matters; (iii) the receipt of a written legal
opinion from Mayer, Brown & Platt as to certain legal matters; (iv) the
receipt of letters from affiliates of PTR and ATLANTIC relating to the
restrictions on transferability of the Homestead Securities to be received in
the Transaction pursuant to Rule 145 promulgated under the Securities Act; (v)
the receipt from PTR and ATLANTIC of the executed Funding Commitment
Agreements described below; (vi) the receipt from PTR and ATLANTIC of the
executed ATLANTIC and PTR Investor Agreements described below; (vii) the
receipt of "comfort letters" in form and substance reasonably satisfactory to
Homestead from the independent certified public accountants of PTR, ATLANTIC
and SCG; (viii) the receipt of the executed SCG Investor Agreement and the
executed Administrative Services Agreement described below; (ix) the receipt
of the executed Protection of Business Agreement described below from each of
PTR, ATLANTIC and SCG; (x) the receipt from SCG of the executed Escrow
Agreement described below; (xi) the delivery by SCG of an assignment of the
Homestead Village trademark; (xii) no governmental consent, order or approval
legally required to consummate the Transaction shall have any terms which, in
the reasonable judgment of Homestead, when taken together with the terms of
all such consents, orders or approvals, would materially impair the value of
the Transaction to Homestead; and (xiii) no governmental authority shall have
promulgated any statute, rule or regulation which, when taken together with
all such promulgations, would materially impair the value of the Transaction
to Homestead.
Termination. The Merger Agreement may be terminated at any time prior to the
Closing (i) by mutual consent of PTR, ATLANTIC, SCG and Homestead; (ii) by any
of PTR, ATLANTIC, SCG or Homestead after December 31, 1996, if the Transaction
has not been consummated on or before such date (so long as the party
terminating has not breached its obligations under the Merger Agreement except
for such breaches that are immaterial); (iii) unilaterally by any of PTR,
ATLANTIC, SCG or Homestead if (a) any other party fails to perform any
covenant or agreement in the Merger Agreement in any material respect and does
not cure such failure in all material respects within 15 business days after
receipt of written notice of the alleged failure from another party, (b) any
other party fails to fulfill or complete a condition to the obligations of
that party (which condition is not waived) by reason of a breach by that party
of its obligations in the Merger Agreement or (c) any condition to the
obligations of any other party is not satisfied (other than by reason of a
breach by that party of its obligations under the Merger Agreement), and it
reasonably appears that the condition cannot be satisfied prior to December
31, 1996; (iv) unilaterally by any of PTR, SCG or Homestead if ATLANTIC,
through the ATLANTIC Board or the ATLANTIC Special Committee, either fails to
recommend to ATLANTIC's shareholders the approval of the Merger Agreement and
the Transaction or withdraws, modifies or amends such recommendation; and
(v) unilaterally by any of ATLANTIC, SCG or Homestead if PTR, through the PTR
Board or the PTR Special Committee, either fails to recommend to PTR's
shareholders the approval of the Merger Agreement and the Transaction or
withdraws, modifies or amends such recommendation.
In the event of termination of the Merger Agreement by any party as provided
above, the Merger Agreement will become void and there will be no further
obligation on the part of any party or their respective officers and trustees
or directors (except as set forth in certain provisions of the Merger
Agreement, including the expense reimbursement and termination fees described
under "--Expenses"). However, in the event that termination is pursuant to
clauses (iv) or (v) in the previous paragraph, ATLANTIC or PTR, as the case
may be, shall pay to each of the other parties all of the documented, out-of-
pocket expenses incurred by such parties after execution of the Merger
Agreement in connection with the transactions contemplated thereby.
Amendment and Waiver. Subject to applicable law, the Merger Agreement may be
amended by the written agreement of PTR, ATLANTIC, SCG and Homestead. However,
the Merger Agreement may not be amended in any material respect subsequent to
obtaining the approval of the shareholders of PTR and ATLANTIC. Each of PTR,
ATLANTIC, SCG and Homestead may unanimously agree to (a) extend the time for
the performance of any of the obligations or other acts of the parties
thereto, (b) waive any inaccuracies in the representations and warranties
contained therein and or in any document delivered pursuant thereto, and (c)
waive compliance with any of the agreements or conditions contained therein.
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Indemnification. Each party has agreed to indemnify and hold harmless the
other parties (other than SCG) from and against losses incurred by such party
as a result of any breach of, or inaccuracy in, any of its representations and
warranties or other agreements contained in the Merger Agreement. The
indemnification obligations of PTR, ATLANTIC and SCG are subject to a maximum
amount equal to the aggregate fair market value (based on the first sale price
of the Homestead Securities if trading in such securities has occurred) of the
Homestead Securities received by such party. The indemnification obligations
of Homestead shall not exceed in the aggregate the fair market value (based on
the first sale price of the Homestead Securities if trading in such securities
has occurred) of all of the Homestead Securities issued in connection with the
Transaction. The obligations to indemnify terminate two years after the
Distribution and may be invoked only in the event of losses that exceed
$200,000, in which event the indemnification will cover all losses (including
the initial amount).
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 owing, 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 or 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 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
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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 stock option plan approved by
stockholders), and (viii) the incurrence, restructuring, renegotiation or
repayment of indebtedness for borrowed money (including guarantees) 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, include 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 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.
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. PTR and ATLANTIC will provide Homestead
aggregate funding for developments in amounts of up to $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 $144 million and $98
million, 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 fund up to the full amount of
its obligation with respect to such property. Homestead is required to
endeavor in good faith 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 the assets being
contributed by ATLANTIC as collateral for the mortgage loans being made by
ATLANTIC, and it has pledged the assets being contributed by PTR as collateral
for the mortgage loans being made by PTR.
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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 ATLANTIC or PTR has the right to convert in excess of $20
million in principal amount of loans made pursuant to the Funding Commitment
Agreements. Such nominee(s) may, but need not, include 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 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 of the convertible mortgage notes 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.
ADMINISTRATIVE SERVICES AGREEMENT
Prior to the consummation of the Transaction, 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 are expected to 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
agreement will be for an initial term expiring on December 31, 1996 and will
be automatically 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 directors of the annual compensation payable to SCG for services
rendered to Homestead.
ESCROW AGREEMENT
Pursuant to an escrow agreement to be dated the Closing Date (the "Escrow
Agreement") among Homestead, SCG and the Escrow Agent, a portion of the shares
of Homestead Common Stock issuable to SCG in the Transaction will be placed in
an escrow account 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, the
Escrow Agent will release to Homestead all of the shares of Homestead Common
Stock remaining in the escrow account. All 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 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 pre-
development planning stage, the purpose of the Escrow
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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.
REGULATORY FILINGS AND APPROVALS
Consummation of the Merger is subject to the provisions of the HSR Act, for
which early termination of the applicable waiting period was granted on June
14, 1996. Pursuant to the Merger Agreement, each of PTR, ATLANTIC, SCG and
Homestead may terminate the Merger Agreement if (i) any governmental consent,
order or approval legally required for the consummation of the Transaction has
not been obtained and in effect on the Closing Date or (ii) any governmental
consent, order or approval legally required for the consummation of the
Transaction shall have any terms, which in the reasonable judgement of PTR,
ATLANTIC, SCG or Homestead, respectively, would materially impair the value of
the Homestead Securities to be received by PTR, ATLANTIC or SCG, respectively,
or the value to Homestead of the Transaction.
RESTRICTIONS ON SALES BY AFFILIATES
The Homestead Securities to be issued in the Transaction will have been
registered under the Securities Act. Such shares will be freely transferable
under the Securities Act, except for shares issued to any person who may be
deemed to be an affiliate (as such term is defined for purposes of Rule 145
under the Securities Act, an "Affiliate") of ATLANTIC or PTR. Affiliates,
including SCG, may not sell their Homestead Securities acquired in connection
with the Transaction except pursuant to (i) an effective registration
statement under the Securities Act covering such shares, (ii) paragraph (d) of
Rule 145 or (iii) any other applicable exemption under the Securities Act.
Each of PTR and ATLANTIC has agreed to use its best efforts to procure written
agreements ("Affiliate Agreements") from executive officers, directors,
trustees and other Affiliates containing appropriate representations and
commitments intended to ensure compliance with the Securities Act.
ACCOUNTING TREATMENT
The Transaction will be recorded by ATLANTIC as a sale of its Homestead
Village Properties to PTR at fair market value. ATLANTIC will recognize the
Distribution as a reduction of shareholders' equity.
Since PTR will own over 50% of Homestead immediately after the Mergers, the
Transaction will be recorded by PTR as: (i) the formation of Homestead as a
wholly-owned subsidiary into which the PTR-Homestead Village Group assets will
be transferred at historical cost; (ii) the acquisition of Homestead Village
net assets of ATLANTIC and SCG (at fair value) for Homestead Securities using
the purchase method of accounting; and (iii) a reduction of shareholders'
equity to reflect the distribution of Homestead Securities owned by PTR to
PTR's shareholders. The historical financial statements of PTR-Homestead
Village Group will become the predecessor of Homestead and the operations of
the SCG-Homestead Village Group and the Atlantic-Homestead Village Group will
be included from the date of acquisition. For a description of certain terms
used in this paragraph, refer to the combined historical financial statements
included in the Homestead Prospectus attached hereto.
EXPENSES
The Merger Agreement provides that, whether or not the Transaction is
consummated, all expenses incurred in connection with the Merger Agreement and
the Transaction will be paid by the party incurring such expenses, except that
(i) expenses incurred in connection with filing, printing and distributing
this Information Statement and Prospectus will be paid 63.64%, 28.18% and
8.18% by PTR, ATLANTIC and SCG, respectively, (ii) all costs relating to the
ATLANTIC IPO will be paid by ATLANTIC, (iii) all taxes payable by reason of
the Transaction will be paid 63.64%, 28.18% and 8.18% by PTR, ATLANTIC and
SCG, respectively, and (iv) the filing fees payable in connection with the
filings under the HSR Act will be paid by SCG. See "Expenses of Solicitation."
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DISSENTERS' RIGHTS
Holders of ATLANTIC Common Stock are not entitled to dissenters' rights in
connection with the Transaction.
BOARD RECOMMENDATION
THE ATLANTIC BOARD, BY UNANIMOUS VOTE OF THE DIRECTORS WHO ARE NOT OFFICERS
OF ATLANTIC OR DIRECTORS, OFFICERS OR EMPLOYEES OF SCG OR ITS AFFILIATES,
APPROVED THE MERGER AGREEMENT AND THE TRANSACTION AND RECOMMENDS THAT ATLANTIC
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTION.
THE SPECIAL MEETING
PURPOSE OF THE MEETING
At the ATLANTIC Special Meeting, the holders of ATLANTIC Common Stock will
be asked to consider and vote upon a proposal to approve the Merger Agreement
and the Transaction. A copy of the Merger Agreement is attached as Annex I
hereto and is incorporated herein by reference and a copy of the Homestead
Prospectus is attached hereto and is incorporated by reference.
DATE, TIME AND PLACE; RECORD DATE
The ATLANTIC Special Meeting is scheduled to be held at 10:00 a.m., local
time, on Friday, September 13, 1996, at ATLANTIC's executive offices at Six
Piedmont Center, Suite 600, Atlanta, Georgia. The ATLANTIC Board has fixed the
close of business on August 12, 1996 as the record date (the "ATLANTIC Record
Date") for the determination of holders of ATLANTIC Common Stock entitled to
notice of and to vote at the ATLANTIC Special Meeting. On August 1, 1996,
there were 65,903,161 shares of ATLANTIC Common Stock outstanding held of
record by approximately 327 shareholders. As of August 1, 1996, SCG and
ATLANTIC's directors and executive officers beneficially owned an aggregate of
42,447,246 shares or approximately 64.4% of the outstanding ATLANTIC Common
Stock. SCG has agreed, and each of such other persons has indicated his or her
intent, to vote his or her shares in favor of the Merger Agreement and the
Transaction. Therefore, approval of the proposal is assured.
VOTING RIGHTS
Assuming the existence of a quorum, the affirmative vote of the holders of
at least a majority of the outstanding shares of ATLANTIC Common Stock is
required to approve the Merger Agreement and the Transaction. Holders of
record of ATLANTIC Common Stock on the ATLANTIC Record Date are entitled to
one vote per share at the ATLANTIC Special Meeting. The presence, either in
person or by proxy, of the holders of a majority of the outstanding ATLANTIC
Common Stock is necessary to constitute a quorum at the ATLANTIC Special
Meeting.
If a shareholder attends the ATLANTIC Special Meeting, he or she may vote by
ballot. If a shareholder does not attend the meeting and vote, his or her
shares will not be voted and thus will have the effect of a vote against the
Merger Agreement and the Transaction. Similarly, broker non-votes and
abstentions will have the effect of a vote against the Merger Agreement and
the Transaction.
YOU ARE NOT BEING ASKED TO SUBMIT A PROXY AND ONE IS NOT BEING SOLICITED.
OTHER MATTERS
ATLANTIC is not aware of any business or matters other than those indicated
above which may be properly presented at the ATLANTIC Special Meeting.
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INFORMATION CONCERNING ATLANTIC
GENERAL
Since its inception in 1993, ATLANTIC has employed a research-driven
investment approach, deploying its capital in markets and submarkets which
exhibit strong market fundamentals. ATLANTIC REIT Management believes that
population and employment growth are the primary demand generators for
multifamily product.
At June 30, 1996, ATLANTIC owned assets in 41 of the 143 submarkets within
its target market. ATLANTIC REIT Management is continuously researching
additional submarkets and cities and may expand ATLANTIC's primary target
market in the future; however, ATLANTIC intends to remain regionally focused
in the southeastern United States. ATLANTIC has filed a registration statement
relating to an initial public offering of up to $115,000,000 of shares of
ATLANTIC Common Stock.
In the future, ATLANTIC will focus primarily on the moderate income
category, which comprises the largest segment of the renter population. Few
other real estate companies currently focus on this segment within ATLANTIC's
primary target market. In addition, lack of available financing for moderate
income product often results in limited supply. Consequently, ATLANTIC REIT
Management believes that the moderate income segment is a significantly
underserved market with limited competition.
Moderate income residents are typically longer-term residents due, in part,
to the financial resources required to purchase single-family homes. As a
result, resident turnover is often significantly lower in moderate income
properties than upper middle income or middle income properties. The total
cost of refurbishing and re-leasing a unit ranges from $700 to $1,500;
therefore, reducing resident turnover can have a material impact on an asset's
profitability. Due to market fundamentals and the operating characteristics of
moderate income properties, ATLANTIC REIT Management believes that this
product category offers greater sustainable cash flow growth.
ATLANTIC, through its REIT Manager, is a fully integrated operating company
with 96 professionals dedicated to implementing its highly focused business
strategy. ATLANTIC's operating system consists of six functional areas:
research, acquisitions, development, due diligence, property management and
capital markets/finance/legal. By focusing on a single discipline,
professionals within each of these areas develop unparalleled expertise.
Interaction and communication among these functional areas remain fluid; but
separation promotes certain checks and balances. All acquisition and
development investments must be approved by a four-member investment
committee, a four-member senior investment committee and ultimately by the
investment committee of the ATLANTIC Board.
EMPLOYEES
ATLANTIC has no employees. The ATLANTIC REIT Manager, whose sole activity is
advising ATLANTIC, manages the day-to-day operations of ATLANTIC. The ATLANTIC
REIT Manager has assembled a team of 96 professionals in the ATLANTIC REIT
Manager and its affiliates, collectively possessing extensive experience in
multifamily real estate. The majority of these persons are employed directly
by and focused entirely on the services provided by the ATLANTIC REIT Manager,
with the balance providing centralized research, senior investment committee,
capital markets, legal and accounting services.
LEGAL PROCEEDINGS
ATLANTIC is, from time to time, a party to a variety of legal proceedings
arising in the ordinary course of its business. Such matters generally are not
expected to have a material adverse impact on ATLANTIC.
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<PAGE>
COMPETITION
In general, there are numerous other multifamily properties located in close
proximity to each of ATLANTIC's properties. The number of multifamily units
available in any target market city could have a material effect on ATLANTIC's
capacity to rent units and on the rents charged. In addition, in many of
ATLANTIC's submarkets, institutional investors and owners and developers of
multifamily properties compete for the acquisition, development and leasing of
multifamily properties. Many of these persons have substantial resources and
experience.
ATLANTIC REIT MANAGEMENT
The ATLANTIC REIT Manager provides ATLANTIC with strategic and day-to-day
management, research, investment analysis, acquisition, development,
marketing, disposition of assets, asset management and due diligence, capital
markets, and legal and accounting services, all of which are included in the
ATLANTIC REIT Management fee. Hence, ATLANTIC depends upon the quality of the
management provided by the ATLANTIC REIT Manager. The ATLANTIC REIT Manager
and its specialized service affiliates employ 96 professionals. The ATLANTIC
REIT Manager also provides office and other facilities for ATLANTIC's needs.
ATLANTIC believes that a properly structured ATLANTIC REIT Management
relationship has several advantages over a self-administered REIT structure.
ATLANTIC believes that its relationship with the ATLANTIC REIT Manager
provides ATLANTIC with access to greater quality and depth of management
personnel and resources, savings from a dedicated capital markets group, and
access to centralized research, accounting and legal support provided at
substantial economies of scale. ATLANTIC believes that these benefits, and the
structure of the relationship, will avoid the stock price discounting that has
affected some externally managed REITs.
The owner of the ATLANTIC REIT Manager has a substantial shareholder
interest in ATLANTIC, creating commonality of interest with ATLANTIC's
shareholders, and the ATLANTIC REIT Management Agreement prohibits self-
dealing principal transactions between ATLANTIC and the ATLANTIC REIT Manager
and its affiliates. The Transaction is currently prohibited by the terms of
the ATLANTIC REIT Management Agreement, although the ATLANTIC REIT Manager and
ATLANTIC have agreed to waive this prohibition as it relates to the completion
of the Transaction. Furthermore, the ATLANTIC REIT Manager provides all its
services for one fee, and an affiliate provides property management services
at market rates in a competitive environment. The ATLANTIC REIT Manager does
not receive additional fees for investment banking, financing, asset sales or
similar services. See "ATLANTIC Management's Discussion and Analysis of
Financial Condition and Results of Operations--REIT Management Agreement."
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ATLANTIC PROPERTIES
PROPERTIES OWNED
No individual property, or group of properties operated as a single business
unit, amounts to 10% or more of ATLANTIC's pro forma total assets (based on
cost) nor does the gross revenue from any such properties amount to 10% or
more of ATLANTIC's pro forma gross revenues for the fiscal year ended December
31, 1995.
Geographic Distribution. ATLANTIC's multifamily properties are located in 16
metropolitan areas in seven states. The table below demonstrates the
geographic distribution of ATLANTIC's equity real estate investments at June
30, 1996.
<TABLE>
<CAPTION>
PERCENTAGE
OF ASSETS
NUMBER OF BASED ON
PROPERTIES COST(1)
---------- ----------
<S> <C> <C>
Atlanta, Georgia.................................... 32 31%
Birmingham, Alabama................................. 6 5%
Charlotte, North Carolina........................... 6 6%
Ft. Lauderdale/West Palm Beach, Florida............. 12 10%
Ft. Myers, Florida.................................. 1 1%
Greenville, South Carolina.......................... 1 1%
Jacksonville, Florida............................... 6 5%
Memphis, Tennessee.................................. 2 1%
Miami, Florida...................................... 2 1%
Nashville, Tennessee................................ 6 6%
Orlando, Florida.................................... 5 3%
Raleigh, North Carolina............................. 8 6%
Richmond, Virginia.................................. 7 7%
Sarasota, Florida................................... 1 1%
Tampa, Florida...................................... 8 4%
Washington, D.C..................................... 13 12%
--- ---
Total........................................... 116 100%
=== ===
</TABLE>
- --------
(1) For operating properties at June 30, 1996, represents cost, including
planned renovations. For properties under construction or in planning at
June 30, 1996, represents budgeted development cost, 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.
Environmental Assessments. 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 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, which may result in increased costs in
connection with renovations at ATLANTIC's properties.
ATLANTIC 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 ATLANTIC is not aware
51
<PAGE>
of any environmental condition with respect to any of the properties, which is
likely to be material. ATLANTIC has subjected each of its properties to a
Phase I environmental assessment (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 ATLANTIC
aware of, any environmental liability (including asbestos related liability)
that the REIT Manager believes would have a material adverse effect on
ATLANTIC's business, financial condition 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 ATLANTIC or
the independent consultants or that future uses and conditions (including,
without limitation, tenant actions or changes in applicable environmental laws
and regulations) will not result in the imposition of environmental
liabilities.
Insurance Coverage. ATLANTIC REIT Management believes that all of ATLANTIC's
properties are adequately insured; however, an uninsured loss could result in
loss of capital investment and anticipated profits.
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<PAGE>
ATLANTIC SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information on a pro forma
basis for ATLANTIC (the "Pro Forma Financial Results") as of March 31, 1996
and the three-month period ended March 31, 1996 and the year ended December
31, 1995, and on a historical basis for ATLANTIC (the "Historical Financial
Results") as of and for the three-month periods ended March 31, 1996 and 1995
and the years ended December 31, 1995 and 1994 and the period ended December
31, 1993.
The following selected financial information should be read in conjunction
with "ATLANTIC Management's Discussion and Analysis of Financial Condition and
Results of Operations," and all of the financial statements included elsewhere
in this Information Statement and Prospectus. The ATLANTIC Pro Forma Financial
Results are not necessarily indicative of what the actual financial position
and results of operations of ATLANTIC would have been as of and for the
periods indicated, nor do they purport to represent the future financial
position and results of operations for future periods.
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
------------------------- --------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED MARCH 31, YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, ------------------ ------------------------------
1996 1995 1996 1995 1995 1994 1993(1)
------------ ------------ -------- -------- --------- --------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental Income.......... $ 32,941 $ 125,118 $ 30,809 $ 22,952 $ 103,634 $ 55,071 $ 156
Property Management
Fees Paid to
Affiliate............. 998 4,322 920 717 3,475 1,536 --
General and
Administrative
Expenses.............. 168 583 187 105 646 266 1
REIT Management Fee
Paid to Affiliate..... 2,247 8,356 2,123 1,515 6,923 3,671 12
Net Earnings........... 7,044 24,657 6,650 4,175 19,639 9,926 38
Net Earnings per Share. 0.11 0.43 0.12 0.11 0.45 0.41 $ 0.07
Distributions Declared
and Paid.............. 11,667 35,119 11,667 7,426 35,119 14,648 --
Distributions Declared
and Paid per Share.... $ 0.21 $ 0.80 $ 0.21 $ 0.20 $ 0.80 $ 0.60 --
Weighted Average Shares
Outstanding........... 62,714 57,450 55,555 37,133 43,889 24,454 572
<CAPTION>
PRO FORMA HISTORICAL
------------ --------------------------------------------------
MARCH 31, DECEMBER 31,
MARCH 31, ------------------ ------------------------------
1996 1996 1995 1995 1994 1993
------------ -------- -------- --------- --------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real Estate Owned, at
cost.................. $ 975,463 $936,129 $678,564 $ 888,928 $ 631,260 $ 31,005
Total Assets........... 963,909 929,318 678,683 885,824 637,846 31,850
Line of Credit (3)..... 184,043 226,000 181,000 190,000 153,000 --
Mortgages Payable...... 129,291 123,291 115,317 118,524 107,347 --
Total Liabilities...... 346,187 376,967 310,334 328,886 271,216 178
Total Shareholders'
Equity................ $ 617,722 $552,351 $368,349 $ 556,938 $ 366,630 $ 31,672
Number of Shares
Outstanding........... 65,903 55,570 37,588 55,526 37,133 3,163
<CAPTION>
PRO FORMA HISTORICAL
------------------------- --------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED MARCH 31, YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, ------------------ ------------------------------
1996 1995 1996 1995 1995 1994 1993(1)
------------ ------------ -------- -------- --------- --------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Net Earnings........... $ 7,044 $ 24,657 $ 6,650 $ 4,175 $ 19,639 $ 9,926 $ 38
Add: Depreciation...... 5,078 18,660 4,804 3,605 15,925 8,770 28
-------- --------- -------- -------- --------- --------- --------
Funds from
Operations(2)......... $ 12,122 $ 43,317 $ 11,454 $ 7,780 $ 35,564 $ 18,696 $ 66
Net Cash Provided
(Used) by Operating
Activities............ 18,679 52,988 18,011 12,954 45,235 26,205 (492)
Net Cash Used by
Investing Activities.. (47,201) (321,082) (47,201) (39,177) (240,652) (392,718) (31,005)
Net Cash Provided by
Financing Activities.. 28,743 273,032 29,249 24,579 195,649 372,638 31,634
</TABLE>
- -------
(1) For the period from October 26, 1993 (the date of ATLANTIC's inception) to
December 31, 1993.
(2) ATLANTIC believes that funds from operations is helpful in understanding a
property portfolio in that such calculation reflects cash flow from
operating activities and the properties' ability to support interest
payments and general operating expenses. For an explanation of funds from
operations, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Funds from operations should not be considered as an alternative to net
income or any other GAAP measurement of performance as an indicator of
ATLANTIC's operating performance or as an alternative to cash flows from
operating, investing or financing activities as a measure of liquidity. On
January 1, 1996, ATLANTIC adopted NAREIT's new definition of funds from
operations. Under this new definition, loan cost amortization is not added
back to net earnings in determining funds from operations. For
comparability, funds from operations for the periods prior to January 1,
1996 give effect to this new definition. The funds from operations measure
presented by ATLANTIC may not be comparable to other similarly titled
measures of other REITs.
(3) At August 1, 1996, ATLANTIC had $191 million outstanding under its $350
million line of credit.
53
<PAGE>
ATLANTIC MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "ATLANTIC
Selected Financial Information" and all of the financial statements appearing
elsewhere in this Information Statement and Prospectus. Historical results and
percentage relationships set forth in "ATLANTIC Selected Financial
Information," the Financial Statements of ATLANTIC, and the Pro Forma Balance
Sheet and Statements of Earnings for ATLANTIC are not indicative of future
operations of ATLANTIC.
OVERVIEW
Since its inception on October 26, 1993, ATLANTIC has amassed a portfolio of
25,266 multifamily units located in the southeastern United States. ATLANTIC
acquired existing properties aggregating 15,355 units, has completed
developments aggregating 804 units and has developments under construction and
in planning aggregating 9,107 units. At March 31, 1996, ATLANTIC's investment
in real estate aggregated $936 million. This investment in real estate has
been financed through both debt and equity. Since inception ATLANTIC has
raised approximately $577 million in net equity, primarily through the private
placement of ATLANTIC Common Stock. Additionally, ATLANTIC assumed
approximately $123 million in long-term debt in connection with certain of its
property acquisitions. ATLANTIC's $350 million line of credit provided the
remaining investment capital.
ATLANTIC's operating results depend primarily upon income from multifamily
properties, which is substantially influenced by (i) the demand for and supply
of multifamily units in ATLANTIC's primary target market and submarkets, (ii)
operating expense levels, (iii) the effectiveness of property level
operations, and (iv) the pace and price at which ATLANTIC can acquire and
develop additional multifamily properties. Capital and credit market
conditions which affect ATLANTIC's cost of capital also influence operating
results.
ATLANTIC's target market cities and submarkets have benefitted substantially
in recent periods from demographic trends (including population and job
growth) which increase the demand for multifamily units. Consequently, rental
rates for multifamily units have increased more than the inflation rate for
the last two years and are expected to continue to experience such increases
throughout 1996. Expense levels also influence operating results, and rental
expenses (other than real estate taxes) as a percentage of rental revenues for
multifamily properties have generally increased at approximately the same rate
as rents for the past year and are expected to increase at a comparable rate
throughout 1996.
The ATLANTIC REIT Manager believes that development of multifamily
properties from the ground up, which are built for long term ownership and are
designed to meet broad renter preferences and demographic trends, will provide
a greater source of long term cash flow growth in the future. Therefore, while
land prices are favorable, ATLANTIC has acquired and will continue to acquire,
on an unleveraged basis, prudent amounts of land zoned for multifamily
development. The ATLANTIC REIT Manager believes ATLANTIC's ability to compete
is significantly enhanced relative to other companies because of the ATLANTIC
REIT Manager's depth of development and acquisition personnel and presence in
local markets combined with ATLANTIC's access to investment capital.
ATLANTIC's strategy is to build its asset base through the development and
acquisition of multifamily properties that will provide long-term growth in
cash flow. ATLANTIC's real estate investments have been made with a view to
effective long-term operation and ownership. Based upon ATLANTIC's market
research and in an effort to optimize its portfolio composition, ATLANTIC may
from time to time seek to dispose of assets that in management's view do not
meet ATLANTIC's long-term investment criteria and redeploy the proceeds
therefrom, preferably through tax-deferred exchanges, into assets that are
more consistent with ATLANTIC's investment objectives.
54
<PAGE>
RESULTS OF OPERATIONS
Interim Period Results
Net earnings for the three-month period ended March 31, 1996 were $6.7
million ($0.12 per share) as compared to $4.2 million ($0.11 per share) for
the same period in 1995. In the first quarter of 1996, ATLANTIC had 59
operating properties (19 classified as pre-stabilized) as compared to 43
operating properties (40 classified as pre-stabilized) in the first quarter of
1995. The additional operating properties resulted in increases in rental
revenues ($7.8 million), rental expenses ($2.9 million), real estate taxes
($.7 million), depreciation ($1.2 million) and ATLANTIC REIT Management fee
($.6 million) in the three-month period ended March 31, 1996 as compared to
the same period in 1995. The increase in rental expenses is attributable to
the larger number of pre-stabilized properties in 1995 over 1996. After
stabilization, consistent with ATLANTIC's conservative accounting policies,
ATLANTIC expenses all make-ready costs, including carpet and appliance
replacements.
Interest expense in the three-month period ended March 31, 1996 was $4.3
million as compared to $4.7 million for the three-month period ended March 31,
1995. The decrease in interest expense of $.4 million is primarily a result of
lower short-term interest rates in 1996 which offset the effect of ATLANTIC's
higher outstanding debt balances. ATLANTIC's weighted average short-term
interest rate for the first quarter of 1996 was 7.61% as compared to 8.10% in
the first quarter of 1995.
Rental revenues were negatively impacted by the severe winter in the mid-
Atlantic region, resulting in reduced leasing activity. For ATLANTIC's 38
stabilized properties at March 31, 1996, that were fully operational
throughout both the first quarter of 1995 and the first quarter of 1996,
rental revenues grew 3.1%. All of these properties were pre-stabilized in 1995
and stabilized in 1996. Due to the more conservative accounting treatment for
stabilized properties, expense comparisons between periods are not meaningful.
These properties represent 68.1% of ATLANTIC's operating properties at March
31, 1996, based on cost.
ATLANTIC adopted Statement of Financial Accounting Standards No. 121,
Accounting For The Impairment Of Long-Lived Assets And For Long-Lived Assets
To Be Disposed Of on January 1, 1996. As a result of adopting this new
accounting standard, ATLANTIC did not recognize any provisions for possible
losses.
1995 Compared to 1994
Net earnings in 1995 were $19.6 million ($0.45 per share), an increase of
$9.7 million from net earnings in 1994 of $9.9 million ($0.41 per share).
Property Operations. Rental revenues for 1995 increased $48.6 million over
revenues for 1994. The increase in rental revenues from 1994 to 1995 is
attributable to (i) inclusion of a full year of operations for the 40
properties acquired in 1994; (ii) the acquisition of 15 existing properties in
1995; and (iii) the leasing of units in five of ATLANTIC's developments, two
of which were completed at December 31, 1995.
Because ATLANTIC will be completing construction on its current development
portfolio and acquiring additional existing properties in its target market,
ATLANTIC anticipates increases in rental revenues in subsequent periods.
Additionally, revenues in subsequent periods will reflect a full year of
operations for the 1995 acquisitions.
In 1995, rental expenses, property management fees paid to affiliate and
real estate taxes increased over the 1994 levels by $12.5 million, $1.9
million and $4.0 million, respectively. These increases are attributable to
the larger number of properties in operation in 1995. On a combined basis,
rental expenses, property management fees paid to affiliate and real estate
taxes as a percentage of rental revenues decreased to 40.0% in 1995 from 41.9%
in 1994.
Including the newly acquired and developed assets, income from property
operations (which is defined as rental income plus other real estate income,
less rental expenses, real estate taxes, property management fees
55
<PAGE>
paid to affiliate and depreciation) increased $23.0 million for 1995 over
1994. Depreciation expense increased $7.2 million for 1995 over 1994. These
increases are almost entirely related to the increased number of assets in
operation.
Cash provided by operating activities was $45.2 million in 1995, an increase
of $19.0 million from the 1994 level. This increase is primarily the result of
the increased number of properties in operation in 1995 as compared to 1994.
Properties Fully Operating Throughout Both Periods. In building its
portfolio, ATLANTIC made significant investments in multifamily properties in
each year since its inception. Accordingly, the size of its portfolio changed
significantly from 1993 to 1994 and from 1994 to 1995. ATLANTIC's portfolio
included only three properties aggregating 683 units that were fully operating
throughout both 1995 and 1994. Property level net operating income from these
three properties increased by 10.1% in 1995 over 1994. These three properties
represent 4.3% of ATLANTIC's operating properties at December 31, 1996, based
on cost.
Interest Expense. Interest expense for 1995 was $9.8 million higher than for
1994. ATLANTIC had no debt outstanding until the second quarter of 1994 which
resulted in higher average outstanding debt balances and higher interest
expense in 1995. Total interest capitalized amounted to $4.4 million and $0.8
million for 1995 and 1994, respectively. This increase is a function of the
higher interest expense incurred in 1995 and the increased development
activity in 1995 as compared to 1994.
ATLANTIC REIT Management Fee Paid to Affiliate. The ATLANTIC REIT Management
fee paid to affiliate by ATLANTIC increased by $3.3 million from 1994 to 1995.
Because the ATLANTIC REIT Management fee fluctuates with the level of
ATLANTIC's cash flow calculated before the ATLANTIC REIT Management fee, this
increase is expected and is proportionate to the increases in other revenue
and expense items experienced by ATLANTIC in 1995. As ATLANTIC arranges fully
amortizing, fixed rate, long-term debt, which it intends to arrange after
achieving a substantial equity base, the ATLANTIC REIT Management fee will
effectively decline in proportion to ATLANTIC's cash flow because regularly
scheduled principal payments or their assumed equivalent are deducted from the
cash flow amount on which the ATLANTIC REIT Management fee is based.
Currently, principal and principal reserve account payments on long-term
mortgage debt are deducted in arriving at cash flow for purposes of
calculating the ATLANTIC REIT Management fee, thus reducing ATLANTIC REIT
Management fee expense.
1994 Compared to 1993
In 1994, net earnings increased by $9.9 million over 1993; $9.9 million
($0.41 per share) in 1994 as compared to $38,000 ($0.07 per share) in 1993.
Rental revenues were $55.1 million in 1994 as compared to $0.2 million in
1993. This increase of $54.9 million is primarily the result of the
acquisition of 40 multifamily properties during 1994. Rental revenues for 1993
are not reflective of a full year of operations since ATLANTIC was formed in
October of that year. Additionally during 1993, ATLANTIC earned revenues from
only three income producing properties acquired in December 1993. These
factors also result in increases in rental expenses, real estate taxes,
property management fees paid to affiliate and depreciation in 1994 as
compared to 1993.
The increased number of operating properties in operation generated more
cash in 1994 as compared to 1993. Cash provided by operating activities was
$26.2 million in 1994. In 1993, operations used $0.5 million of cash. As
discussed above, the increase in cash flow affects the calculation of the
ATLANTIC REIT Management fee. The ATLANTIC REIT Management fee increased by
$3.7 million for 1994 as compared to 1993.
In 1994, ATLANTIC obtained its line of credit facility. Also in 1994,
ATLANTIC assumed mortgage obligations in connection with the acquisition of
certain properties. These debt obligations generated interest expense of $9.2
million in 1994. ATLANTIC had no outstanding debt and incurred no interest
expense in 1993.
ENVIRONMENTAL MATTERS
ATLANTIC is subject to environmental regulations related to the ownership,
operation, development and acquisition of real estate. As part of its due
diligence procedures, ATLANTIC has conducted Phase I
56
<PAGE>
environmental assessments on each property prior to acquisition. The cost of
complying with environmental regulations was not material to ATLANTIC's
results of operations. ATLANTIC is not aware of any environmental condition on
any of its properties which is likely to have a material adverse effect on
ATLANTIC's financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The ATLANTIC REIT Manager considers ATLANTIC's liquidity and ability to
generate cash from operations and financings to be adequate and expects it to
continue to be adequate to meet ATLANTIC's development, acquisition,
operating, debt service and shareholder distribution requirements.
Investing and Financing Activities
Overview. ATLANTIC's investment activities, which consisted primarily of
acquiring and developing multifamily properties, used approximately $47.2
million, $240.7 million, $392.7 million and $31.0 million of cash for the
three-month period ended March 31, 1996, the years ended December 31, 1995 and
1994 and the period ended December 31, 1993, respectively.
ATLANTIC's financing activities provided net cash flow of $29.2 million,
$195.6 million, $372.6 million and $31.6 million for the three-month period
ended March 31, 1996, the years ended December 31, 1995 and 1994 and the
period ended December 31, 1993, respectively. Combined proceeds from equity
offerings of $0.4 million in the three-month period ended March 31, 1996,
$205.8 million, net of share repurchases, in 1995, $239.7 million in 1994, and
$31.6 million in 1993 were the primary source of financing funds. Proceeds
from line of credit borrowings, net of repayments, were $36.0 million in the
three-month period ended March 31, 1996, $37.0 million in 1995 and $153.0
million in 1994.
ATLANTIC expects to finance construction, development and acquisitions
primarily with cash on hand, borrowings under its line of credit and cash from
future securities offerings. After building a substantial equity base,
ATLANTIC intends to arrange fully amortizing, fixed rate, 15 year to 25 year
debt to finance additional acquisitions and developments. ATLANTIC believes
that its current conservative ratio of long-term debt to total long-term
undepreciated book capitalization, the sum of long-term debt and shareholders'
equity after adding back accumulated depreciation (17.5% at March 31, 1996 on
an historical basis and 16.7% on a pro forma basis as adjusted to give effect
to the Transaction and the sale of additional common shares subsequent to
March 31, 1996, both of which are discussed below) provides considerable
flexibility to prudently increase its capital base by utilizing long-term debt
as a financing tool in the future.
1993 Investing and Financing Activities. ATLANTIC's initial portfolio
investment consisted of the acquisition of three operating properties (683
units) located in Atlanta, Georgia. Additionally, ATLANTIC purchased a land
parcel in Charlotte, North Carolina for the development of a 270-unit
property.
ATLANTIC's investment in real estate at December 31, 1993 aggregated $31
million, all of which was financed by the sale of ATLANTIC Common Stock.
1994 Investing and Financing Activities. ATLANTIC's investment strategy in
1994 focused on two components: the acquisition of a substantial base of
existing operating properties to provide operating cash flow and the creation
of an internal development process. During 1994, ATLANTIC acquired 40
operating properties, 31 of which were obtained in two large portfolio
acquisitions. These 40 properties, located in 14 metropolitan areas, added
11,307 units to the portfolio for a total of 11,990 operating units. At
December 31, 1994, ATLANTIC had a total of 15,060 units in its portfolio,
3,070 of which were in development (1,212 units in construction and 1,858
units in planning). The nine projects under development had an estimated
completion cost of $190.7 million.
ATLANTIC's investment in real estate at December 31, 1994 aggregated $631.3
million. The additional investment of approximately $600 million in 1994 was
financed through a combination of debt and equity. As
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<PAGE>
partial payment for the largest of the portfolio acquisitions, ATLANTIC issued
$100 million in shares of ATLANTIC Common Stock to the seller of the
portfolio. Sales of ATLANTIC Common Stock through a private placement raised
an additional $240 million. Existing debt of $107.5 million associated with
certain of the properties acquired was assumed by ATLANTIC. Additionally,
ATLANTIC had net borrowings on its line of credit during 1994 of $153 million.
1995 Investing and Financing Activities. In 1995, ATLANTIC acquired existing
properties aggregating 3,961 units and disposed of two properties aggregating
596 units. The cost of the 15 operating properties acquired in 1995 was $177.6
million. Also in 1995, ATLANTIC began development on 5,051 units. In the
fourth quarter, ATLANTIC completed construction on its first two internally
developed multifamily communities, a 270-unit property in Charlotte, North
Carolina and a 198-unit property in Birmingham, Alabama. At December 31, 1995,
ATLANTIC's operating property portfolio aggregated 15,823 units. ATLANTIC's
development portfolio at the end of 1995 included 3,095 units under
construction and 4,558 units in planning with an estimated cost upon
completion of $401.3 million. Three properties under construction began
leasing completed units in the fourth quarter of 1995. At December 31, 1995,
Homestead Village properties, ATLANTIC's moderate priced, purpose-built,
extended-stay lodging properties, comprised 2,515 units of the development
portfolio with 137 units under construction and the remaining units in
planning.
During 1995, ATLANTIC's net additional investment in real estate was $257.7
million bringing its total real estate investment at December 31, 1995 to
$888.9 million. Sales of shares of ATLANTIC Common Stock generated the largest
source of capital in 1995. ATLANTIC sold $205.8 million of shares of ATLANTIC
Common Stock, net of share repurchases, through two private placements. In
connection with the acquisition of certain properties in 1995, ATLANTIC
assumed $24.7 million in existing debt. Additional borrowings on its line of
credit during 1995 aggregated $37 million. At December 31, 1995, ATLANTIC's
outstanding balance on its line of credit was $190 million.
First Quarter 1996 Investing and Financing Activities. During the first
quarter of 1996, ATLANTIC's additional investment in real estate aggregated
$47.2 million, primarily as a result of development activity. This investment
included the acquisitions of land parcels for the development of 1,790 units.
These additional units brought ATLANTIC's total portfolio to 25,266 units at
March 31, 1996 (16,159 operating units and 9,107 units of developments under
construction and in planning). The additional investment during the first
quarter of 1996 was financed primarily through borrowings on the line of
credit and additional mortgage debt. Also during this period, ATLANTIC
completed construction on a 336-unit multifamily community in Raleigh, North
Carolina, bringing its internally developed operating units to 804. ATLANTIC
began construction on 844 units during the first quarter of 1996.
At March 31, 1996, ATLANTIC had $209.7 million of budgeted development costs
for projects under construction, including $5.1 million associated with a
Homestead Village property. Of the total budgeted development cost, $97.3
million was unfunded at March 31, 1996. In addition, ATLANTIC had developments
in planning at March 31, 1996 aggregating 5,504 units in various target market
cities with an aggregate budgeted development cost of $264.9 million,
including $136.3 million associated with Homestead Village properties. The
foregoing developments are subject to a number of conditions, and ATLANTIC
cannot predict with certainty that any of them will be consummated.
On April 9, 1996, ATLANTIC disposed of a 358-unit, middle income property as
part of a tax-deferred exchange. This property accounted for $255,000 of net
operating income during the three-month period ended March 31, 1996. A gain of
approximately $670,000, which will be recognized in the second quarter of
1996, was realized on this disposition. The proceeds from this disposition
were held in escrow until April 22, 1996 when these funds were used to acquire
a 350-unit, moderate income property. Including this property, ATLANTIC
acquired a total of three operating properties aggregating 786 units at a cost
of $33.4 million in April 1996.
In connection with the Put Obligation, as discussed in Note 5 of the
Financial Statements, SCG purchased 2,500,000 shares of ATLANTIC Common Stock
subsequent to March 31, 1996. This Put Obligation was not assigned to ATLANTIC
and ATLANTIC will not repurchase these shares.
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<PAGE>
Subsequent to March 31, 1996, ATLANTIC sold 4,210,870 shares of ATLANTIC
Common Stock at $11.50 per share. Total proceeds from these sales were
$48,425,000.
Homestead Transaction
ATLANTIC has traditionally focused on multifamily assets, which since the
first quarter of 1995 has included certain purpose-built, extended-stay
lodging properties known as Homestead Village. In March 1996 the ATLANTIC
Board began considering ways to maximize shareholder value with respect to the
Homestead Village properties. In May 1996, ATLANTIC entered into the Merger
Agreement, as more fully described under "The Transaction--Merger Agreement"
of this Information Statement and Prospectus, whereby ATLANTIC will contribute
its Homestead Village properties to Homestead in exchange for Homestead Common
Stock. The Transaction is expected to (i) result in the Homestead Village
properties being more effectively and profitably utilized and developed due to
the elimination of certain restrictions applicable to REITs and (ii) enhance
the ability of Homestead to access external capital markets necessary to carry
out its plans.
In exchange for ATLANTIC's contribution of the Homestead Village properties
and for ATLANTIC entering into the Funding Commitment Agreement as more fully
described under "The Transaction--Funding Commitment Agreements," ATLANTIC
will receive shares of Homestead Common Stock, convertible mortgages and
Homestead Warrants. Following the consummation of the Transaction, ATLANTIC
will distribute the Homestead Securities to its shareholders of record. Each
mortgage loan issued by Homestead pursuant to the Funding Commitment Agreement
bears interest at 9% per annum and will be convertible into Homestead Common
Stock on the basis of one share of Homestead Common Stock for every $11.50 of
principal outstanding on the mortgage loan.
ATLANTIC's contribution to Homestead will consist of cash, one operating
Homestead Village property and twenty-five Homestead Village land parcels,
which are either owned or under ATLANTIC's control. ATLANTIC's contribution,
including budgeted completion cost for the 26 properties, is approximately
$158.7 million. On the Closing Date, ATLANTIC will contribute assets with an
expected book value of approximately $29 million and cash of approximately
$18.6 million (subject to adjustment as provided in the Merger Agreement). The
remaining cost to complete the properties of $111.1 million will constitute
the funding commitment amount. ATLANTIC intends to fund this commitment
through cash on hand, borrowings on its line of credit and sales of ATLANTIC
Common Stock.
Line of Credit. ATLANTIC obtained a $225 million secured line of credit
agented by Morgan Guaranty Trust Company of New York in June 1994. In August
1995, the line of credit was increased to $300 million and in June 1996, the
line of credit was increased to $350 million. The line of credit is scheduled
to mature in June 1998 and may be extended for an additional year with the
approval of Morgan Guaranty Trust Company of New York and the other
participating lenders. The line of credit provides for interest at prime or,
at ATLANTIC's option, LIBOR plus 1.50% or the certificate of deposit rate plus
1.625%. ATLANTIC obtained a fixed rate of interest of 7.46% through February
5, 1997 on $100 million of its borrowings on the line of credit through a swap
agreement with Goldman Sachs Capital Markets, L.P. A commitment fee of .1875%
per annum on the average unfunded line of credit balance is payable quarterly.
All debt incurrences are subject to certain covenants. Primarily these
covenants address tangible net worth, interest payment coverage and
distributions. ATLANTIC must maintain a debt to tangible net worth ratio of
not greater than 2 to 1 and an adjusted net worth (as defined) of at least
$325 million. ATLANTIC's interest payment coverage (as defined) is required to
be not less than 2 to 1. Restricted payments or distributions (as defined) may
not exceed 95% of ATLANTIC's funds from operations (as defined) for the
preceding four quarters. ATLANTIC has been granted a waiver of the restricted
payments covenant. This waiver allows for restricted payments not to exceed
97% of funds from operations through the third quarter of 1997. ATLANTIC is
currently in compliance with all covenants.
At August 1, 1996, $191 million of borrowings are outstanding and
multifamily properties with an undepreciated cost of approximately $477
million are pledged as collateral.
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<PAGE>
Mortgage Debt. At March 31, 1996, ATLANTIC had approximately $123 million of
mortgages payable consisting of approximately $16 million of fixed rate
conventional mortgage debt and approximately $107 million of mortgages which
secure nine tax-exempt bond issues. As further discussed below, this long-term
mortgage debt, which is substantially fully amortizing, has a weighted average
interest rate of 6.73% and an average maturity of 25.8 years, thus providing
ATLANTIC with favorable and conservative financial leverage on the investment
in the properties associated with such debt.
Eight of ATLANTIC's nine tax-exempt bond issues have variable interest
rates. The tax-exempt bond issues are included in a credit enhancement
agreement with the Federal National Mortgage Association ("Fannie Mae"). Under
the agreement with Fannie Mae, ATLANTIC makes monthly principal payments,
based upon a thirty-year amortization, into a principal reserve account. To
mitigate the variable interest rate debt exposure associated with these bond
issues, ATLANTIC has entered into swap agreements. Under these swap
agreements, ATLANTIC pays and receives interest on the aggregate principal
amount of the underlying bonds outstanding, net of the amount held in the
principal reserve account. These agreements effectively mitigate ATLANTIC's
variable interest rate exposure by ensuring that ATLANTIC pays interest on a
fixed rate as provided in such agreements.
ATLANTIC has three interest rate swap agreements: i) an agreement expiring
in June 2002 on approximately $23 million of bonds that fixes the interest
rate at 5.18% (excluding the cost of the credit enhancement agreement); ii) an
agreement expiring in June 2005 on approximately $65 million of bonds that
fixes the interest rate at 5.42% (excluding the cost of the credit enhancement
agreement); and iii) an agreement expiring in March 2006 on $5 million of
bonds that fixes the interest rate at 4.82% (excluding the cost of the credit
enhancement agreement). To the extent the deposits in the principal reserve
account with Fannie Mae have not been used to redeem any of the outstanding
bonds, ATLANTIC pays interest on that portion of bonds outstanding which is
equivalent to the balance in the principal reserve fund at the variable rates
as provided by the mortgage agreements.
Distributions and Funds from Operations
ATLANTIC's current distribution policy is to pay quarterly distributions to
shareholders based upon what ATLANTIC REIT Management considers to be a
reasonable percentage of cash flow. Because depreciation is a non-cash
expense, cash flow typically will be greater than earnings from operations and
net earnings. Therefore, quarterly distributions will be higher than quarterly
earnings.
Distributions paid on shares in 1995 and 1994 aggregated $35.1 million
($0.80 per share) and $14.6 million ($0.60 per share), respectively. No
distributions were paid in 1993. The distributions paid were in excess of net
earnings in both 1995 and 1994 resulting in decreases in shareholders' equity
of $15.5 million in 1995 and $4.7 million in 1994.
ATLANTIC announces the following year's proposed distribution level after
the ATLANTIC Board's annual budget review and approval in December of each
year. At its December 19, 1995 meeting, the ATLANTIC Board announced a
proposed increase in the annual distribution level from $0.80 to $0.84 per
share. The payment of distributions is subject to the discretion of the
ATLANTIC Board and is dependent upon the financial condition and operating
results of ATLANTIC. On March 28, 1996, ATLANTIC paid a quarterly distribution
of $0.21 per share for shares outstanding throughout the first quarter, and on
June 27, 1996, ATLANTIC paid a quarterly distribution of $0.21 per share for
shares outstanding throughout the second quarter. The distributions paid
aggregated $11.7 million and $12.8 million for the first and second quarters,
respectively. In light of the Transaction (including the Distribution of
Homestead Securities), the ATLANTIC Board is evaluating the distribution
level.
Funds from operations represents ATLANTIC's net earnings computed in
accordance with GAAP, excluding gains (or losses) plus depreciation. ATLANTIC
believes that funds from operations is helpful in understanding a property
portfolio's ability to support interest payments and general operating
expenses. On January 1, 1996, ATLANTIC adopted NAREIT's new definition of
funds from operations. Under this new
60
<PAGE>
definition, loan cost amortization is not added back to net earnings in
determining funds from operations. For comparability, funds from operations
for the periods prior to January 1, 1996 give effect to this new definition.
The funds from operations measure presented by ATLANTIC may not be comparable
to other similarly titled measures of other REITs.
Funds from operations were $11.5 million and $7.8 million for the three-
month periods ended March 31, 1996 and 1995, respectively. Funds from
operations were $35.6 million, $18.7 million and $0.1 million for the years
ended December 31, 1995 and 1994 and the period ended December 31, 1993,
respectively. The aggregate increases corresponded with the increased number
of properties in operation in each year. For a reconciliation of net earnings
to funds from operations, see "ATLANTIC Selected Financial Information."
Funds from operations should not be considered as an alternative to net
income or any other GAAP measurement of performance as an indicator of
ATLANTIC's operating performance nor as an alternative to cash flows from
operating, investing or financing activities as a measure of liquidity. Cash
flow from financing activities is expected to be substantially equivalent to
cash used in investing activities, as ATLANTIC utilizes revolving credit
borrowings, to be refunded with sales of equity and long-term, fully
amortizing debt securities, to fund its investment activities. ATLANTIC's
policy is to expense, rather than capitalize, repairs and maintenance, in
determining net income and funds from operations. Only major renovations,
replacements or improvements with a substantial expected economic life (such
as roofs, parking lots and additions) are capitalized.
REIT MANAGEMENT AGREEMENT
Effective October 28, 1993, ATLANTIC entered into the ATLANTIC REIT
Management agreement, as amended and restated, pursuant to which the ATLANTIC
REIT Manager assumed the day-to-day management of ATLANTIC (the "ATLANTIC REIT
Management Agreement").
The ATLANTIC REIT Management Agreement requires ATLANTIC to pay an annual
fee of approximately 16% of cash flow as defined in the ATLANTIC REIT
Management Agreement, payable monthly. Cash flow is calculated by reference to
ATLANTIC's cash flow from operations, plus (i) fees paid to the ATLANTIC REIT
Manager, (ii) extraordinary expenses incurred at the request of the
independent directors of ATLANTIC (of which there were none in the periods
reported) and (iii) 33% of any interest paid by ATLANTIC on convertible
subordinated debentures (of which there were none in the periods reported);
and after deducting (i) regularly scheduled principal payments (excluding
prepayments or balloon payments) for debt with commercially reasonable
amortization schedules, (ii) assumed principal and interest payments on senior
unsecured debt treated as having regularly scheduled principal and interest
payments like a 20-year level-payment, fully amortizing mortgage (of which
there were none in the periods reported) and (iii) distributions actually paid
with respect to any non-convertible preferred stock of ATLANTIC (of which
there were none in the periods reported). Cash flow does not include dividend
and interest income from Atlantic Development Services, interest income from
the Homestead convertible mortgage notes, realized gains or losses from
dispositions of investments or income from cash equivalent investments. The
ATLANTIC REIT Manager also receives a fee of 0.20% per year on the average
daily balance of cash equivalent investments. The ATLANTIC REIT Management fee
aggregated $2,123,000 for the three-month period ended March 31, 1996 and
$6,923,000, $3,671,000 and $12,000 for the years ended December 31, 1995 and
1994 and the period ended December 31, 1993, respectively.
Total real estate operating, interest, general and administrative costs will
increase due to ATLANTIC's larger asset size, as well as unforeseen changes
which may occur. ATLANTIC'S REIT Management fees paid by ATLANTIC will
increase if cash flow of ATLANTIC, as defined in the ATLANTIC REIT Management
Agreement, increases, including such increases that may relate to increases in
ATLANTIC's assets. ATLANTIC does not expect its other operating costs and
expenses to increase except as a result of inflation, market conditions or
other factors over which the ATLANTIC REIT Manager has no control. Operating
costs for particular items, however, may be increased if they are expected to
result in greater decreases in other expenses or increases in revenues from
ATLANTIC assets.
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ATLANTIC is obligated to reimburse the ATLANTIC REIT Manager for all
expenses incurred by the ATLANTIC REIT Manager on behalf of ATLANTIC relating
to ATLANTIC's operations, primarily including third party legal, accounting,
property management and similar fees paid on behalf of ATLANTIC, and travel
expenses incurred in seeking financing, property acquisitions, property sales
and similar activities on behalf of ATLANTIC and in attending ATLANTIC Board,
committee and shareholder meetings. Under the ATLANTIC REIT Management
Agreement, the ATLANTIC REIT Manager or any of its affiliates are not
precluded from rendering services to other investors, including REITs, even if
such investors compete with ATLANTIC. Since the ATLANTIC REIT Manager is owned
by ATLANTIC's largest shareholder, the ATLANTIC REIT Manager has no intention
of rendering services to investors who compete with ATLANTIC.
The ATLANTIC REIT Management Agreement is renewable by ATLANTIC annually,
subject to a determination by the independent directors that the ATLANTIC REIT
Manager's performance has been satisfactory and that the compensation payable
to the ATLANTIC REIT Manager is fair. Each of ATLANTIC or the ATLANTIC REIT
Manager may terminate the ATLANTIC REIT Management Agreement on 60 days'
notice. Because of the year-to-year nature of the agreement, its maximum
effect on ATLANTIC's results of operations cannot be predicted, other than
that the ATLANTIC REIT Management fees will generally increase or decrease in
proportion to cash flow increases or decreases.
ATLANTIC PER SHARE DISTRIBUTIONS
There is no established public trading market for the ATLANTIC Common Stock
or the Homestead Common Stock. The following table sets forth the ATLANTIC
distributions for the periods indicated.
<TABLE>
<CAPTION>
DISTRIBUTIONS(1)
----------------
<S> <C>
1994
First Quarter......................................... $0.15(2)
Second Quarter........................................ $0.15(3)
Third Quarter......................................... $0.15
Fourth Quarter........................................ $0.15
-----
$0.60(4)
=====
1995
First Quarter......................................... $0.20
Second Quarter........................................ $0.20
Third Quarter......................................... $0.20
Fourth Quarter........................................ $0.20
-----
$0.80(5)
=====
1996
First Quarter......................................... $0.21
Second Quarter........................................ $0.21
Third Quarter (through August 1)...................... --
</TABLE>
- --------
(1) While a private REIT, ATLANTIC's distribution policy is to calculate and
pay distributions based on the number of days of ownership during the
period, resulting in multiple record dates which correspond with the dates
additional shares are issued.
(2) Paid in the second quarter of 1994.
(3) One third was paid in the second quarter of 1994 and two-thirds were paid
in the third quarter of 1994.
(4) For tax purposes, the 1994 distribution consisted of $0.14 return of
capital and $0.46 ordinary income.
(5) For tax purposes, the 1995 distribution consisted of $0.34 return of
capital and $0.46 ordinary income.
ATLANTIC's tax return for the year ended December 31, 1995 has not been
filed. The taxability information for 1995 is based upon the best available
data. ATLANTIC's tax returns have not been examined by the Internal Revenue
Service and, therefore, the taxability of dividends is subject to change.
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The total distribution required to maintain ATLANTIC's REIT status for tax
purposes was $17.4 million for 1995 and $10.9 million for 1994. ATLANTIC
distributed $35.1 million and $14.6 million in 1995 and 1994, respectively. In
light of the Transaction (including the Distribution of Homestead Securities),
the ATLANTIC Board is evaluating the distribution level.
As of August 1, 1996, ATLANTIC had approximately 327 record holders of
ATLANTIC Common Stock.
ATLANTIC POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The ATLANTIC Board may amend or revise ATLANTIC's policies from time to time
without a vote of the shareholders of ATLANTIC. The ATLANTIC Board also
reserves the right to make exceptions for transactions when it believes that
the transaction is in the best long-term interests of ATLANTIC and its
shareholders.
INVESTMENT POLICIES
ATLANTIC evaluates investments based on its estimate of the contribution of
an investment to increased long-term cash flow on an unleveraged basis.
Prospective property investments are analyzed pursuant to several
underwriting criteria, including purchase price, competition and other market
factors, and prospects for long-term growth in cash flow. ATLANTIC's
investment decision is based upon the expected contribution of the property to
long-term cash flow growth on an unleveraged basis. The expected cash flow
contribution is based on an estimate of all cash revenues from leases and
other revenue sources, minus expenses incurred in operating the property
(generally, real estate taxes, insurance, maintenance, personnel costs and
utility charges, but excluding depreciation, debt service and amortization of
loan costs) and a reserve for capital expenditures.
It is ATLANTIC's policy to generally limit its investments such that (i) no
more than 10% of its assets are invested in land held for development other
than land under development or where development is in planning, (ii) ATLANTIC
will not be treated as an investment company under the Investment Company Act
of 1940, and (iii) ATLANTIC will not invest in mortgage loans, other than
mortgage loans to third party owner-developers in connection with the
development of multifamily properties that are contractually required to be
sold to ATLANTIC upon completion or, mortgage loans to Homestead or to
entities in which ATLANTIC owns a substantial majority of the economic
interest and other than mortgage loans (convertible, participating or other)
where the ATLANTIC Board believes that such loans are in the best long-term
interests of ATLANTIC and its shareholders.
ATLANTIC's strategy includes the development of industry-leading multifamily
products designed for the largest renter groups. Long term, ATLANTIC REIT
Management believes that development will contribute as much, or more, to
ATLANTIC's earnings growth than acquisitions.
While the current policy of ATLANTIC is to make equity investments in
multifamily properties exclusively, ATLANTIC may invest in other real estate
interests consistent with its qualification as a REIT. A change in this policy
could occur, for example, if ATLANTIC concludes that it may benefit from the
cash flow or any appreciation in the value of the property arising through
mortgage investment or as a means of ultimately achieving equity ownership of
a property.
Subject to the percentage of ownership limitations and gross income tests
necessary for REIT qualification, ATLANTIC may also invest in securities of
other entities engaged in real estate activities or securities of other
issuers. ATLANTIC does not currently intend to invest in the securities of
other issuers except in connection with acquisitions of indirect interests in
properties (normally, general or limited partnership interests in special
purpose partnerships controlled by ATLANTIC and owning multifamily properties
and except for preferred stock of entities in which ATLANTIC has a substantial
majority of the economic interest).
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FINANCING POLICIES
ATLANTIC has a secured line of credit for the purpose of facilitating
investment in developments and acquisitions as well as for working capital.
ATLANTIC may also determine to issue securities senior to the ATLANTIC Common
Stock, including preferred stock and debt securities (either of which may be
convertible into ATLANTIC Common Stock or be accompanied by warrants to
purchase ATLANTIC Common Stock). ATLANTIC's financing policies are to replace
revolving credit borrowings with the proceeds of equity offerings or long-
term, fixed rate, fully amortizing debt. ATLANTIC does not intend to incur
long-term, floating rate debt other than in connection with property
acquisitions in which the debt assumed is impracticable to prepay or is tax-
exempt debt. Because its assets are largely long-term, ATLANTIC's debt is
expected to be long-term, fixed rate, fully amortizing debt.
The proceeds of any borrowings by ATLANTIC may be used to pay distributions,
to provide working capital, to pay existing indebtedness or to finance
acquisitions, expansions or development of new properties.
CONFLICT OF INTEREST POLICIES
ATLANTIC does not intend to engage in principal transactions with officers
and directors or to engage independent directors to provide services to
ATLANTIC. In addition, transactions with the ATLANTIC REIT Manager and its
affiliates are significantly restricted and must be approved by a majority of
independent directors, as described below. ATLANTIC's policy is not to borrow
from or make loans to affiliates, other than mortgage loans to entities in
which ATLANTIC owns a substantial majority of the economic interest, mortgage
loans to Homestead or mortgage loans (convertible, participating or other)
where the ATLANTIC Board believes that such loans are in the best long-term
interests of ATLANTIC and its shareholders.
With a view to resolving potential conflicts of interest and protecting the
interests of ATLANTIC's shareholders against such possible conflicts, the
ATLANTIC Charter (the "ATLANTIC Charter") requires that a majority of the
ATLANTIC Board be Independent Directors. "Independent Director" means a
director who (i) is not affiliated, directly or indirectly, with the ATLANTIC
REIT Manager, whether by ownership of, ownership interest in, employment by,
any material business or professional relationship with, or service as an
officer or director of, the ATLANTIC REIT Manager or a business entity which
is an affiliate of the ATLANTIC REIT Manager, (ii) is not serving as a trustee
or director for more than three real estate investment trusts organized by a
sponsor of ATLANTIC and (iii) performs no other services for ATLANTIC, except
as director. ATLANTIC's Independent Directors are required to monitor the
performance of the ATLANTIC REIT Manager.
POLICIES APPLICABLE TO THE ATLANTIC REIT MANAGER AND OFFICERS AND DIRECTORS OF
ATLANTIC
The ATLANTIC REIT Manager has agreed in writing not to engage in any
principal transaction with ATLANTIC, including but not limited to purchases,
sales or leases of property or borrowing or lending of funds, except for
transactions approved by a majority of the Independent Directors not otherwise
interested in such transaction as being fair and reasonable to ATLANTIC and on
terms and conditions not less favorable to ATLANTIC than those available from
unaffiliated third parties. The Transaction is currently prohibited by the
terms of the ATLANTIC REIT Management Agreement, although the ATLANTIC REIT
Manager and ATLANTIC have agreed to waive this prohibition as it relates to
the completion of the Transaction. In addition to the requirements described
above, ATLANTIC will not engage in such transactions unless the Independent
Directors believe that any such transaction is in the long-term best interests
of ATLANTIC and its shareholders. The sole activity of the ATLANTIC REIT
Manager is advising ATLANTIC.
The ATLANTIC REIT Management Agreement permits affiliates of the ATLANTIC
REIT Manager to provide property management and other services to ATLANTIC for
compensation. The fees charged for such services must be comparable to fees
that would be charged by unaffiliated, qualified third parties. Any property
management fees are reviewed annually by the ATLANTIC Board and must be
approved by a majority of the Independent Directors.
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With certain exceptions, officers and employees of the ATLANTIC REIT Manager
spend all of their time on ATLANTIC's affairs. In the future, certain officers
or employees may be transferred to or from other affiliates of the ATLANTIC
REIT Manager, consistent with ATLANTIC REIT Manager's plan for management
depth and orderly succession.
ATLANTIC does not intend to issue options or warrants to the ATLANTIC REIT
Manager or its employees.
Under the law of Maryland (where ATLANTIC is organized), each director will
be obligated to offer to ATLANTIC any opportunity (with certain limited
exceptions) which comes to him or her and in which ATLANTIC has an interest or
a reasonable expectancy in developing. In addition, under Maryland law, any
contract or transaction between ATLANTIC and any director or any entity in
which a director has a material financial interest will not be void or
voidable if, in addition to being approved by at least a majority of a quorum
of the board of directors (i) it is approved, after disclosure of the
interest, by the affirmative vote of a majority of disinterested directors or
by the affirmative vote of a majority of the votes cast by disinterested
shareholders, or (ii) it is fair and reasonable to ATLANTIC.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
ATLANTIC may, but does not presently intend to, make investments other than
as previously described. All investments will be primarily related to
multifamily properties and the management and development thereof. ATLANTIC
has authority to issue senior securities, to offer ATLANTIC Common Stock or
other securities and to repurchase or otherwise reacquire its common stock or
any other securities and may engage in such activities in the future.
ATLANTIC's policy is not to make loans to its officers or directors or to the
ATLANTIC REIT Manager. ATLANTIC may in the future make loans to partnerships
and joint ventures in which it participates in order to meet working capital
needs. ATLANTIC has not engaged in trading, underwriting or agency
distribution or sale of securities of other issuers and does not intend to do
so. ATLANTIC does not intend to engage in the purchase or sale of investments
(other than acquisition or disposition of properties in accordance with the
REIT rules and ATLANTIC's investment policies) and may on a selected basis in
the future offer securities in exchange for properties. ATLANTIC intends to
make annual and quarterly reports to shareholders. The annual reports will
contain audited financial statements.
At all times, ATLANTIC intends to make investments in such a manner as to be
consistent with the requirements of the Code for ATLANTIC to qualify as a REIT
unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the ATLANTIC Board determines that it is no longer in
the best interests of ATLANTIC to qualify as a REIT.
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PRINCIPAL SHAREHOLDERS
The following table sets forth, as of August 1, 1996, the beneficial
ownership of shares of ATLANTIC Common Stock for (i) each person known to
ATLANTIC to hold more than a 5% interest in ATLANTIC, (ii) each director of
ATLANTIC and (iii) the directors of ATLANTIC and directors and executive
officers of the ATLANTIC REIT Manager as a group. Unless otherwise indicated
in the footnotes, all of such interests are owned directly, and the indicated
person or entity has sole voting and investment power.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF ATLANTIC PERCENT OF
NAME AND ADDRESS COMMON STOCK ALL ATLANTIC
OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK
------------------- ---------------------------- ------------
<S> <C> <C>
Security Capital Group
Incorporated.................. 42,257,407(1) 64.1%
125 Lincoln Avenue
Santa Fe, New Mexico 87501
William D. Sanders (Corporate
Ownership).................. 42,257,407(2) 64.1
7777 Market Center Avenue
El Paso, Texas 79912
William D. Sanders (Personal
Ownership).................. 12,310 *
7777 Market Center Avenue
El Paso, Texas 79912
Ameritech Pension Trust........ 4,446,640 6.7
Ameritech Corporation
225 West Randolph Street
HQ-13A
Chicago, Illinois 60606
General Motors Investment
Management Corporation........ 4,347,826(3) 6.6
767 Fifth Avenue
New York, New York 10153
C. Ronald Blankenship.......... 1,000 *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Manuel A. Garcia, III.......... 20,000 *
P.O. Box 2066
Daugar Restaurants, Inc.
Winter Park, Florida 32790
Ned S. Holmes.................. 120,000(4) *
Parkway Investments/Texas,
Inc.
55 Waugh Drive
Houston, Texas 77007
Constance B. Moore............. 21,739 *
Six Piedmont Center
Atlanta, Georgia 30305
James C. Potts................. 26,100 *
Six Piedmont Center
Atlanta, Georgia 30305
All Directors and Executive
Officers of ATLANTIC as a
Group (11 persons)............ 189,839 *
</TABLE>
- --------
*Less than 1%
(1) These shares of ATLANTIC Common Stock are owned of record by SC Realty
Incorporated, a wholly owned subsidiary of SCG, and are pledged to secure
SCG's $300 million revolving line of credit facility
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with a syndicate of banks. As of August 1, 1996, there were $34 million of
borrowings outstanding under the line of credit. The line of credit is also
secured by securities owned by SCG of PTR, SCI, and Security Capital U.S.
Realty, an entity based in Luxembourg 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 August
1, 1996. SCG was in compliance with all covenants under the line of credit
at March 31, 1996.
(2) Mr. Sanders may be deemed to beneficially own these shares of ATLANTIC
Common Stock, which are owned by SCG, because Mr. Sanders shares voting
and dispositive power with respect to all shares of ATLANTIC Common Stock
owned by SCG. SCG and Mr. Sanders intend to play a major role in the
direction of ATLANTIC for the purpose of maximizing the value of ATLANTIC.
(3) 3,913,043 of these shares are owned by the General Motors Hourly-Rate
Employees Pension Trust and 434,783 of these shares are owned by the
General Motors Salaried Employees Pension Trust.
(4) Mr. Holmes directly owns 5,000 of these shares of ATLANTIC Common Stock.
Mr. Holmes may be deemed to beneficially own 115,000 of these shares of
ATLANTIC Common Stock which are owned by Mr. Holmes' wife and children and
by Holmes Family Venture Ltd., a family entity with respect to which Mr.
Holmes shares voting and dispositive power.
FEDERAL INCOME TAX CONSIDERATIONS
This section is a summary of certain federal income tax matters of general
application pertaining to REITs under the Code. The discussion is based on
current law and does not purport to deal with all aspects of federal income
taxation that may be relevant to investors subject to special treatment under
federal income tax laws, such as investors subject to the Employee Retirement
Income Security Act of 1974, as amended, other tax exempt investors, dealers
in securities or foreign persons. The provisions of the Code pertaining to
REITs are highly technical and complex and sometimes involve mixed questions
of fact and law. In addition, this section does not discuss foreign, state or
local taxation. ATLANTIC has not requested and will not request a ruling from
the IRS with respect to any of the federal income tax issues discussed below.
Prospective investors should consult, and must depend on, their own tax
consequences of holding and disposing of shares of ATLANTIC Common Stock.
TAXATION OF ATLANTIC
ATLANTIC believes that is has been organized and operated, and it intends to
continue to operate, in a manner qualifying it as a REIT under Sections 856
through 860 of the Code, but no assurance can be given that it will at all
times so qualify. ATLANTIC's ability to qualify as a REIT under the
requirements of the Code and the regulations promulgated thereunder is
dependent upon actual operating results.
To qualify as a REIT under the Code for a taxable year, ATLANTIC must meet
certain organizational and operational requirements, which generally require
it to be a passive investor in operating real estate and to avoid excessive
concentration of ownership of its capital stock. First, its principal
activities must be real estate related. Generally, at least 75% of the value
of the total assets of ATLANTIC at the end of each calendar quarter must
consist of real estate assets, cash or governmental securities and for each
taxable year at least 75% of its gross income must be from real estate
sources, including rents from real property and interest on mortgage
obligations. ATLANTIC may not own more than 10% of the outstanding voting
securities of any corporation. Shares of qualified REITs, qualified temporary
investments and shares of certain wholly owned subsidiaries are exempt from
this prohibition. ATLANTIC holds assets through certain wholly owned
subsidiary corporations that it believes qualify for the exemption.
Additionally, gross income from the sale or other disposition of stock and
securities held for less than one year and of real property held for less than
four years must constitute less than 30% of the gross income for each taxable
year of a REIT. For each taxable year, at least 75% of a REIT's gross income
must be derived from specified real estate sources and 95% must be derived
from such real estate sources plus certain other permitted sources. Real
estate income for purposes of these requirements includes gains from the sale
of real property not held primarily for sale to customers in the ordinary
course of business, dividends on REIT shares, interest on loans secured by
mortgages on real property, certain rents from real property and income
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from foreclosure property. For rents to qualify, they may not be based on the
income or profits of any person, except that they may be based on a percentage
or percentages of gross income or receipts, and, subject to certain limited
exceptions, the REIT may not manage the property or furnish services to
tenants except through an independent contractor which is paid an arm's-length
fee and from which the REIT derives no income.
ATLANTIC must satisfy certain ownership restrictions that limit (i)
concentration of ownership of capital stock by a few individuals and (ii)
ownership by ATLANTIC of its tenants. The outstanding capital stock of
ATLANTIC must be held by at least 100 shareholders. No more than 50% in value
of the outstanding capital stock, including in some circumstances capital
stock into which outstanding securities might be converted, may be owned
actually or constructively by five or fewer individuals or certain other
entities at any time during the last half of ATLANTIC's taxable year.
Accordingly, the ATLANTIC Charter restrict the transfer of ATLANTIC Common
Stock and any other outstanding securities convertible into shares of ATLANTIC
Common Stock when necessary to maintain ATLANTIC's qualification as a REIT
under the Code. However, because the Code imposes broad attribution rules in
determining constructive ownership, no assurances can be given that the
restrictions of the ATLANTIC Charter will be effective in maintaining
ATLANTIC's REIT status. See "Comparison of Rights of Holders of ATLANTIC
Common Stock and Homestead Common Stock--Restriction on Size of Holdings of
Shares." Because SCG is a corporation, its ownership is attributed
proportionally to all of its shareholders for purposes of determining whether
more than 50% in value of the outstanding capital stock is owned by five or
fewer individuals at any time during the last half of ATLANTIC's taxable year.
So long as ATLANTIC qualifies for taxation as a REIT and distributes at
least 95% of its real estate investment trust taxable income (computed without
regard to net capital gains or the dividends-paid deduction) for its taxable
year to its shareholders annually, ATLANTIC itself will not be subject to
federal income tax on that portion of such income distributed to shareholders.
ATLANTIC will be taxed at regular corporate rates on all income not
distributed to shareholders. ATLANTIC's policy is to distribute at least 95%
of its taxable income. REITs may also incur taxes for certain other activities
or to the extent distributions do not satisfy certain other requirements.
Failure of ATLANTIC to qualify during any taxable year as a REIT could,
unless certain relief provisions were available, have a material adverse
effect upon its shareholders. If disqualified for taxation as a REIT for a
taxable year, ATLANTIC would also be disqualified for taxation as a REIT for
the next four taxable years, unless the failure was due to reasonable cause
and not willful neglect. ATLANTIC would be subject to federal income tax at
corporate rates on all of its taxable income and would not be able to deduct
the dividends paid, which could result in a discontinuation of or substantial
reduction in dividends to shareholders. Dividends would also be subject to the
regular tax rules applicable to dividends received by shareholders of
corporations. Should the failure to qualify be determined to have occurred
retroactively in an earlier tax year of ATLANTIC, the imposition of a
substantial federal income tax liability on ATLANTIC attributable to such
nonqualifying tax years may adversely affect ATLANTIC's ability to pay
dividends. In the event that ATLANTIC fails to meet certain income tests of
the tax law, it may, generally, nonetheless retain its qualification as a REIT
if it pays a 100% tax on the amount by which it failed to meet the income
tests so long as its failure was due to reasonable cause and not willful
neglect. Any such taxes would adversely affect ATLANTIC's ability to pay
dividends or to pay interest on any debt securities.
TAXATION OF THE SHAREHOLDERS OF ATLANTIC
As long as ATLANTIC qualifies as a REIT, distributions made to its
shareholders out of current or accumulated earnings and profits of ATLANTIC
(which are not designated as capital gain dividends) will generally be taxed
to shareholders as ordinary income either in the year of payment or, with
respect to distributions declared in the last quarter of any year and paid by
January 31 of the following year, in the year of declaration and will not be
eligible for the dividends received deduction for corporations. ATLANTIC's
earnings and profits will first be allocated to any outstanding preferred
shares. A distribution of net capital gains by ATLANTIC will generally be
treated as a long-term capital gain to shareholders to the extent properly
designated by ATLANTIC as a capital gain dividend and regardless of the length
of time a shareholder has held his shares
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of capital stock. Under Section 291 of the Code, however, corporate
shareholders may be required to treat up to 20% of any such capital gain as
ordinary income. Section 291 of the Code provides, in general, that if a
corporation sells or disposes of depreciable real property in a taxable
transaction, it must, to the extent of gain, include as ordinary income up to
20% of the depreciation previously taken on such property. Corporate
shareholders of a REIT are required to treat the portion of a capital gain
dividend attributable to the gain from the REIT's sale or exchange of
depreciable real property as subject to the 20% ordinary income rule. Capital
gains distributions are not eligible for the dividends-received deduction for
corporations. A distribution in excess of current or accumulated earnings and
profits will constitute a nontaxable return of capital, to the extent of the
shareholder's basis in his shares of capital stock, and is applied to reduce
the shareholder's basis in the shares of capital stock. To the extent such a
distribution is greater than such basis, it will be treated as capital gain to
those shareholders holding their shares of capital stock as capital assets.
ATLANTIC will notify shareholders as to the portions of each distribution
which, in its judgment, constitute ordinary income, capital gain dividends or
return of capital. Should ATLANTIC incur ordinary or capital losses,
shareholders will not be entitled to include such losses in their own income
tax returns.
BACKUP WITHHOLDING
ATLANTIC will report to its United States shareholders and the IRS the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at applicable rates with respect to
distributions paid unless such shareholder (a) is a corporation or falls
within certain other exempt categories and, when required, demonstrates this
fact, or (b) provides a taxpayer identification number, certifies as to no
loss or exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A shareholder that
does not provide ATLANTIC with his or her correct taxpayer identification
number may also be subject to penalties imposed by the IRS. Any amount paid as
backup withholding will be creditable against the shareholder's income tax
liability. In addition, ATLANTIC may be required to withhold a portion of
capital gain distributions to any shareholders who fail to certify their
nonforeign status to ATLANTIC.
COMPARISON OF RIGHTS OF HOLDERS OF
ATLANTIC COMMON STOCK AND HOMESTEAD COMMON STOCK
Both ATLANTIC and Homestead are corporations incorporated under the MGCL.
The rights of holders of Homestead Common Stock are governed by the MGCL and
by the Homestead charter (the "Homestead Charter") and Bylaws. The rights of
holders of ATLANTIC Common Stock are governed by the MGCL and by the ATLANTIC
Charter and Bylaws.
The rights of Homestead shareholders will differ in some respects from the
rights of ATLANTIC shareholders. A summary of these differences is set forth
below. The following summary does not purport to be a complete statement of
the rights of holders of ATLANTIC Common Stock under applicable Maryland law,
the ATLANTIC Charter and Bylaws or a comprehensive comparison with the rights
of the holders of Homestead Common Stock under applicable Maryland law, the
Homestead Charter and Bylaws or a complete description of the provisions
referred to herein. The identification of specific differences is not meant to
indicate that other equally or more significant differences do not exist. This
summary is qualified in its entirety by reference to the MGCL and the ATLANTIC
Charter and Bylaws and the Homestead Charter and Bylaws, to which prospective
holders of Homestead Common Stock are referred.
PREFERRED SHARES
Subject to limitations prescribed by Maryland law and the ATLANTIC Charter
and the Homestead Charter, each of the ATLANTIC Board and the Homestead Board
is authorized to reclassify and issue, from the authorized but unissued shares
of stock of ATLANTIC and Homestead, as applicable, preferred shares in series
and to establish from time to time the number of preferred shares to be
included in such series and to fix the
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designation and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption of the shares of each
series, and such other subjects or matters as may be fixed by resolution of
the ATLANTIC Board or Homestead Board or duly authorized committees thereof.
Neither ATLANTIC nor Homestead has any shares of preferred stock outstanding.
RESTRICTIONS ON TRANSFER AND REDEMPTION OF SHARES
The ATLANTIC Charter contains certain restrictions on the number of shares
of ATLANTIC Common Stock that individual shareholders may own. The Homestead
Charter contains no similar provisions.
For ATLANTIC to qualify as a REIT under the Code, no more than 50% in value
of its shares (after taking into account options to acquire shares) may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities and constructive ownership among specified
family members) during the last half of a taxable year (other than the first
taxable year) or during a proportionate part of a short taxable year. The
shares must also be beneficially owned (other than during the first taxable
year) by 100 or more persons during at least 335 days of a taxable year or
during a proportionate part of a shorter taxable year. Because ATLANTIC is a
REIT, the ATLANTIC Charter contains restrictions on the acquisition of shares
intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the ATLANTIC Charter, no holder
may own, or be deemed to own by virtue of the attribution provisions of the
Code, more than 9.8% (the "Ownership Limit") of the number or value of the
issued and outstanding shares. The ATLANTIC Board, upon receipt of a ruling
from the IRS or an opinion of counsel or other evidence satisfactory to the
ATLANTIC Board and upon such other conditions as the ATLANTIC Board may
direct, may exempt a proposed transferee from the Ownership Limit. The
ATLANTIC Board may require such opinions of counsel, affidavits, undertakings
or agreements as it may deem necessary or advisable in order to determine or
ensure ATLANTIC's status as a REIT. Any transfer of shares that would (i)
create a direct or indirect ownership of shares in excess of the Ownership
Limit, (ii) result in the shares being beneficially owned by fewer than 100
persons (determined without reference to any rules of attribution) as provided
in Section 856(a) of the Code, or (iii) result in ATLANTIC being "closely
held" within the meaning of Section 856(h) of the Code, shall be null and void
ab initio, and the intended transferee will acquire no rights to the shares.
The foregoing restrictions on transferability and ownership will not apply if
the ATLANTIC Board determines, which determination must be approved by the
shareholders, that it is no longer in the best interests of ATLANTIC to
attempt to qualify, or to continue to qualify, as a REIT.
The ATLANTIC Charter excludes from the foregoing ownership restriction SCG
(and its transferees) who owned in excess of the Ownership Limit on the date
of its adoption. In no event will such persons (other than SCG) be entitled to
acquire additional shares such that the five largest beneficial owners of
shares hold more than 50% of the total outstanding shares.
Any shares, the purported transfer of which would result in a person owning
shares in excess of the Ownership Limit or cause ATLANTIC to become "closely
held" under Section 856(h) of the Code that is not otherwise permitted as
provided above, will constitute excess shares ("Excess Shares"), which will be
transferred pursuant to the ATLANTIC Articles to a party not affiliated with
ATLANTIC designated by ATLANTIC as the trustee of a trust for the exclusive
benefit of an organization or organizations described in Sections 170(b)(1)(A)
and 170(c) of the Code and identified by the ATLANTIC Board as the beneficiary
or beneficiaries of the trust (the "Charitable Beneficiary"), until such time
as the Excess Shares are transferred to a person whose ownership will not
violate the restrictions on ownership. While these Excess Shares are held in
trust, they will not be entitled to share in any distributions which will be
paid to the trust for the benefit of the Charitable Beneficiary and may only
be voted by the trustee for the benefit of the Charitable Beneficiary. Subject
to the Ownership Limit, the Excess Shares shall be transferred by the trustee
at the direction of ATLANTIC to any person (if the Excess Shares would not be
Excess Shares in the hands of such person). The purported transferee will
receive the lesser of (i) the price paid by the purported transferee for the
Excess Shares (or, if no
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consideration was paid, fair market value on the day of the event causing the
Excess Shares to be held in trust) and (ii) the price received from the sale
or other disposition of the Excess Shares held in trust. Any proceeds in
excess of the amount payable to the purported transferee will be paid to the
Charitable Beneficiary. In addition, such Excess Shares held in trust are
subject to purchase by ATLANTIC for a 90-day period at a purchase price equal
to the lesser of (i) the price paid for the Excess Shares by the purported
transferee (or, if no consideration was paid, fair market value at the time of
the event causing the shares to be held in trust) and (ii) the fair market
value of the Excess Shares on the date ATLANTIC elects to purchase. Fair
market value, for these purposes, means the last reported sales price reported
on the New York Stock Exchange ("NYSE") on the trading day immediately
preceding the relevant date, or if not then traded on the NYSE, the last
reported sales price on the trading day immediately preceding the relevant
date as reported on any exchange or quotation system over or through which the
relevant class of shares of stock may be traded, or if not then traded over or
through any exchange or quotation system, then the market price on the
relevant date as determined in good faith by the ATLANTIC Board.
From and after the purported transfer to the purported transferee of the
Excess Shares, the purported transferee shall cease to be entitled to
distributions, voting rights and other benefits with respect to the Excess
Shares except the right to payment on the transfer of the Excess Shares as
described above. Any distribution paid to a purported transferee on Excess
Shares prior to the discovery by ATLANTIC that such Excess Shares have been
transferred in violation of the provisions of the ATLANTIC Articles shall be
repaid to the trust for the benefit of the Charitable Beneficiary. If the
foregoing transfer restrictions are determined to be void, invalid or
unenforceable by any court of competent jurisdiction, then the purported
transferee of any Excess Shares may be deemed, at the option of ATLANTIC, to
have acted as an agent on behalf of ATLANTIC in acquiring such Excess Shares
and to hold such Excess Shares on behalf of ATLANTIC.
All certificates representing shares must bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 1/2 of 1% and 5%, as
provided in the rules and regulations promulgated under the Code) of the
number or value of the outstanding shares of ATLANTIC Common Stock must give a
written notice containing certain information to ATLANTIC by January 31 of
each year. In addition, each shareholder shall upon demand be required to
disclose to ATLANTIC in writing such information with respect to the direct,
indirect and constructive ownership of shares of ATLANTIC Common Stock as the
ATLANTIC Board deems reasonably necessary to comply with the provisions of the
Code applicable to a REIT, to determine ATLANTIC's status as a REIT, to comply
with the requirements of any taxing authority or governmental agency or to
determine any such compliance.
These ownership limitations could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of the shares of
ATLANTIC Common Stock might receive a premium for their shares over the then
prevailing market price or which such holders might believe to be otherwise in
their best interest.
DIRECTORS
The Homestead Charter provides that the number of directors shall initially
be three, which number may be increased or decreased from time to time in
accordance with the Bylaws, but such number shall never be less than the
minimum number required by the MGCL. 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. Pursuant to the terms of the Homestead
Charter, the directors are divided into three classes. At the 1997 annual
meeting of stockholders, one class will be elected to hold office for a term
expiring at the annual meeting of shareholders in 1998, a second class will be
elected to hold office for a term expiring at the annual meeting of
shareholders in 1999 and a third class will be elected to hold office for a
term expiring at the annual meeting of shareholders in 2000. As the term of
each class expires, directors in that class will be elected for a term of
three years and until
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their successors are duly elected and qualify. Homestead believes that the
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. 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 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 their
respective affiliates, except as director or trustee. ATLANTIC's Charter
provides that after ATLANTIC has a class of securities registered pursuant to
Section 12 of the Exchange Act, the Homestead Board must consist of a majority
of directors each of whom (i) is not affiliated, directly or indirectly with
the ATLANTIC REIT Manager, whether by ownership of, ownership interest in,
employment by, any material business or professional relationship with, or
service as an officer or director of, the ATLANTIC REIT Manager or a business
entity which is an affiliate of the ATLANTIC REIT Manager, (ii) is not serving
as a trustee or director for more than three real estate investment trusts
organized by a sponsor of ATLANTIC and (iii) performs no other services for
ATLANTIC, except as director.
VACANCIES AMONG DIRECTORS
The MGCL provides that unless the charter or bylaws of a corporation provide
otherwise, newly created directorships resulting from an increase in the
number of directors may be filled by a majority of the entire board of
directors, and vacancies on the board that result from any other cause may be
filled by a majority of the remaining directors. Vacancies on the board
resulting from the removal of a director by the shareholders may also be
filled by the shareholders.
The Homestead Bylaws provide that 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. The ATLANTIC Bylaws provide that any vacancy may be filled by a
majority of the directors then in office, though less than a quorum.
LIMITATION ON DIRECTOR LIABILITY
The MGCL allows a corporation's charter to contain a provision limiting a
director's or an officer's personal liability to the corporation and its
shareholders for money damages except to the extent that (i) it is proved that
the individual actually received an improper benefit or profit for the amount
of such benefit or profit; or (ii) a judgment or other final adjudication
adverse to the individual is entered in a proceeding based on a finding in the
proceeding that the individual's action or failure to act was the result of
active and deliberate dishonesty and was material to the cause of action. The
ATLANTIC Charter and the Homestead Charter contain provisions which limit the
liability of its directors and officers for money damages to the fullest
extent permitted by the MGCL.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The MGCL requires a corporation (unless its charter provides otherwise,
which neither the ATLANTIC Charter nor the Homestead Charter does) to
indemnify a director or officer who has been successful, on the merits or
otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity. The MGCL permits indemnification of
directors, officers, employees and agents of a corporation unless (a) the act
or omission 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 party seeking indemnification to receive an improper
personal benefit in money, property or services or, (c) in the case of
criminal prosecutions, the party seeking indemnification had reasonable cause
to believe that the act or omission was unlawful. The ATLANTIC Charter and
Bylaws and the Homestead Charter and Bylaws provide for the indemnification of
directors and officers to the fullest extent permitted by the MGCL.
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SPECIAL SHAREHOLDERS' MEETINGS
The MGCL provides that special meetings of the shareholders may be called by
the president, the board of directors or any other person specified in the
charter or bylaws of the corporation. The ATLANTIC Bylaws give the Chairman of
the Board and the Homestead Bylaws give the Chairman of the Board and chief
executive officer the power to call a special meeting of the shareholders.
Under the current MGCL, a special meeting of stockholders must be called by
the secretary of the corporation upon the written request of the stockholders
entitled to cast 25% of the votes entitled to be cast at the meeting setting
forth the purpose for which the meeting is being called. A bill passed by the
Maryland legislature and signed by the Governor of Maryland earlier this year
permits a Maryland corporation to increase the percentage of votes necessary
to require the secretary of the corporation to call a special meeting from 25%
to as high as a majority. This bill will become effective on October 1, 1996.
Accordingly, the Homestead Bylaws provide that on and after October 1, 1996, a
special meeting must be called by the secretary upon the written request of
the holders entitled to cast a majority of the votes entitled to be cast at
the meeting.
ADVANCE NOTICE OF DIRECTORS' NOMINATIONS AND NEW BUSINESS
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 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 of such stockholder and of the beneficial owner, if
any, on whose behalf the proposal is made; and (iii) as to the stockholder
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 stockholder
as they appear 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 stockholder and such beneficial owner, if
any. The ATLANTIC Bylaws contain a similar provision.
LEGAL MATTERS
The validity of the Homestead Common Stock and the Homestead Warrants
offered hereby will be passed upon for Homestead by Mayer, Brown & Platt,
Chicago, Illinois. Certain legal matters relating to the Transaction will be
passed upon for ATLANTIC, Homestead, PTR and SCG by King & Spalding, Atlanta,
Georgia (counsel to the ATLANTIC Special Committee), Mayer, Brown & Platt,
Chicago, Illinois and Munger, Tolles & Olson, Los Angeles, California (counsel
to the PTR Special Committee). King & Spalding, Mayer, Brown & Platt and
Munger, Tolles & Olson will rely 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. King & Spalding has
in the past represented PTR.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AND EXPERTS
The financial statements of ATLANTIC as of December 31, 1995 and 1994, and
for each of the years ended December 31, 1995 and 1994, and the period October
26, 1993 (inception) through December 31, 1993, the related schedule as of
December 31, 1995 and the combined Historical Summaries of Gross Income and
Direct Operating Expenses of the Group A, Group B and Group C Properties of
ATLANTIC for the year ended December 31, 1994, the period from January 1, 1995
through September 30, 1995 and the year ended December
73
<PAGE>
31, 1995, respectively, all appearing in this Information Statement and
Prospectus of ATLANTIC included in the Homestead Registration Statement, have
been audited by Ernst & Young LLP, independent certified public accountants,
as set forth in their reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
EXPENSES OF SOLICITATION
Homestead will pay the expenses in connection with the filing, printing and
distribution of this Information Statement and Prospectus.
74
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HISTORICAL:
Condensed Balance Sheets as of March 31, 1996 and December 31, 1995..... F-2
Condensed Statements of Earnings for the three-month periods ended March
31, 1996 and 1995...................................................... F-3
Condensed Statements of Cash Flows for the three-month periods ended
March 31, 1996 and 1995................................................ F-4
Notes to Condensed Financial Statements................................. F-5
Report of Independent Certified Public Accountants...................... F-11
Balance Sheets as of December 31, 1995 and 1994......................... F-12
Statements of Earnings for the years ended December 31, 1995, 1994, and
1993................................................................... F-13
Statements of Shareholders' Equity for the years ended December 31,
1993, 1994, and 1995................................................... F-14
Statements of Cash Flows for the years ended December 31, 1995, 1994,
and 1993............................................................... F-15
Notes to Financial Statements........................................... F-16
Schedule III--Real Estate and Accumulated Depreciation.................. F-26
Note to Schedule III.................................................... F-30
PRO FORMA (UNAUDITED):
Summary of Pro Forma adjustments........................................ F-31
Pro Forma Balance Sheet as of March 31, 1996............................ F-32
Pro Forma Statement of Earnings for the three-month period ended March
31, 1996............................................................... F-33
Pro Forma Statement of Earnings for the year ended December 31, 1995.... F-34
Notes to Pro Forma Financial Statements................................. F-35
COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
PURSUANT TO RULE 3-14:
Report of Independent Certified Public Accountants...................... F-39
Group A Properties Combined Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1994 and the
unaudited Combined Historical Summary of Gross Income and Direct
Operating Expenses for the period January 1, 1995 through the earlier
of June 30, 1995 or Date of Acquisition................................ F-40
Notes to Group A Properties Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-41
Report of Independent Certified Public Accountants...................... F-43
Group B Properties Combined Historical Summary of Gross Income and
Direct Operating Expenses for the period from January 1, 1995 through
September 30, 1995..................................................... F-44
Notes to Group B Properties Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-45
Report of Independent Certified Public Accountants...................... F-47
Group C Properties Combined Historical Summary of Gross Income and
Direct Operating Expenses for the Year ended December 31, 1995......... F-48
Notes to Group C Properties Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-49
</TABLE>
F-1
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate........................................... $936,129 $888,928
Less accumulated depreciation......................... 28,364 23,561
-------- --------
Net investments in real estate.................... 907,765 865,367
Cash and cash equivalents............................. 6,553 6,494
Other assets.......................................... 15,000 13,963
-------- --------
Total assets...................................... $929,318 $885,824
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Line of credit...................................... $226,000 $190,000
Mortgages payable................................... 123,291 118,524
Accounts payable.................................... 16,267 11,030
Accrued expenses and other liabilities.............. 11,409 9,332
-------- --------
Total liabilities................................. 376,967 328,886
-------- --------
Shareholders' equity:
Common shares (250,000,000 authorized, 55,569,635
issued and
outstanding at March 31, 1996 and 55,525,635 issued
and outstanding at December 31, 1995).............. 556 555
Additional paid-in capital.......................... 576,976 576,547
Distributions in excess of net earnings............. (25,181) (20,164)
-------- --------
Total shareholders' equity........................ 552,351 556,938
-------- --------
Total liabilities and shareholders' equity........ $929,318 $885,824
======== ========
</TABLE>
See accompanying notes to the condensed financial statements.
F-2
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE-
MONTH PERIODS
ENDED MARCH 31,
---------------
1996 1995
------- -------
<S> <C> <C>
Revenues:
Rental income................................................ $30,809 $22,952
Interest income.............................................. 72 45
------- -------
30,881 22,997
------- -------
Expenses:
Rental expenses.............................................. 8,712 5,771
Real estate taxes............................................ 3,104 2,430
Property management fees paid to affiliate................... 920 717
Depreciation................................................. 4,804 3,605
Interest..................................................... 4,342 4,677
REIT management fee paid to affiliate........................ 2,123 1,515
General and administrative................................... 187 105
Other........................................................ 39 2
------- -------
24,231 18,822
------- -------
Net earnings................................................... $ 6,650 $ 4,175
======= =======
Weighted average shares outstanding.......................... 55,555 37,133
======= =======
Net earnings per share....................................... $ 0.12 $ 0.11
======= =======
</TABLE>
See accompanying notes to the condensed financial statements.
F-3
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS
ENDED MARCH 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings............................................ $ 6,650 $ 4,175
Adjustments to reconcile net earnings to net cash flow
provided by operating activities:
Depreciation and amortization......................... 5,236 3,948
Increase in accounts payable.......................... 5,237 1,157
Increase in accrued expenses and other liabilities.... 2,076 1,991
Decrease (increase) in other assets................... (1,188) 1,683
--------- ---------
Net cash flow provided by operating activities...... 18,011 12,954
--------- ---------
INVESTING ACTIVITIES:
Net cash flow used in real estate investing activities.. (47,201) (39,177)
--------- ---------
FINANCING ACTIVITIES:
Repurchase of shares.................................... -- (55,000)
Proceeds from sale of shares............................ 430 59,970
Proceeds from line of credit............................ 42,000 32,000
Proceeds from mortgage debt............................. 5,000 --
Payments on line of credit.............................. (6,000) (4,000)
Distributions paid...................................... (11,667) (7,426)
Debt issuance costs incurred............................ (281) (808)
Regularly scheduled principal payments on mortgages
payable................................................ (233) (157)
--------- ---------
Net cash flow provided by financing activities...... 29,249 24,579
--------- ---------
Net increase (decrease) in cash and cash equivalents...... 59 (1,644)
Cash and cash equivalents, beginning of period............ 6,494 6,262
--------- ---------
Cash and cash equivalents, end of period.................. $ 6,553 $ 4,618
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Assumption of mortgages payable upon purchase of
multifamily properties................................. $ -- $ 8,127
</TABLE>
See accompanying notes to the condensed financial statements.
F-4
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 1--GENERAL
The financial statements of Security Capital Atlantic Incorporated
("ATLANTIC") as of March 31, 1996 and for the three-month periods ended March
31, 1996 and 1995 are unaudited and certain information and footnote
disclosures normally included in financial statements have been omitted. While
management of ATLANTIC believes that the disclosures presented are adequate,
these interim financial statements should be read in conjunction with the
financial statements and notes included in ATLANTIC'S financial statements for
the years ended December 31, 1995 and 1994 and the period October 26, 1993
(inception) through December 31, 1993.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments for a fair presentation of ATLANTIC's
financial statements for the interim periods presented. The results of
operations for the three-month periods ended March 31, 1996 and 1995 are not
necessarily indicative of the results to be expected for the entire year.
The preparation of these financial statements required the use of certain
estimates by management in determining ATLANTIC's assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
NOTE 2--REAL ESTATE
Investments in Real Estate
Investments in real estate, at cost, were as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
----------------- -----------------
INVESTMENT UNITS INVESTMENT UNITS
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Operating properties:
Acquired..................... $760,874 15,355 $757,986 15,355
Developed.................... 38,897 804 23,097 468
-------- ------ -------- ------
799,771 16,159 781,083 15,823
Developments under construc-
tion.......................... 112,429 3,603 95,293 3,095
Developments in planning:
Owned........................ 22,027 2,542(1) 11,258 1,504(1)
Under control (2)............ -- 2,962(1) -- 3,054(1)
-------- ------ -------- ------
22,027 5,504 11,258 4,558
Land held for future develop-
ment.......................... 1,902 -- 1,294 --
-------- ------ -------- ------
Total...................... $936,129 25,266 $888,928 23,476
======== ====== ======== ======
</TABLE>
- --------
(1) Unit information is based upon management's estimates.
(2) ATLANTIC's investment as of March 31, 1996 and December 31, 1995 for
developments under control was $1.7 million and $2.0 million,
respectively, and is reflected in the "Other assets" caption of ATLANTIC's
balance sheets.
At March 31, 1996, ATLANTIC had unfunded commitments for developments under
construction of $97.3 million, for a total completed construction cost of
$209.7 million. Costs for developments in planning shown above are primarily
for land acquisitions.
F-5
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
The change in investments in real estate, at cost, for the three-month
period ended March 31, 1996 consisted of the following (in thousands):
<TABLE>
<S> <C>
Balance at January 1, 1996...................................... $888,928
Renovation expenditures......................................... 2,229
Capital improvements............................................ 586
Development expenditures, including land acquisitions........... 44,386
--------
Balance at March 31, 1996....................................... $936,129
========
</TABLE>
Third Party Owner--Developments
To enhance its flexibility in developing and acquiring multifamily
properties, ATLANTIC has and will enter into presale agreements with third
party owner-developers to acquire properties developed by such owner-
developers where the developments meet ATLANTIC's investment criteria.
ATLANTIC has and will fund such developments through development loans to such
owner-developers. In addition, to provide greater flexibility for the use of
land acquired for development and to dispose of excess parcels, ATLANTIC plans
to make mortgage loans to Atlantic Development Services Incorporated
("Atlantic Development Services") to purchase land for development. ATLANTIC
owns all of the preferred stock of Atlantic Development Services, which
entitles ATLANTIC to substantially all of the net operating cash flow (95%) of
Atlantic Development Services. All of the common stock of Atlantic Development
Services is owned by an unaffiliated trust. The common stock is entitled to
receive the remaining 5% of net operating cash flow. As of March 31, 1996 the
outstanding balance of development and mortgage loans made by ATLANTIC to
third party owner-developers and Atlantic Development Services aggregated
$13,157,000 and none, respectively. The activities of Atlantic Development
Services and development loans are consolidated with ATLANTIC's activities and
all intercompany transactions have been eliminated in consolidation.
Gains and Losses from Sales or Impairments of Real Estate
ATLANTIC's real estate investments have been made with a view to effective
long-term operation and ownership. Based upon ATLANTIC's market research and
in an effort to optimize its portfolio composition, ATLANTIC may from time to
time seek to dispose of assets that in management's view do not meet
ATLANTIC's long-term investment criteria and redeploy the proceeds therefrom,
preferably through like-kind exchanges, into assets that are more consistent
with ATLANTIC's investment objectives.
On April 9, 1996, ATLANTIC sold a 358-unit middle-income property as part of
a tax-deferred exchange. This property accounted for $255,000 of net operating
income during the three-month period ended March 31, 1996. A gain of
approximately $670,000 on this disposition will be recognized in the second
quarter. The proceeds from this sale were held in escrow until April 22, 1996
when these funds were used to acquire a 350-unit moderate-income operating
property. Including this property, ATLANTIC acquired a total of three
operating properties aggregating 786 units at a cost of $33.4 million in April
1996.
ATLANTIC adopted Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting For The Impairment of Long-Lived Assets And For Long-Lived Assets
To Be Disposed Of, effective January 1, 1996. SFAS No. 121 requires that long-
lived assets, including real estate assets, be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. SFAS No. 121 also requires that long-lived
assets to be disposed of be reported at the lower of carrying amount or fair
value less cost to sell. No provisions for possible losses were required as a
result of adopting this new accounting standard and real estate is carried at
cost.
F-6
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--LINE OF CREDIT AND MORTGAGES PAYABLE
At March 31, 1996, ATLANTIC had $226 million outstanding on its $300 million
revolving line of credit with Morgan Guaranty Trust Company of New York, as
agent for a group of lenders ("MGT"). Borrowings bear interest at prime, or at
ATLANTIC's option, LIBOR plus 1.50% (reduced from 1.75% on March 13, 1996) or
the certificate of deposit rate (as defined) plus 1.625% (reduced from 1.875%
on March 13, 1996). Additionally, there is a commitment fee of .1875% per
annum on the average unfunded line of credit balance. The line is
collateralized by multifamily properties having an aggregate undepreciated
cost of $489,491,000 at March 31, 1996. Subsequent to March 31, 1996, the line
of credit was increased to $350 million. The line of credit matures June 1998
and may be extended for one year with the approval of MGT and other
participating lenders.
In August 1995, ATLANTIC entered into a swap agreement with Goldman Sachs
Capital Markets, L.P. covering $100 million of borrowings under the line of
credit. Under this one-year agreement which became effective on February 5,
1996, ATLANTIC pays a fixed rate of interest of 7.46% (reduced from 7.71% on
March 13, 1996). By entering into this swap agreement, ATLANTIC has
effectively mitigated a portion of the variable interest rate exposure
associated with the line of credit. For the three months ended March 31, 1996
the interest paid under the swap agreement was $110,000 greater than the
interest received.
All debt incurrences are subject to certain covenants. ATLANTIC must
maintain a debt to tangible net worth ratio of not greater than 2 to 1 and an
adjusted net worth (as defined) of at least $325 million. ATLANTIC's interest
payment coverage (as defined) is required to be not less than 2 to 1.
Restricted payments or distributions (as defined) may not exceed 95% of
ATLANTIC's funds from operations (as defined) for the preceding four quarters.
ATLANTIC has been granted a waiver of the restricted payment covenant. This
waiver allows for restricted payments not to exceed 97% of funds from
operations through the third quarter of 1997. ATLANTIC is in compliance with
all such convenants.
F-7
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
Mortgages Payable
Mortgages payable consisted of the following at March 31, 1996 (dollar
amounts in thousands):
<TABLE>
<CAPTION>
PROPERTY INTEREST RATE MATURITY DATE PERIODIC PAYMENT TERMS PRINCIPAL BALANCE
-------- ------------- ------------- ---------------------- -----------------
<S> <C> <C> <C> <C>
Conventional fixed rate:
Cahaba Forest II...... 7.125% 03/01/29 fully amortizing $ 8,067
Country Place Village
I.................... 7.750% 11/01/00 (1) 2,030
Longwood Villas....... 8.750% 04/01/24 fully amortizing 6,388
--------
16,485
--------
Tax exempt fixed rate or
variable rate subject
to swap agreements(2):
Cameron Brook......... (3) 06/01/25 interest only 19,500
Cameron Station....... 6.0% 06/01/07 interest only 14,500
Clairmont Crest....... (3) 06/01/25 interest only 11,600
Forestwood............ (3) 06/01/25 interest only 11,485
Foxbridge............. (3) 06/01/25 interest only 10,400
The Greens............ (3) 06/01/25 interest only 10,400
Parrot's Landing...... (3) 06/01/25 interest only 15,835
Sun Pointe Cove....... (3) 06/01/25 interest only 8,500
WintersCreek.......... (3) 06/01/25 interest only 5,000
Less amounts held in
principal reserve
fund(4)................ (414)
--------
106,806
--------
$123,291
========
Total annual weighted
average interest rate.. 6.73%
========
</TABLE>
- --------
(1) Interest and principal payment due monthly; balloon payment of $1,845,000
due at maturity.
(2) These properties, in addition to others, are held by Security Capital
Atlantic Multifamily Incorporated, a wholly-owned subsidiary of ATLANTIC.
Security Capital Atlantic Multifamily Incorporated is a legal entity that
is separate and distinct from ATLANTIC with separate assets and
liabilities and business operations.
(3) Interest rate is fixed through swap agreements executed in conjunction
with the credit enhancement agreement with the Federal National Mortgage
Association discussed below.
(4) ATLANTIC has a thirty-year credit enhancement agreement with the Federal
National Mortgage Association related to the tax exempt bond issues. This
credit enhancement agreement requires ATLANTIC to make monthly payments on
each mortgage, based upon a thirty-year amortization, into a principal
reserve account.
F-8
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
ATLANTIC has effectively mitigated its variable rate debt exposure by
entering into swap agreements covering eight variable rate bond issues
included in ATLANTIC's credit enhancement agreement with the Federal National
Mortgage Association ("Fannie Mae"). Under these swap agreements, ATLANTIC
pays and receives interest on the aggregate principal amount of the underlying
bonds outstanding, net of the amount held in the principal reserve account.
These agreements are summarized as follows:
<TABLE>
<CAPTION>
AMOUNT OF BONDS TERM FIXED RATE ISSUER
--------------- -------- ---------- ------
<S> <C> <C> <C>
$23.1 million........... 7 years 5.18% General Re Financial Products Corporation
$64.6 million........... 10 years 5.42% Morgan Guaranty Trust Company of New York
$5.0 million............ 10 years 4.82% Morgan Guaranty Trust Company of New York
</TABLE>
For the three-month period ended March 31, 1996, the annual weighted average
interest rate received by ATLANTIC under the swap agreement was 3.25%. To the
extent the deposits in the principal reserve account have not been used to
redeem any of the outstanding bonds, ATLANTIC pays interest on that portion of
bonds outstanding which is equivalent to the balance in the principal reserve
fund at the variable rates as provided by the mortgage agreements. For the
three months ended March 31, 1996, the interest paid under the swap agreements
was $428,000 greater than interest received.
Real estate with an aggregate undepreciated cost at March 31, 1996 of
$23,429,000 and $180,080,000 serves as collateral for the conventional
mortgages payable and the tax exempt mortgages, respectively. Based on
prevailing market borrowing rates, the fair value of the mortgages payable was
not materially different from the book value at March 31, 1996.
The change in mortgages payable for the three-month period ended March 31,
1996 is as follows (in thousands):
<TABLE>
<S> <C>
Balances at January 1, 1996..................................... $118,524
Mortgage proceeds............................................... 5,000
Regularly scheduled principal payments.......................... (233)
--------
Balances at March 31, 1996...................................... $123,291
========
</TABLE>
In connection with an operating property acquisition on April 10, 1996,
ATLANTIC assumed a $6 million conventional mortgage loan which bears interest
at a fixed rate of 8%. The mortgage loan provides for monthly principal and
interest payments of $44,026 through maturity on July 10, 2003, at which time
a balloon payment of $5,556,000 will be due.
At March 31, 1996 ATLANTIC was in compliance with all debt covenants.
Interest paid in cash on all outstanding debt for the three months ended
March 31, 1996 was $6,381,000 including $2,036,000 of interest capitalized
during construction. Interest paid in cash on all outstanding debt for the
three months ended March 31, 1995 was $5,386,000, including $610,000 of
interest capitalized during construction.
Amortization of loan costs included in interest expense for the three months
ended March 31, 1996 and 1995 was $432,000 and $343,000, respectively.
NOTE 4--SHAREHOLDERS' EQUITY
Shares Authorized
At March 31, 1996, 250,000,000 shares of common stock, $0.01 par value per
share, were authorized. ATLANTIC's Board of Directors is authorized to issue,
from the authorized but unissued shares of ATLANTIC,
F-9
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
preferred shares in series and to establish from time to time the number of
preferred shares to be included in such series and to fix the designation and
any preferences, conversion and other rights, voting powers, restrictions,
limitations as to distributions, qualifications and terms and conditions of
redemption of the shares of each series. In connection with the Purchase
Rights discussed below, shares have been designated as Series A Junior
Participating Preferred Stock but such shares are not issued or outstanding.
Capital Offerings
ATLANTIC began a private offering in the fourth quarter of 1995. In
connection with this offering ATLANTIC sold 11,391,030 shares; 8,891,030
shares at $11.50 per share and 2,500,000 shares at $11.568 per share, for an
aggregate total of $130.7 million through December 31, 1995. In consideration
for Security Capital Group Incorporated's ("SCG") purchase of $50 million of
shares in this offering, and to permit greater participation by other
investors in this offering, ATLANTIC assumed SCG's Put Obligation and
purchased $28.9 million of ATLANTIC shares owned by the holder of the Put
Obligation; 2,500,000 shares at $11.568 per share.
During the three-month period ended March 31, 1996, ATLANTIC sold an
additional 44,000 shares in this private placement. Subsequent to March 31,
1996, ATLANTIC raised an additional $48.4 million through the sale of
4,210,870 shares.
Distributions
On December 19, 1995, the Board of Directors of ATLANTIC proposed an
annualized distribution level of $.84 per share in 1996. On March 28, 1996,
ATLANTIC made a quarterly distribution of $0.21 per share. In light of the
Homestead Transaction (including the distribution of the Homestead
Securities), ATLANTIC's Board of Directors is evaluating the distribution
level.
Purchase Rights
On March 12, 1996, the Board of Directors declared and paid a dividend of
one Purchase Right for each common share outstanding at the close of business
on March 12, 1996 to the holders of ATLANTIC's common shares on that date.
Holders of additional common shares after March 12, 1996 and prior to the
expiration of the rights on March 12, 2006 will be entitled to one Purchase
Right for each such additional common share.
Each Purchase Right entitles the holder, under certain circumstances, to
purchase from ATLANTIC one-hundredth of non-redeemable Series A Junior
Participating Preferred Stock of ATLANTIC at a price of $40. ATLANTIC has
designated one-hundredth of the total shares of common stock outstanding at
any point in time as Series A Junior Participating Preferred Stock. At this
time, ATLANTIC has no Series A Junior Participating Preferred Stock
outstanding.
NOTE 5--REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS
Effective June 30, 1995, ATLANTIC entered into an amended and restated REIT
Management agreement with Security Capital (Atlantic) Incorporated (the "REIT
Manager"), to provide Management services to ATLANTIC. The REIT Manager is a
subsidiary of SCG, which owns 71.5% of ATLANTIC's common shares.
SCG Realty Services Atlantic Incorporated ("SCG Realty Services") began
managing properties for ATLANTIC on May 12, 1994 and currently manages
approximately 80% of ATLANTIC's multifamily properties. SCG owns 100% of SCG
Realty Services voting shares. Rates for services performed by SCG Realty
Services are subject to approval by ATLANTIC's independent Directors and are
at rates prevailing in the markets in which ATLANTIC operates.
F-10
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying balance sheets of Security Capital Atlantic
Incorporated as of December 31, 1995 and 1994, and the related statements of
earnings, shareholders' equity, and cash flows for the years ended December
31, 1995 and 1994 and the period October 26, 1993 (inception) through December
31, 1993. Our audits also included the schedule of real estate and accumulated
depreciation as of December 31, 1995. These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 financial statements referred to above present fairly,
in all material respects, the financial position of Security Capital Atlantic
Incorporated at December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years ended December 31, 1995 and 1994 and the
period October 26, 1993 (inception) through December 31, 1993, in conformity
with generally accepted accounting principles. Also, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Ernst & Young LLP
West Palm Beach, Florida
January 26, 1996 except for
Note 3, as to which the date
is February 5, 1996
F-11
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Real estate................................................ $888,928 $631,260
Less accumulated depreciation.............................. 23,561 8,798
-------- --------
Net investments in real estate......................... 865,367 622,462
Cash and cash equivalents.................................. 6,494 6,262
Other assets............................................... 13,963 9,122
-------- --------
Total assets........................................... $885,824 $637,846
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Line of credit........................................... $190,000 $153,000
Mortgages payable........................................ 118,524 107,347
Accounts payable......................................... 11,030 4,590
Accrued expenses and other liabilities................... 9,332 6,279
-------- --------
Total liabilities...................................... 328,886 271,216
-------- --------
Shareholders' equity:
Common shares (250,000,000 authorized, 55,525,635 issued
and outstanding at December 31, 1995 and 37,133,150
issued and outstanding at December 31, 1994)............ 555 371
Additional paid-in capital............................... 576,547 370,943
Distributions in excess of net earnings.................. (20,164) (4,684)
-------- --------
Total shareholders' equity............................. 556,938 366,630
-------- --------
Total liabilities and shareholders' equity............. $885,824 $637,846
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
(FROM
INCEPTION)
1995 1994 1993
-------- ------- ----------
<S> <C> <C> <C>
Revenues:
Rental income..................................... $103,634 $55,071 $ 156
Interest income................................... 245 149 3
-------- ------- -----
103,879 55,220 159
-------- ------- -----
Expenses:
Rental expenses................................... 28,405 15,921 75
Real estate taxes................................. 9,570 5,595 --
Property management fees paid to affiliate........ 3,475 1,536 --
Depreciation...................................... 15,925 8,770 28
Interest.......................................... 19,042 9,240 --
REIT management fee paid to affiliate............. 6,923 3,671 12
General and administrative........................ 646 266 1
Other............................................. 254 295 5
-------- ------- -----
84,240 45,294 121
-------- ------- -----
Net earnings........................................ $ 19,639 $ 9,926 $ 38
======== ======= =====
Weighted average shares outstanding................. 43,889 24,454 572
======== ======= =====
Net earnings per share.............................. $ 0.45 $ 0.41 $0.07
======== ======= =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON DISTRIBUTIONS
SHARES ADDITIONAL IN EXCESS
AT PAR PAID-IN OF NET
VALUE CAPITAL EARNINGS TOTAL
------ ---------- ------------- --------
<S> <C> <C> <C> <C>
Balances at inception (October 26,
1993)............................... $ -- $ -- $ -- $ --
Net earnings....................... -- -- 38 38
Shares issued...................... 32 31,602 -- 31,634
----- -------- -------- --------
Balances at December 31, 1993........ 32 31,602 38 31,672
Net earnings....................... -- -- 9,926 9,926
Distributions...................... -- -- (14,648) (14,648)
Shares issued...................... 339 339,341 -- 339,680
----- -------- -------- --------
Balances at December 31, 1994........ 371 370,943 (4,684) 366,630
Net earnings....................... -- -- 19,639 19,639
Distributions...................... -- -- (35,119) (35,119)
Shares repurchased................. (75) (83,845) -- (83,920)
Shares issued...................... 259 289,449 -- 289,708
----- -------- -------- --------
Balances at December 31, 1995........ $ 555 $576,547 $(20,164) $556,938
===== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
(FROM
INCEPTION)
1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings................................. $ 19,639 $ 9,926 $ 38
Adjustments to reconcile net earnings to net
cash flow provided (used) by operating
activities:
Depreciation and amortization.............. 17,496 9,480 28
Increase in accounts payable............... 6,440 4,550 39
Increase in accrued expenses and other
liabilities............................... 3,053 6,141 139
Increase in other assets................... (1,393) (3,892) (736)
--------- --------- --------
Net cash flow provided (used) by
operating activities.................... 45,235 26,205 (492)
--------- --------- --------
INVESTING ACTIVITIES:
Real estate investments...................... (264,511) (392,718) (31,005)
Disposition of investment properties, net.... 23,859 -- --
--------- --------- --------
Net cash flow used in real estate
investing activities.................... (240,652) (392,718) (31,005)
--------- --------- --------
FINANCING ACTIVITIES:
Repurchase of shares......................... (83,920) -- --
Proceeds from sale of shares................. 289,708 239,680 31,634
Proceeds from line of credit................. 270,000 166,000 --
Payments on line of credit................... (233,000) (13,000) --
Distributions paid........................... (35,119) (14,648) --
Debt issuance costs incurred................. (5,019) (5,204) --
Principal payments at maturity............... (6,378) -- --
Regularly scheduled principal payments on
mortgages payable........................... (623) (190) --
--------- --------- --------
Net cash flow provided by financing
activities.............................. 195,649 372,638 31,634
--------- --------- --------
Net increase in cash and cash equivalents...... 232 6,125 137
Cash and cash equivalents, beginning of period. 6,262 137 --
--------- --------- --------
Cash and cash equivalents, end of period....... $ 6,494 $ 6,262 $ 137
========= ========= ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of shares as partial consideration
for the purchase of multifamily properties.. $ -- $ 100,000 $ --
Assumption of mortgages payable upon purchase
of multifamily properties................... 24,678 107,537 --
Reduction to mortgages payable upon
disposition of multifamily property......... (6,500) -- --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Security Capital Atlantic Incorporated ("ATLANTIC") is an equity real estate
investment trust organized as a corporation under the laws of the state of
Maryland, which owns, acquires, develops and operates income-producing
multifamily properties in the southeastern United States.
ATLANTIC was formed on October 26, 1993 (inception) and, accordingly, the
1993 statements of earnings and cash flows reflect the results of operations
and cash flows for the period from inception through December 31, 1993.
Principles of Financial Presentation
The accounts of ATLANTIC and its wholly-owned subsidiaries are consolidated
in the accompanying financial statements. All significant intercompany
accounts and transactions have been eliminated in consolidation.
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 assets and 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.
Cash and Cash Equivalents
ATLANTIC considers all cash on hand, demand deposits with financial
institutions and short-term, highly liquid investments with original
maturities of three months or less to be cash equivalents.
Real Estate and Depreciation
Real estate is carried at cost, which is not in excess of net realizable
value. Costs directly related to the acquisition, renovation or development of
real estate are capitalized. Costs incurred in connection with the pursuit of
unsuccessful land or property acquisitions are expensed at the time the
pursuit is abandoned.
Repairs and maintenance are expensed as incurred. Renovations and
improvements are capitalized and depreciated over their estimated useful
lives.
Depreciation is computed over the economic useful lives of depreciable
property on a straight-line basis. Properties are depreciated principally over
the following periods:
<TABLE>
<S> <C>
Buildings and improvements.................................... 20-40 years
Furnishings and other......................................... 2-10 years
</TABLE>
Interest
Periodically, ATLANTIC enters into swap agreements to manage its variable
interest rate exposure. Swap agreements are agreements to exchange interest
rate payment streams based on a notional principal amount. The net rate
differentials to be paid or received are recorded when earned as adjustments
to interest expense in calculating net earnings and funds from operations.
ATLANTIC is exposed to credit loss in the event of nonperformance by the
counterparties to the swap agreements. However, ATLANTIC does not anticipate
nonperformance by the counterparties.
F-16
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
During 1995, 1994, and 1993, the total interest paid in cash on all
outstanding debt was $22,178,000, $9,120,000, and zero, respectively.
ATLANTIC capitalizes interest as part of the cost of real estate projects
under development. Interest capitalized during 1995, 1994, and 1993 aggregated
$4,404,000, $793,000, and zero, respectively.
Cost of Raising Capital
Costs incurred in connection with the issuance of common shares are deducted
from shareholders' equity. Costs incurred in connection with the incurrence or
renewal of debt are capitalized, included with other assets and amortized over
the term of the related loan or renewal term. Amortization of deferred
financing costs included in interest expense for the years ended December 31,
1995, 1994, and 1993 totaled $1,568,000, $707,000, and zero, respectively.
Revenue Recognition
Rental and interest income are recorded on the accrual method of accounting
for financial reporting and tax purposes. Gains on sales of real estate are
recorded when criteria required by Statement of Financial Accounting Standards
No. 66, Accounting for Sales of Real Estate, have been met. A provision for
possible loss is made when collection of receivables is considered doubtful.
Rental Expenses
Rental expenses includes utilities, repairs and maintenance, make-ready,
property insurance, marketing, landscaping, property management fees paid to
unaffiliated companies, on-site personnel and other administrative costs.
Federal Income Taxes
ATLANTIC has made an election to be taxed as a real estate investment trust
under the Internal Revenue Code of 1986, as amended. ATLANTIC believes it
qualifies as a real estate investment trust. Accordingly, no provisions have
been made for federal income taxes in the accompanying financial statements.
Per Share Data
Per share data is computed based upon the weighted average number of common
shares, par value $.01 per share, outstanding during the period.
Reclassifications
Certain of the 1994 financial statements and notes to financial statements
amounts have been reclassified to conform to the 1995 presentation.
F-17
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--REAL ESTATE
Investments in Real Estate
Investments in real estate, at cost, for the years ended December 31, 1995
and 1994, were as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
INVESTMENT UNITS INVESTMENT UNITS
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Operating properties:
Acquired......................... $757,986 15,355 $600,880 11,990
Developed........................ 23,097 468 -- --
-------- ------ -------- ------
781,083 15,823 600,880 11,990
Developments under construction.... 95,293 3,095 20,741 1,212
Developments in planning:
Owned............................ 11,258 1,504(1) 9,639 764(1)
Under control(2)................. -- 3,054(1) -- 1,094(1)
-------- ------ -------- ------
11,258 4,558 9,639 1,858
Land held for future development... 1,294 -- -- --
-------- ------ -------- ------
Total............................ $888,928 23,476 $631,260 15,060
======== ====== ======== ======
</TABLE>
- --------
(1) Unit information is based upon management's estimates and is unaudited.
(2) ATLANTIC's investment as of December 31, 1995 and 1994 for developments
under control was $2.0 million and $1.8 million, respectively, and is
reflected in the "Other assets" caption of ATLANTIC's balance sheets.
At December 31, 1995, ATLANTIC had unfunded commitments for developments
under construction of $86.6 million, for a total completed construction cost
of $181.9 million. Costs for developments in planning shown above are
primarily for land acquisitions.
During January 1996, ATLANTIC acquired two of the land parcels included in
"Developments in planning-Under control" as of December 31, 1995. These two
developments represent an estimated 469 units with an aggregate estimated
development cost of $23.8 million.
The change in investments in real estate, at cost, for the years ended
December 31, 1995, 1994, and 1993 consisted of the following (in thousands):
<TABLE>
<CAPTION>
(FROM
INCEPTION)
1995 1994 1993
-------- -------- ----------
<S> <C> <C> <C>
Beginning balances......................... $631,260 $ 31,005 $ --
Acquisitions and renovation expenditures... 187,267 571,288 29,591
Development expenditures, including land
acquisitions.............................. 101,335 28,967 1,414
Dispositions............................... (30,934) -- --
-------- -------- -------
Ending balances............................ $888,928 $631,260 $31,005
======== ======== =======
</TABLE>
Gains and Losses from Sales of Real Estate
ATLANTIC develops and acquires multifamily properties with a view to
effective long term operation and ownership. Based upon ATLANTIC's market
research and in an effort to optimize its portfolio allocation, ATLANTIC may
from time to time seek to dispose of assets that in management's view do not
meet
F-18
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ATLANTIC's long term investment criteria and redeploy the proceeds therefrom,
preferably through like kind exchanges, into assets that it believes provide
better long term growth opportunities. ATLANTIC disposed of two properties in
the fourth quarter of 1995. The proceeds from these dispositions were not
materially different from the book value of the assets on the date of
disposition.
Properties are periodically evaluated for impairment and provisions for
possible losses are made if required. Statement of Financial Accounting
Standards No.121, Accounting For The Impairment Of Long-Lived Assets And For
Long-Lived Assets To Be Disposed Of, will be adopted by ATLANTIC, as required,
effective January 1, 1996. In the opinion of ATLANTIC's management, the
adoption of this accounting standard will not have a material impact on the
financial statements as of the date of adoption.
NOTE 3--LINE OF CREDIT AND MORTGAGES PAYABLE
Line of Credit
ATLANTIC has a $300 million revolving line of credit with Morgan Guaranty
Trust Company of New York, as agent for a group of lenders ("MGT"). Borrowings
bear interest at prime, or at ATLANTIC's option, LIBOR plus 1.75% or the
certificate of deposit rate (as defined) plus 1.875%. Additionally, there is a
commitment fee of .1875% per annum on the average unfunded line of credit
balance. The line is collateralized by multifamily properties having an
aggregate undepreciated cost of $487,790,000 at December 31, 1995. Subsequent
to December 31, 1995, the line of credit agreement was amended to reduce the
interest on borrowings to LIBOR plus 1.50% or the certificate of deposit rate
(as defined) plus 1.625%.
The MGT line of credit matures June 1997 and may be extended for one year
with the approval of MGT and other participating lenders. All debt incurrences
are subject to certain covenants. ATLANTIC must maintain a debt to tangible
net worth ratio of not greater than 2 to 1 and an adjusted net worth (as
defined) of at least $325 million. ATLANTIC's interest payment coverage (as
defined) is required to be not less than 2 to 1. Restricted payments or
distributions (as defined) may not exceed 95% of ATLANTIC's funds from
operations (as defined) for the preceding four quarters. ATLANTIC is in
compliance with all such covenants.
A summary of ATLANTIC's line of credit borrowings for the years ended
December 31, 1995 and 1994 (none in 1993) is as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Total line of credit.................................. $300,000 $225,000
Borrowings outstanding at December 31................. 190,000 153,000
Weighted average daily borrowings..................... 178,318 127,957
Maximum borrowings outstanding at any month end....... 252,000 153,000
Weighted average daily interest rate.................. 7.92% 7.34%
Weighted average interest rate at December 31......... 7.73% 8.17%
</TABLE>
In August 1995, ATLANTIC entered into a swap agreement with Goldman Sachs
Capital Markets, L.P. covering $100 million of borrowings under the line of
credit. Under this one-year agreement which became effective on February 5,
1996, ATLANTIC pays a fixed rate of interest of 7.71%. By entering into this
swap agreement, ATLANTIC has effectively mitigated a significant portion of
the variable interest rate exposure associated with the line of credit.
F-19
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Mortgages Payable
Mortgages payable consisted of the following at December 31, 1995 (dollar
amounts in thousands):
<TABLE>
<CAPTION>
PERIODIC
INTEREST MATURITY PAYMENT PRINCIPAL
PROPERTY RATE DATE TERMS BALANCE
-------- -------- -------- ---------------- ---------
<S> <C> <C> <C> <C>
Conventional fixed rate:
Cahaba Forest II............ 7.125% 03/01/29 fully amortizing $ 8,083
Country Place Village I..... 7.750% 11/01/00 (1) 2,038
Longwood Villas............. 8.750% 04/01/24 fully amortizing 6,402
--------
16,523
--------
Tax exempt fixed rate or
variable rate subject to swap
agreements(2)(3):
Cameron Brook............... (4) 06/01/25 interest only 19,500
Cameron Station............. 6.0% 06/01/07 interest only 14,500
Clairmont Crest............. (4) 06/01/25 interest only 11,600
Forestwood.................. (4) 06/01/25 interest only 11,485
Foxbridge................... (4) 06/01/25 interest only 10,400
The Greens.................. (4) 06/01/25 interest only 10,400
Parrot's Landing............ (4) 06/01/25 interest only 15,835
Sun Pointe Cove............. (4) 06/01/25 interest only 8,500
Less amounts held in
principal reserve fund(3).. (219)
--------
102,001
--------
$118,524
========
Total annual weighted aver-
age
interest rate.............. 6.67%
========
</TABLE>
- --------
(1) Interest and principal payment due monthly; balloon payment of $1,845,000
due at maturity.
(2) These properties, in addition to others, are held by Security Capital
Atlantic Multifamily Incorporated, a wholly-owned subsidiary of ATLANTIC.
Security Capital Atlantic Multifamily Incorporated is a legal entity that
is separate and distinct from ATLANTIC with separate assets and
liabilities and business operations.
(3) ATLANTIC has a thirty-year credit enhancement agreement with the Federal
National Mortgage Association related to eight tax exempt bond issues.
This credit enhancement agreement requires ATLANTIC to make monthly
payments on each mortgage, based upon a thirty-year amortization, into a
principal reserve account.
(4) Interest rate is fixed through swap agreements executed in conjunction
with the credit enhancement agreement with the Federal National Mortgage
Association discussed below.
ATLANTIC has effectively mitigated its variable rate debt exposure by
entering into swap agreements covering seven variable rate bond issues
included in ATLANTIC's credit enhancement agreement with the Federal National
Mortgage Association ("Fannie Mae"). Under these swap agreements, ATLANTIC
pays and receives interest on the aggregate principal amount of the underlying
bonds outstanding, net of the amount held in the principal reserve account.
These agreements effectively change ATLANTIC's variable interest rate exposure
on the $23.1 million of bonds included in the seven-year swap agreement with
General Re Financial
F-20
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Products Corporation to a fixed interest rate of 5.18% (excluding the cost of
the credit enhancement agreement) and to a fixed interest rate of 5.42%
(excluding the cost of the credit enhancement agreement) on the $64.6 million
of bonds included in the ten-year swap agreement with Morgan Guaranty Trust
Company of New York. The annual weighted average interest rate received by
ATLANTIC under the swap agreement was 3.89%. To the extent the deposits in the
principal reserve account have not been used to redeem any of the outstanding
bonds, ATLANTIC pays interest on that portion of bonds outstanding equivalent
to the balance in the principal reserve fund at the variable rates as provided
by the mortgage agreements. In 1995, the interest paid under the swap
agreements was $575,000 greater than the interest received.
The mortgages that secure the tax exempt bond issues contain certain
covenants which require that a minimum percentage of units (generally 20% to
30%) be rented to individuals whose income does not exceed levels specified by
U.S. Government programs. The Fannie Mae credit enhancement agreement contains
additional covenants. ATLANTIC is in compliance with all such covenants.
Real estate with an aggregate undepreciated cost at December 31, 1995 of
$23,342,000 and $172,079,000 serves as collateral for the conventional
mortgages payable and the tax exempt mortgages, respectively. Based on
prevailing market borrowing rates, the fair value of the mortgages payable was
not materially different from the book value at December 31, 1995.
The change in mortgages payable for the years ended December 31, 1995 and
1994 (none in 1993) is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Balances at January 1................................ $107,347 $ --
Mortgages assumed.................................... 24,678 107,537
Principal payments at maturity....................... (6,378) --
Regularly scheduled principal payments............... (623) (190)
Reduction to mortgages payable upon disposition of
multifamily property................................ (6,500) --
-------- --------
Balances at December 31.............................. $118,524 $107,347
======== ========
</TABLE>
Approximate principal payments due on mortgages payable during each of the
years in the five-year period ending December 31, 2000 and thereafter are as
follows (in thousands):
<TABLE>
<S> <C>
1996............................................................. $ 962
1997............................................................. 1,046
1998............................................................. 1,137
1999............................................................. 1,235
2000............................................................. 3,184
Thereafter....................................................... 110,960
--------
$118,524
========
</TABLE>
F-21
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--DISTRIBUTIONS
ATLANTIC made total distributions of $.80 per share in 1995 and $.60 per
share in 1994. No distributions were made in 1993. On December 19, 1995, the
Board of Directors of ATLANTIC proposed an annualized distribution level of
$.84 per share in 1996.
For federal income tax purposes, the following summarizes the taxability of
distributions paid for 1994, and the estimated taxability for 1995:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1995 1994
------ ------
<S> <C> <C>
Per share:
Ordinary income........................................... $ .46 $ .46
Return of capital......................................... .34 .14
------ ------
Total................................................... $ .80 $ .60
====== ======
</TABLE>
ATLANTIC's tax return for the year ended December 31, 1995 has not been
filed. The taxability information for 1995 is based upon the best available
data. ATLANTIC's tax returns have not been examined by the Internal Revenue
Service and, therefore, the taxability of dividends is subject to change.
NOTE 5--SHAREHOLDERS' EQUITY
Shares Authorized
At December 31, 1995, 250,000,000 shares of common stock, $0.01 par value
per share, were authorized. ATLANTIC's Board of Directors is authorized to
issue, from the authorized but unissued shares of ATLANTIC, preferred shares
in series and to establish from time to time the number of preferred shares to
be included in such series and to fix the designation and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms and conditions of redemption of the
shares of each series.
Ownership Restrictions and Significant Shareholder
ATLANTIC's Articles of Incorporation restrict beneficial ownership (or
ownership generally attributed to a person under the REIT tax rules) of
ATLANTIC's outstanding common shares by a single person, or persons acting as
a group, to 9.8% of ATLANTIC's common shares.
The purpose of this provision is to assist in protecting and preserving
ATLANTIC's REIT status and to protect the interest of shareholders in takeover
transactions by preventing the acquisition of a substantial block of shares
unless the acquiror makes a cash tender offer for all outstanding shares. For
ATLANTIC to qualify as a REIT under the Internal Revenue Code of 1986, as
amended, not more than 50% in value of its outstanding capital shares may be
owned by five or fewer individuals at any time during the last half of
ATLANTIC's taxable year. The provision permits five persons to individually
acquire up to a maximum of 9.8% each of the common shares, or an aggregate of
49% of the outstanding common shares and, thus, assists the Directors in
protecting and preserving ATLANTIC's REIT status for tax purposes.
Common shares owned by a person or group of persons in excess of these
limits are subject to redemption by ATLANTIC. The provision does not apply
where a majority of the Board of Directors, in its sole and absolute
discretion, waives such limit after determining that the status of ATLANTIC as
a REIT for federal income tax purposes will not be jeopardized or the
disqualification of ATLANTIC as a REIT is advantageous to the shareholders.
F-22
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Board of Directors has permitted Security Capital Group Incorporated
("Security Capital Group"), an affiliate of the REIT Manager (see Note 6) to
acquire more than the stated maximum percentage of shares. Security Capital
Group owned 71.6% of the outstanding common shares at December 31, 1995. For
tax purposes, Security Capital Group's ownership is attributed to its
shareholders.
Capital Offerings
ATLANTIC completed a private offering in August 1994 in order to attain the
100 shareholders necessary to obtain REIT qualification. In the offering,
1,000,000 shares were offered at a price of $10.00 per share. All shares were
subscribed for by 125 persons and were purchased as of August 31, 1994.
ATLANTIC exchanged 10,000,000 shares of common stock at a price of $10 per
share as partial consideration for the acquisition of a pool of properties in
May 1994. The acquisition price was negotiated prior to the seller becoming a
related party. To facilitate ATLANTIC's transactions with the seller, Security
Capital Group granted the seller certain rights to require Security Capital
Group to purchase the 10,000,000 ATLANTIC shares owned by the seller at pre-
agreed prices (the "Put Obligation").
In the second quarter of 1995, ATLANTIC completed a private offering of
14,545,455 shares at $11.00 per share for an aggregate offering price of $160
million. In consideration for Security Capital Group purchasing $60 million of
shares in this offering, and to permit greater participation by other
investors in this offering, ATLANTIC assumed Security Capital Group's first
Put Obligation to purchase $55 million of ATLANTIC shares owned by the holder
of the Put Obligation. ATLANTIC purchased 5,000,000 shares on March 31, 1995
at $11.00 per share with a portion of the net proceeds from this offering.
ATLANTIC began a private offering in the fourth quarter of 1995. In
connection with this offering ATLANTIC sold 11,391,030 shares; 8,891,030
shares at $11.50 per share and 2,500,000 shares at $11.568 per share, for an
aggregate total of $131.2 million. In consideration for Security Capital
Group's purchase of $50 million of shares in this offering, ATLANTIC assumed
Security Capital Group's Put Obligation and purchased $28.9 million of
ATLANTIC shares owned by the holder of the Put Obligation; 2,500,000 shares at
$11.568 per share.
In December 1995, the holder of the Put Obligation provided notice of its
intent to require Security Capital Group to purchase the remaining Put
Obligation on June 30, 1996. The remaining Put Obligation consists of
2,500,000 shares at $12.265 per share.
Merger/Share Conversion
On April 22, 1994, ATLANTIC, which was previously a Delaware corporation,
was merged with and into a newly formed Maryland corporation so as to change
ATLANTIC's state of domicile to Maryland. Each issued and outstanding ATLANTIC
share was converted into one hundred (100) shares in such merger. All share
and per share information in the financial statements have been adjusted to
retroactively reflect the share conversion. An amount equal to the par value
of the shares issued was transferred from additional paid-in capital to the
common share account.
NOTE 6--REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS
Effective June 30, 1995, ATLANTIC entered into an amended and restated REIT
management agreement (the "REIT Management Agreement") with Security Capital
(Atlantic) Incorporated (the "REIT Manager") to provide management services to
ATLANTIC. The REIT Manager is a subsidiary of Security Capital Group (see Note
5). All officers of ATLANTIC are employees of the REIT Manager and ATLANTIC
has no employees. 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.
F-23
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
The REIT Management Agreement requires ATLANTIC to pay an annual fee of 16%
of cash flow, as defined in the REIT Management Agreement ("Cash Flow"). Cash
Flow is calculated by reference to ATLANTIC's cash flow from operations before
deducting (i) fees paid to the REIT Manager, (ii) extraordinary expenses
incurred at the request of the independent Directors of ATLANTIC, and (iii)
33% of any interest paid by ATLANTIC on convertible subordinated debentures
(of which ATLANTIC has none); and, after deducting (i) regularly scheduled
principal payments (excluding prepayments or balloon payments) for debt with
commercially reasonable amortization schedules, (ii) assumed principal and
interest payments on senior unsecured debt treated as having regularly
scheduled principal and interest payments like a 20-year level-payment, fully
amortizing mortgage (of which ATLANTIC has none) and (iii) distributions
actually paid with respect to any non-convertible preferred stock of ATLANTIC
(of which ATLANTIC has none).
Cash Flow does not include realized gains or losses from dispositions of
investments or income from cash equivalent investments. The REIT Manager also
receives a fee of .20% per year on the average daily balance of cash
equivalent investments.
ATLANTIC will also reimburse the REIT Manager for third-party and out-of-
pocket expenses relating to travel, transaction costs, and similar costs
relating to the acquisition, development or disposition of assets or the
obtaining of financing for ATLANTIC and its operations. The REIT Manager will
pay all of its own salary and other overhead expenses. ATLANTIC will not have
any employee expense; however, it will pay all of the third-party costs
related to its normal operations, including legal, accounting, travel,
architectural, engineering, shareholder relations, unaffiliated directors fees
and similar expenses.
The REIT Management Agreement is renewable by ATLANTIC annually, subject to
a determination by the independent Directors that the REIT Manager's
performance has been satisfactory and that the compensation payable to the
REIT Manager is fair. ATLANTIC may terminate the REIT Management Agreement on
60-days notice. Because of the year-to-year nature of the agreement, its
maximum effect on ATLANTIC's results of operations cannot be predicted, other
than that REIT management fees will generally increase or decrease in
proportion to cash flow increases or decreases.
SCG Realty Services Incorporated ("Realty Services") began managing
properties for ATLANTIC on May 12, 1994 and currently manages approximately
82% of ATLANTIC's multifamily properties. Security Capital Group owns 100% of
Realty Services' voting shares.
The property management agreement, like the REIT Management Agreement, is
renewable annually and subject to the approval of ATLANTIC's independent
Directors. The property management agreement can be terminated by ATLANTIC on
30-days notice. Rates for services performed by Realty Services are subject to
approval by ATLANTIC's independent Directors and are at rates prevailing in
the markets in which ATLANTIC operates.
F-24
<PAGE>
NOTE 7--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data (in thousands except for per share
amounts) for 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
3-31 6-30 9-30 12-31 TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1995:
Rental income....................... $22,952 $24,330 $26,969 $29,383 $103,634
======= ======= ======= ======= ========
Net earnings........................ $ 4,175 $ 4,956 $ 5,333 $ 5,175 $ 19,639
======= ======= ======= ======= ========
Net earnings per share.............. $ 0.11 $ 0.11 $ 0.11 $ 0.11 $ 0.45
======= ======= ======= ======= ========
Funds from operations............... $ 8,123 $ 9,058 $ 9,776 $10,178 $ 37,135
======= ======= ======= ======= ========
Weighted average shares............. 37,133 43,284 46,679 48,306 43,889
======= ======= ======= ======= ========
1994:
Rental income....................... $ 1,400 $ 9,730 $21,721 $22,220 $ 55,071
======= ======= ======= ======= ========
Net earnings........................ $ 504 $ 2,305 $ 3,753 $ 3,364 $ 9,926
======= ======= ======= ======= ========
Net earnings per share.............. $ 0.13 $ 0.12 $ 0.10 $ 0.09 $ 0.41
======= ======= ======= ======= ========
Funds from operations............... $ 714 $ 3,995 $ 7,266 $ 7,431 $ 19,406
======= ======= ======= ======= ========
Weighted average shares............. 3,781 19,977 36,459 37,133 24,454
======= ======= ======= ======= ========
</TABLE>
NOTE 8--COMMITMENTS AND CONTINGENCIES
ATLANTIC is a party to various claims and routine litigation arising in the
ordinary course of business. ATLANTIC does not believe that the claims and
litigation, individually or in the aggregate, will have a material adverse
effect on its business, financial position, or results of operations.
ATLANTIC is subject to environmental regulations related to the ownership,
operation, development, and acquisition of real estate. As part of its due
diligence procedures, ATLANTIC has conducted Phase I environmental assessments
on each property prior to acquisition. The cost of complying with
environmental regulations was not material to ATLANTIC's results of
operations. ATLANTIC is not aware of any environmental condition on any of its
properties which is likely to have a material adverse effect on ATLANTIC's
financial position or results of operations.
F-25
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT
TO ATLANTIC COSTS DECEMBER 31, 1995
-------------------- CAPITALIZED --------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED
MUTIFAMILY PROPERTIESL BRANCES LAND IMPROVEMENTS LANDACQUISIMPROVEMENTSITION (C) DEPRECIATION
- ---------------------- ------- ------ ------------- ------------- ---------- --------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING
PROPERTIES:
Properties
acquired:
Atlanta, Georgia:
Azalea Park..... $ -- $3,717 $21,076 $ 70 $ 3,717 $ 21,146 $ 24,863 $ 94
Camden at
Ashford......... (a) 3,672 20,841 277 3,672 21,118 24,790 960
Camden at
Briarcliff...... (b) 2,105 11,953 149 2,105 12,102 14,207 557
Camden at
Dunwoody........ (a) 2,486 14,114 197 2,486 14,311 16,797 650
Camden Creek.... (a) 3,627 20,589 215 3,627 20,804 24,431 913
Camden Crest.... (a) 3,525 20,009 215 3,525 20,224 23,749 884
Cameron Brook... 19,500 3,318 18,784 301 3,318 19,085 22,403 764
Cameron Forest.. -- 884 5,008 -- 884 5,008 5,892 11
Cameron Place... -- 1,124 6,372 -- 1,124 6,372 7,496 14
Cameron Station. 14,500 2,338 13,246 -- 2,338 13,246 15,584 --
Clairmont Crest. 11,600 1,603 9,102 223 1,603 9,325 10,928 371
Lake Ridge...... (a) 2,001 11,359 2,690 2,001 14,049 16,050 654
Lenox Villa..... (a) 1,740 9,878 199 1,740 10,077 11,817 441
Morgan's
Landing......... (a) 1,168 6,646 462 1,168 7,108 8,276 400
Oaks at Sandy
Springs......... (a) 1,270 7,212 972 1,270 8,184 9,454 454
Old Salem....... (a) 1,053 6,144 624 1,053 6,768 7,821 295
The Greens...... 10,400 2,004 11,354 363 2,004 11,717 13,721 471
Trolley Square.. -- 2,031 11,528 196 2,031 11,724 13,755 563
Vinings Landing. (a) 1,363 7,902 515 1,363 8,417 9,780 378
WintersCreek.... -- 1,133 6,434 75 1,133 6,509 7,642 68
Woodlands....... (a) 3,785 21,471 96 3,785 21,567 25,352 178
Birmingham,
Alabama:
Cahaba Forest I. (a) 1,020 5,784 173 1,020 5,957 6,977 116
Cahaba Forest
II.............. 8,083 1,688 9,580 272 1,688 9,852 11,540 192
Colony Woods I.. (a) 1,560 8,845 149 1,560 8,994 10,554 406
Morning Sun
Villas.......... (a) 1,260 7,309 548 1,260 7,857 9,117 335
Charlotte, North
Carolina:
Camden Oaks..... (a) 2,255 12,800 189 2,255 12,989 15,244 601
Columbia, South
Carolina:
Greenbrier...... (a) 2,165 12,293 170 2,165 12,463 14,628 606
<CAPTION>
CONSTRUCTION YEAR
MUTIFAMILY PROPERTIESL YEAR ACQUIRED
- ---------------------- ------------ --------
<S> <C> <C>
OPERATING
PROPERTIES:
Properties
acquired:
Atlanta, Georgia:
Azalea Park..... 1987 1995
Camden at
Ashford......... 1990 1994
Camden at
Briarcliff...... 1989 1994
Camden at
Dunwoody........ 1989 1994
Camden Creek.... 1988 1994
Camden Crest.... 1988 1994
Cameron Brook... 1988 1994
Cameron Forest.. 1981 1995
Cameron Place... 1979 1995
Cameron Station. (e) 1995
Clairmont Crest. 1987 1994
Lake Ridge...... 1979 1993
Lenox Villa..... 1988 1994
Morgan's
Landing......... 1983 1993
Oaks at Sandy
Springs......... 1965 1993
Old Salem....... 1968 1994
The Greens...... 1986 1994
Trolley Square.. 1989 1994
Vinings Landing. 1978 1994
WintersCreek.... 1984 1995
Woodlands....... (f) 1995
Birmingham,
Alabama:
Cahaba Forest I. 1987 1995
Cahaba Forest
II.............. 1990 1995
Colony Woods I.. 1991 1994
Morning Sun
Villas.......... 1985 1994
Charlotte, North
Carolina:
Camden Oaks..... 1989 1994
Columbia, South
Carolina:
Greenbrier...... 1989 1994
</TABLE>
(see notes following table)
F-26
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT
TO ATLANTIC COSTS DECEMBER 31, 1995
-------------------- CAPITALIZED --------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED
MUTIFAMILY PROPERTIESL BRANCES LAND IMPROVEMENTS LANDACQUISIMPROVEMENTSITION (C) DEPRECIATION
- ---------------------- ------- ------ ------------- ------------- ---------- --------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cypress Lakes... $ (a) $1,225 $ 6,961 $147 $ 1,225 $ 7,108 $ 8,333 $ 78
Parrot's
Landing......... 15,835 2,691 15,276 399 2,691 15,675 18,366 635
Spencer Run..... (b) 2,852 16,194 392 2,852 16,586 19,438 670
Sun Pointe Cove. 8,500 1,367 7,773 190 1,367 7,963 9,330 326
Trails at Meadow
Lakes........... (a) 1,285 7,293 124 1,285 7,417 8,702 81
Ft. Myers,
Florida:
Forestwood...... 11,485 2,031 11,540 167 2,031 11,707 13,738 486
Jacksonville,
Florida:
Bay Club........ (a) 1,789 10,160 168 1,789 10,328 12,117 477
Memphis,
Tennessee:
Cameron at Kirby
Parkway......... (a) 1,386 7,959 674 1,386 8,633 10,019 429
Stonegate....... (a) 985 5,608 288 985 5,896 6,881 183
Miami, Florida:
Park Hill....... (a) 1,650 9,377 212 1,650 9,589 11,239 372
Nashville,
Tennessee:
Arbor Creek..... (a) -- 17,671 404 -- 18,075 18,075 784
Enclave at
Brentwood....... (a) 2,263 12,847 621 2,263 13,468 15,731 229
Orlando, Florida:
Camden Springs.. (a) 2,477 14,072 710 2,477 14,782 17,259 648
Cedar Bay
Village......... (b) 255 1,454 13 255 1,467 1,722 16
Kingston
Village......... (a) 876 4,973 48 876 5,021 5,897 56
Longwood Villas. 6,402 1,087 6,317 675 1,087 6,992 8,079 281
Wellington...... (b) 1,155 6,565 235 1,155 6,800 7,955 275
Raleigh, North
Carolina:
Camden Square... (a) 2,314 13,143 434 2,314 13,577 15,891 587
Richmond,
Virginia:
Camden at
Wellesley....... (a) 2,878 16,339 143 2,878 16,482 19,360 769
Potomac Hunt.... (b) 1,486 8,452 142 1,486 8,594 10,080 229
Sarasota,
Florida:
Camden at Palmer
Ranch........... (a) 3,534 20,057 381 3,534 20,438 23,972 908
Tampa/St.
Petersburg,
Florida:
Camden Downs.... (a) 1,840 10,447 206 1,840 10,653 12,493 483
Cameron Lakes... (a) 1,126 6,418 999 1,126 7,417 8,543 157
<CAPTION>
CONSTRUCTION YEAR
MUTIFAMILY PROPERTIESL YEAR ACQUIRED
- ---------------------- ------------ --------
<S> <C> <C>
Ft.
Lauderdale/West
Palm Beach,
Florida:
Cypress Lakes... 1987 1995
Parrot's
Landing......... 1986 1994
Spencer Run..... 1987 1994
Sun Pointe Cove. 1986 1994
Trails at Meadow
Lakes........... 1983 1995
Ft. Myers,
Florida:
Forestwood...... 1986 1994
Jacksonville,
Florida:
Bay Club........ 1990 1994
Memphis,
Tennessee:
Cameron at Kirby
Parkway......... 1985 1994
Stonegate....... 1986 1994
Miami, Florida:
Park Hill....... 1968 1994
Nashville,
Tennessee:
Arbor Creek..... 1986 1994
Enclave at
Brentwood....... 1988 1995
Orlando, Florida:
Camden Springs.. 1986 1994
Cedar Bay
Village......... 1981 1995
Kingston
Village......... 1982 1995
Longwood Villas. 1982 1994
Wellington...... 1988 1994
Raleigh, North
Carolina:
Camden Square... 1987 1994
Richmond,
Virginia:
Camden at
Wellesley....... 1989 1994
Potomac Hunt.... 1987 1994
Sarasota,
Florida:
Camden at Palmer
Ranch........... 1988 1994
Tampa/St.
Petersburg,
Florida:
Camden Downs.... 1988 1994
Cameron Lakes... 1986 1995
</TABLE>
(see notes following table)
F-27
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT
TO ATLANTIC COSTS DECEMBER 31, 1995
---------------------- CAPITALIZED ------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED
MLTIFAMILY PROPERTIESU BRANCES LAND IMPROVEMENTS LAND ACQUIIMPROVEMENTSSITIO(C)N DEPRECIATION
- ---------------------- -------- -------- ------------- ------------- ---------- ------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tampa/St.
Petersburg,
Florida:
(continued)
Country Place
Village I....... $ 2,038 $ 567 $ 3,219 $ 68 $ 567 $ 3,287 $ 3,854 $ 36
Country Place
Village II...... (a) 644 3,658 56 644 3,714 4,358 41
Foxbridge....... 10,400 1,591 9,036 258 1,591 9,294 10,885 383
Summer Chase.... (b) 542 3,094 87 542 3,181 3,723 130
Washington, D.C.:
Arbors at
Landmark........ (a) 3,434 19,501 579 3,434 20,080 23,514 941
Camden at
Kendall Ridge... (a) 1,708 9,698 195 1,708 9,893 11,601 467
Camden at
Saybrooke....... (a) 2,802 15,906 127 2,802 16,033 18,835 740
Sheffield
Forest.......... -- 2,269 12,859 2,269 12,859 15,128 29
Less amounts held
in principal
reserve fund(d).. (219) -- -- -- -- -- -- --
-------- -------- -------- ------- ---------- ---------- ---------- -------
Total operating
properties
acquired........ $118,524 $108,004 $631,500 $18,482 $ 108,004 $ 649,982 $ 757,986 $23,302
======== ======== ======== ======= ========== ========== ========== =======
PROPERTIES
DEVELOPED:
Birmingham,
Alabama:
Colony Woods II. -- 1,254 -- 9,252 1,298 9,208 10,506 59
Charlotte, North
Carolina:
Waterford Hills. -- 1,508 -- 11,083 1,508 11,083 12,591 114
-------- -------- -------- ------- ---------- ---------- ---------- -------
Total operating
properties
developed....... $ -- $ 2,762 $ -- $20,335 $ 2,806 $ 20,291 $ 23,097 $ 173
-------- -------- -------- ------- ---------- ---------- ---------- -------
TOTAL OPERATING
PROPERTIES...... $118,524 $110,766 $631,500 $38,817 $ 110,810 $ 670,273 $ 781,083 $23,475
======== ======== ======== ======= ========== ========== ========== =======
DEVELOPMENTS
UNDER
CONSTRUCTION:
Atlanta, Georgia:
Camden Creek II. -- 2,730 -- 5,553 2,772 5,511 8,283 --
Peachtree
Corners......... -- 889 -- 310 889 310 1,199 --
Charlotte, North
Carolina:
Waterford
Square.......... -- 1,890 -- 16,020 2,041 15,869 17,910 26
Jacksonville,
Florida:
Cameron Lakes... -- 1,759 -- 10,350 1,897 10,212 12,109 --
Cameron
Timberlin Parc
I............... -- 2,167 -- 1,150 2,169 1,148 3,317 --
Raleigh, North
Carolina:
Waterford
Forest.......... -- 2,371 -- 6,120 2,371 6,120 8,491 --
Waterford Point. -- 985 -- 14,947 1,094 14,838 15,932 60
<CAPTION>
CONSTRUCTION YEAR
MLTIFAMILY PROPERTIESU YEAR ACQUIRED
- ---------------------- ------------ --------
<S> <C> <C>
Tampa/St.
Petersburg,
Florida:
(continued)
Country Place
Village I....... 1982 1995
Country Place
Village II...... 1983 1995
Foxbridge....... 1986 1994
Summer Chase.... 1988 1994
Washington, D.C.:
Arbors at
Landmark........ 1990 1994
Camden at
Kendall Ridge... 1990 1994
Camden at
Saybrooke....... 1990 1994
Sheffield
Forest.......... 1987 1995
Less amounts held
in principal
reserve fund(d)..
Total operating
properties
acquired........
PROPERTIES
DEVELOPED:
Birmingham,
Alabama:
Colony Woods II. 1995(g) 1994
Charlotte, North
Carolina:
Waterford Hills. 1995(g) 1993
Total operating
properties
developed.......
TOTAL OPERATING
PROPERTIES......
DEVELOPMENTS
UNDER
CONSTRUCTION:
Atlanta, Georgia:
Camden Creek II. -- 1994
Peachtree
Corners......... -- 1995
Charlotte, North
Carolina:
Waterford
Square.......... (g) 1994
Jacksonville,
Florida:
Cameron Lakes... (g) 1995
Cameron
Timberlin Parc
I............... -- 1995
Raleigh, North
Carolina:
Waterford
Forest.......... -- 1995
Waterford Point. (g) 1994
</TABLE>
(see notes following table)
F-28
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH CARRIED AT
TO ATLANTIC COSTS DECEMBER 31, 1995
---------------------- CAPITALIZED ------------------------------------
ENCUM- BUILDINGS AND SUBSEQUENT TO BUILDINGS AND TOTALS ACCUMULATED
MLTIFAMILY PROPERTIESU BRANCES LAND IMPROVEMENTS LAND ACQUIIMPROVEMENTSSITIO(C)N DEPRECIATION
- ---------------------- ------- -------- ------------- ------------- ---------- ------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Washington, D.C.:
Milestone....... $ -- $ 5,477 $ -- $ 7,333 $ 5,485 $ 7,325 $ 12,810 $ --
Woodway Trinity. -- 5,342 -- 9,900 5,492 9,750 15,242 --
------- -------- -------- -------- ---------- ---------- ---------- -------
TOTAL
DEVELOPMENTS
UNDER
CONSTRUCTION.... $ -- $ 23,610 $ -- $ 71,683 $ 24,210 $ 71,083 $ 95,293 $ 86
------- -------- -------- -------- ---------- ---------- ---------- -------
DEVELOPMENTS IN
PLANNING:
Charlotte, North
Carolina:
Waterford Square
II.............. -- 2,014 -- 253 2,039 228 2,267 --
Ft.
Lauderdale/West
Palm Beach,
Florida:
Parrot's Landing
II.............. -- 1,328 -- 300 1,342 286 1,628 --
Raleigh, North
Carolina:
Cameron Brooke.. -- 1,353 -- 305 1,378 280 1,658 --
Research
Triangle Park... -- 805 -- 38 805 38 843 --
Richmond,
Virginia:
Cameron at
Wyndham......... -- 2,038 -- 229 2,038 229 2,267 --
Cameron
Crossing........ -- 1,666 -- 343 1,670 339 2,009 --
Tampa/St.
Petersburg,
Florida:
North Airport... -- 511 -- 75 511 75 586 --
------- -------- -------- -------- ---------- ---------- ---------- -------
TOTAL
DEVELOPMENTS IN
PLANNING........ $ -- $ 9,715 $ -- $ 1,543 $ 9,783 $ 1,475 $ 11,258 $ --
------- -------- -------- -------- ---------- ---------- ---------- -------
LAND HELD FOR
FUTURE
DEVELOPMENT:
Jacksonville,
Florida:
Cameron
Timberlin Parc
II.............. -- 1,294 -- -- 1,294 -- 1,294 --
------- -------- -------- -------- ---------- ---------- ---------- -------
TOTAL LAND HELD
FOR FUTURE
DEVELOPMENT..... $ -- $ 1,294 $ -- $ -- $ 1,294 $ -- $ 1,294 $ --
------- -------- -------- -------- ---------- ---------- ---------- -------
TOTAL
MULTIFAMILY
PROPERTIES...... $18,524 $145,385 $631,500 $112,043 $ 146,097 $ 742,831 $ 888,928 $23,561
======= ======== ======== ======== ========== ========== ========== =======
<CAPTION>
CONSTRUCTION YEAR
MLTIFAMILY PROPERTIESU YEAR ACQUIRED
- ---------------------- ------------ --------
<S> <C> <C>
Washington, D.C.:
Milestone....... -- 1995
Woodway Trinity. -- 1994
TOTAL
DEVELOPMENTS
UNDER
CONSTRUCTION....
DEVELOPMENTS IN
PLANNING:
Charlotte, North
Carolina:
Waterford Square
II.............. -- 1995
Ft.
Lauderdale/West
Palm Beach,
Florida:
Parrot's Landing
II.............. -- 1994
Raleigh, North
Carolina:
Cameron Brooke.. -- 1995
Research
Triangle Park... -- 1995
Richmond,
Virginia:
Cameron at
Wyndham......... -- 1995
Cameron
Crossing........ -- 1995
Tampa/St.
Petersburg,
Florida:
North Airport... -- 1995
TOTAL
DEVELOPMENTS IN
PLANNING........
LAND HELD FOR
FUTURE
DEVELOPMENT:
Jacksonville,
Florida:
Cameron
Timberlin Parc
II.............. -- 1995
TOTAL LAND HELD
FOR FUTURE
DEVELOPMENT.....
TOTAL
MULTIFAMILY
PROPERTIES......
</TABLE>
- ----
(a) Pledged to secure $300 million line of credit with Morgan Guaranty Trust
Company of New York.
(b) Pledged as collateral under credit enhancement agreement with the Federal
National Mortgage Association.
(c) For federal income tax purposes, ATLANTIC's aggregate cost of real estate
at December 31, 1995 was $887,671,000.
(d) The Federal National Mortgage Association credit enhancement agreement
requires payments to be made to a principal reserve fund.
(e) Phase I (108 units) was developed in 1981 and Phase II (240 units) was
developed in 1983.
(f) Phase I (332 units) was developed in 1983 and Phase II (312 units) was
developed in 1985.
(g) As of 12/31/95, property was in lease-up.
F-29
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTE TO SCHEDULE III
AS OF DECEMBER 31, 1995
The following is a reconciliation of the carrying amount and related
accumulated depreciation of ATLANTIC's investment in real estate, at cost (in
thousands):
<TABLE>
<CAPTION>
(FROM
INCEPTION)
CARRYING AMOUNT 1995 1994 1993
--------------- -------- -------- ----------
<S> <C> <C> <C>
Beginning balances......................... $631,260 $ 31,005 $ --
Acquisitions and renovation expenditures... 187,267 571,288 29,591
Development expenditures, including land
acquisitions.............................. 101,335 28,967 1,414
Dispositions............................... (30,934) -- --
-------- -------- -------
Ending balances............................ $888,928 $631,260 $31,005
======== ======== =======
<CAPTION>
(FROM
INCEPTION)
ACCUMULATED DEPRECIATION 1995 1994 1993
------------------------ -------- -------- ----------
<S> <C> <C> <C>
Beginning balances......................... $ 8,798 $ 28 $ --
Depreciation for the period................ 15,925 8,770 28
Accumulated depreciation of real estate
sold...................................... (1,162) -- --
-------- -------- -------
Ending balances............................ $ 23,561 $ 8,798 $ 28
======== ======== =======
</TABLE>
F-30
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
PRO FORMA FINANCIAL STATEMENTS
SUMMARY OF PRO FORMA ADJUSTMENTS
(UNAUDITED)
The accompanying unaudited pro forma balance sheet as of March 31, 1996 and
the unaudited pro forma statements of earnings for the three-month period
ended March 31, 1996 and the year ended December 31, 1995 of ATLANTIC reflect:
(i) the acquisition and disposition by ATLANTIC of all properties acquired or
disposed of since December 31, 1994 as if these properties had been acquired
or disposed of as of January 1, 1995; (ii) the assumption and retirement of
mortgage debt associated with the acquisition or disposition of the properties
acquired or disposed of since December 31, 1994 as if this mortgage debt had
been assumed or retired on January 1, 1995; (iii) the sale of ATLANTIC Common
Stock through private placement subsequent to December 31, 1994, necessary to
fund pro forma acquisitions, as if the shares had been issued on January 1,
1995; (iv) the spin-off of the Homestead Village properties as if the Merger
had been consummated on January 1, 1995; and, (v) certain pro forma
adjustments to the historical financial statements of ATLANTIC. For pro forma
purposes, the proceeds from the sale of ATLANTIC Common Stock subsequent to
March 31, 1996 have been used to repay pro forma borrowings on ATLANTIC's line
of credit.
The unaudited pro forma financial statements have been prepared by
management of ATLANTIC and do not purport to be indicative of the results
which would actually have been obtained had the transactions described above
been completed on the dates indicated or which may be obtained in the future.
The pro forma financial statements should be read in conjunction with the
financial statements of ATLANTIC included elsewhere herein.
F-31
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
PRO FORMA BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS (A)
--------------------------------------
ISSUANCE OF
ACQUISITIONS/ COMMON
HISTORICAL DISPOSITIONS SHARES SUBTOTAL HOMESTEAD(D) PRO FORMA
---------- ------------- ----------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Real Estate............. $936,129 $49,771 (a) $ $985,900 $(10,437) $975,463
Less accumulated
depreciation......... 28,364 (699)(a) 27,665 27,665
-------- ------- --------- -------- -------- --------
Net real estate
investments.......... 907,765 50,470 958,235 (10,437) 947,798
Cash and cash
equivalents............ 6,553 (3,553)(b) 3,000 (72) 2,928
Other assets............ 15,000 15,000 (1,817) 13,183
-------- ------- --------- -------- -------- --------
Total assets........ $929,318 $46,917 $ $976,235 $(12,326) $963,909
======== ======= ========= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Line of credit........ $226,000 $40,129 (b) $(118,835)(c) $147,294 $ 36,749 $184,043
Mortgages payable..... 123,291 6,000 (b) 129,291 129,291
Accounts payable...... 16,267 16,267 16,267
Accrued expenses and
other liabilities.... 11,409 118 (a) 11,527 (1,452) 10,075
Deferred revenue...... 6,511 6,511
-------- ------- --------- -------- -------- --------
Total liabilities... 376,967 46,247 (118,835) 304,379 41,808 346,187
-------- ------- --------- -------- -------- --------
Shareholders' Equity:
Common shares
(250,000,000 shares
authorized;
55,569,635 issued in
historical period and
65,903,161 issued on
pro forma basis)..... 556 103 (c) 659 659
Additional paid-in
capital.............. 576,976 118,732 (c) 695,708 695,708
Distributions in
excess of net
earnings............. (25,181) 670 (a) (24,511) (54,134) (78,645)
-------- ------- --------- -------- -------- --------
Total shareholders'
equity............. 552,351 670 118,835 671,856 (54,134) 617,722
-------- ------- --------- -------- -------- --------
Total liabilities
and shareholders'
equity............. $929,318 $46,917 $ 0 $976,235 $(12,326) $963,909
======== ======= ========= ======== ======== ========
</TABLE>
See accompanying notes to pro forma financial statements.
F-32
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
PRO FORMA STATEMENT OF EARNINGS
THREE-MONTH PERIOD ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS(E)
---------------------- --------------------------------
ACQUISITIONS/
ATLANTIC DISPOSITIONS ACQUISITIONS OTHER SUBTOTAL HOMESTEAD(D) PRO FORMA
-------- ------------- --------------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income
Rental income............. $30,809 $2,138 (f) $ $ $32,947 $ (6) $32,941
Interest income........... 72 72 72
------- ------ ----------- ------------ ------- ----- -------
Total income............ 30,881 2,138 33,019 (6) 33,013
------- ------ ----------- ------------ ------- ----- -------
Expenses
Rental expenses........... 11,816 853 (f) 12,669 12,669
Property management fees
paid to affiliate........ 920 78 (f) 998 998
Mortgage interest......... 2,041 120 (f)(g) 2,161 2,161
Depreciation.............. 4,804 (93)(h) 367 (i) 5,078 5,078
Interest on general debt.. 2,301 (563)(q) 1,738 871 2,609
General and
administrative........... 186 186 (18) 168
REIT management fees paid
to affiliate............. 2,124 261 (j) 2,385 (138) 2,247
Other..................... 39 39 39
------- ------ ----------- ------------ ------- ----- -------
Total expenses.......... 24,231 958 367 (302) 25,254 715 25,969
------- ------ ----------- ------------ ------- ----- -------
Net earnings (loss),
excludes gain on
disposition................ $ 6,650 $1,180 $ (367) $ 302 $ 7,765 $(721) $ 7,044
======= ====== =========== ============ ======= ===== =======
Weighted average shares
outstanding................ 55,555 7,159 (p) 62,714 62,714
======= ============ ======= =======
Net earnings per share,
excludes gain on
disposition................ $ 0.12 $ 0.12 $ 0.11
======= ======= =======
</TABLE>
See accompanying notes to pro forma financial statements.
F-33
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
PRO FORMA STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS(E)
---------------------- ---------------------
ACQUISITIONS/
ATLANTIC DISPOSITIONS ACQUISITIONS OTHER SUBTOTAL HOMESTEAD(D) PRO FORMA
-------- ------------- ------------ ------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income
Rental income......... $103,634 $21,488 (f) $ $ $125,122 $ (4) $125,118
Interest income....... 245 245 245
-------- ------- ------- ------ -------- ------- --------
Total income........ 103,879 21,488 125,367 (4) 125,363
-------- ------- ------- ------ -------- ------- --------
Expenses
Rental expenses....... 37,975 9,442 (f) (1,116)(k) 46,301 46,301
Property management
fees paid to
affiliate............ 3,475 954 (f) (107)(l) 4,322 4,322
Mortgage interest..... 7,662 1,104 (f)(m) 8,766 8,766
Depreciation.......... 15,925 (1,052)(h) 3,787 (n) 18,660 18,660
Interest on general
debt................. 11,380 (1,392)(q) 9,988 3,476 13,464
General and
administrative....... 646 646 (63) 583
REIT management fees
paid to affiliate 6,923 1,980 (o) 8,903 (547) 8,356
Other................. 254 254 254
-------- ------- ------- ------ -------- ------- --------
Total expenses...... 84,240 10,448 2,564 588 97,840 2,866 100,706
-------- ------- ------- ------ -------- ------- --------
Net earnings (loss),
excludes gain on
disposition............ $ 19,639 $11,040 $(2,564) $ (588) $ 27,527 $(2,870) $ 24,657
======== ======= ======= ====== ======== ======= ========
Weighted average shares
outstanding............ 43,889 13,561 (p) 57,450 57,450
======== ====== ======== ========
Net earnings per share,
excludes gain on
disposition............ $ 0.45 $ 0.48 $ 0.43
======== ======== ========
</TABLE>
See accompanying notes to pro forma financial statements.
F-34
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO PRO FORMA FINANCIAL STATEMENTS
MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
(a) Represents the acquisition of five properties and the disposition of one
property that occurred subsequent to March 31, 1996 as follows:
<TABLE>
<CAPTION>
AMOUNT
PROPERTY DATE (IN 000'S)
-------- ---- ----------
<S> <C> <C>
Acquisitions:
Cameron at Hickory Grove (formerly Es-
prit).................................... April 10, 1996 $ 8,000
Paces Court............................... April 22, 1996 11,007
Park Place at Turtle Run (formerly Park
Place)................................... April 22, 1996 14,355
Pointe at Bayberry Lake................... May 29, 1996 16,650
Cameron Pointe............................ May 30, 1996 14,450
--------
64,462
--------
Disposition:
Greenbrier................................ April 9, 1996 (14,691)(1)
--------
Net acquisitions........................ $ 49,771
========
</TABLE>
- --------
(1) Greenbrier was sold at a gain of $670,000.
(b) Reflects the application of cash on hand and additional borrowings under
ATLANTIC's line of credit, which were repaid with the proceeds from the
issuance of common stock as discussed in note (c), to fund the pro forma net
acquisitions above. Additionally, reflects ATLANTIC's assumption of a $6
million mortgage note payable upon the purchase of the Cameron at Hickory
Grove property.
(c) Reflects the sale of 10,333,526 common shares ($.01 par value) at a
price of $11.50 subsequent to March 31, 1996. For pro forma purposes, the net
proceeds have been assumed to be used to repay the pro forma borrowings under
ATLANTIC's line of credit as discussed in note (b).
(d) The Transaction will be recorded by ATLANTIC as a sale of its Homestead
Village properties to PTR at fair market value. 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. See "The Transaction--Recommendations of the ATLANTIC Board
and Reasons for the Transaction." ATLANTIC will recognize the Distribution as
a reduction of shareholders' equity.
Since PTR will own over 50% of Homestead immediately after the Merger, the
Transaction will be recorded by PTR as (i) the formation of Homestead as a
wholly-owned subsidiary into which the PTR-Homestead Village Group assets will
be transferred at historical cost; (ii) the acquisition of Homestead Village
net assets of ATLANTIC and SCG (at fair value) for Homestead Securities using
the purchase method of accounting; and (iii) a reduction of shareholders'
equity to reflect the distribution of Homestead Securities owned by PTR to
PTR's shareholders. The historical financial statements of PTR-Homestead
Village Group will become the predecessor of Homestead and the operations of
the SCG-Homestead Village Group and the Atlantic-Homestead Village Group will
be included from the date of acquisition. For a description of certain terms
used in this paragraph, refer to the combined historical financial statements
included in the Homestead Prospectus. The adjustment reflects consummation of
the Merger Agreement and spin-off of ATLANTIC's Homestead Village net assets
as if the closing of the Transaction, contemplated in the accompanying
Information Statement, had occurred on January 1, 1995 as follows:
1) Elimination of the results of operations of ATLANTIC's Homestead Village
properties from the historical financial statements of ATLANTIC for the
three months ended March 31, 1996 and the year ended December 31, 1995.
F-35
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
2) Elimination of the Homestead Village net assets as of March 31, 1996.
3) ATLANTIC's receipt of 4,201,220 shares of Homestead Common Stock with a
value of $51,699,000 in exchange for ATLANTIC's contribution to Homestead.
The value of the Homestead Common Stock was calculated to be approximately
$12.31 per share (the "Assumed Value"). The Assumed Value is based solely
on the estimated fair market value of the net assets contributed by
ATLANTIC, PTR 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. ATLANTIC's constribution
consists of Homestead Village net assets as of March 31, 1996 of
$10,874,000, the Homestead Village assets expected to be acquired prior to
the Closing Date of $18,128,000 and cash of $18,621,000. ATLANTIC's
contribution totals $47,623,000. The $18,128,000 of Homestead assets that
ATLANTIC will contribute consists of land acquisitions subsequent to March
31, 1996 of $9,582,000 and development costs to be incurred from March 31,
1996 to the Closing Date of $8,546,000.
4) ATLANTIC'S receipt of 2,818,517 Homestead Warrants valued at the
difference between the Assumed Value and the Homestead Warrant exercise
price in consideration for ATLANTIC entering into the Funding Commitment
Agreement with Homestead. The value of the Homestead Warrants respresents
commitment fee revenue which is deferred at March 31, 1996. This commitment
fee revenue will be recognized over the life of the loan(s) as a yield
adjustment to interest income at such time as ATLANTIC begins funding its
obligation under the Funding Commitment Agreement.
5) The additional borrowings under ATLANTIC's line of credit necessary to
finance ATLANTIC's contribution to Homestead as of January 1, 1995.
6) Additional interest expense and a corresponding reduction in the REIT
management fee resulting from (i) the additional pro forma borrowings of
$36,749,000 and (ii) the $10,874,000 of borrowings that financed the
Homestead Village net assets contributed by ATLANTIC. Interest related to
the $10,874,000 of borrowings was capitalized in ATLANTIC's historical
financial statements. ATLANTIC's current interest rate of 7.3% is used to
calculate the additional interest expense.
7) The special dividend to ATLANTIC shareholders of all of the Homestead
Securities to be received by ATLANTIC under the Merger Agreement. The
difference between the $51,699,000 of Homestead Common Stock received and
ATLANTIC's basis in the assets contributed to Homestead of $47,623,000 is
reflected as a gain of $4,076,000 in "Distributions in excess of net
earnings" in the accompanying pro forma balance sheet as of March 31, 1996.
(e) The pro forma financial statements do not reflect the funding of
ATLANTIC's obligation of approximately $111,000,000 under the Funding
Commitment Agreement or receipt of the related convertible mortgages of
approximately $98,000,000, as this funding is related to future development
costs of the properties contributed to Homestead. The convertible mortgages
will be recorded at a premium of approximately $13,000,000 which will be
amortized as an adjustment to interest income over the ten-year term of the
mortgages.
(f) All of ATLANTIC's acquisitions subsequent to December 31, 1994 were
acquired from unaffiliated third parties. These acquisitions are described
below:
<TABLE>
<CAPTION>
OCCUPANCY
ACQUISITION ACQUISITION AT DATE OF
PROPERTY DATE LOCATION COST (IN 000'S) UNITS PRODUCT TYPE ACQUISITION
-------- ----------- -------- --------------- ----- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Cameron Lakes........... 2/01/95 Tampa, FL $ 7,544 207 Middle 88.4%
Cahaba Forest I & II.... 3/24/95 Birmingham, AL 18,072 400 Moderate 96.0%
Enclave at Brentwood.... 4/28/95 Nashville, TN 15,110 380 Middle 97.1%
</TABLE>
F-36
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
OCCUPANCY
ACQUISITION ACQUISITION AT DATE OF
PROPERTY DATE LOCATION COST (IN 000'S) UNITS PRODUCT TYPE ACQUISITION
-------- ----------- -------- --------------- ----- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Cameron Villas II (for-
merly Cedar Bay Vil-
lage).................. 7/20/95 Orlando, FL 1,709 42 Moderate 97.6%
Country Place Village
I & II................. 7/20/95 Tampa, FL 8,088 188 Moderate 89.9%
Cypress Lakes........... 7/20/95 Fort Lauderdale, FL 8,186 176 Moderate 93.2%
Kingston Village........ 7/20/95 Orlando, FL 5,849 120 Middle 97.5%
Trails at Meadow Lakes.. 7/20/95 West Palm Beach, FL 8,578 189 Moderate 94.7%
WintersCreek............ 8/01/95 Atlanta, GA 7,567 200 Moderate 99.0%
Woodlands............... 9/01/95 Atlanta, GA 25,256 644 Moderate 96.0%
Azalea Park............. 11/09/95 Atlanta, GA 24,793 447 Moderate 80.1%
Cameron Forest.......... 12/12/95 Atlanta, GA 5,892 152 Moderate 92.8%
Cameron Place........... 12/12/95 Atlanta, GA 7,496 212 Moderate 93.9%
Sheffield Forest........ 12/15/95 Washington, DC 15,128 256 Middle 88.7%
Cameron Station......... 12/19/95 Atlanta, GA 15,584 348 Moderate 95.7%
Cameron at Hickory Grove
(formerly Esprit)...... 4/10/96 Charlotte, NC 8,000 202 Moderate 93.6%
Paces Court............. 4/22/96 Greenville, SC 11,007 234 Middle 91.0%
Park Place at Turtle Run
(formerly Park Place).. 4/22/96 Coral Springs, FL 14,355 350 Moderate 91.7%
Pointe at Bayberry Lake. 5/29/96 Pembroke Pines, FL 16,650 308 Moderate 90.9%
Cameron Pointe.......... 5/30/96 Atlanta, GA 14,450 214 Middle 96.3%
</TABLE>
This adjustment reflects historical: 1) gross income, 2) rental expenses,
and 3) mortgage interest on mortgage debt assumed, if applicable, for all
properties acquired, subsequent to December 31, 1994 for the period January 1,
1995 to the earlier of the respective dates of acquisition, December 31, 1995
or March 31, 1996, as applicable (results of operations after the date of
acquisition are included in ATLANTIC's historical operating results). Reflects
removal from ATLANTIC's historical balances of: 1) gross income, 2) rental
expenses, and 3) mortgage interest on mortgage debt, if applicable, for all
properties disposed of subsequent to December 31, 1994 to the earlier of the
respective dates of disposition, December 31, 1995 or March 31, 1996, as
applicable. The historical gross income and rental expenses relating to the
period prior to ATLANTIC's acquisition, exclude amounts which would not be
comparable to the proposed future operations of the properties such as certain
interest income and income taxes.
F-37
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
The following tables summarizes the historical income and expense amounts
shown on the pro forma statements of earnings (in thousands):
<TABLE>
<CAPTION>
RENTAL
EXPENSES,
EXCLUDING
RENTAL MORTGAGE MORTGAGE
INCOME INTEREST(I) INTEREST
------- ----------- --------
<S> <C> <C> <C>
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
1996:
Group C Properties.......................... $ 1,446 $ 717 $ 120
Other acquisitions in 1996.................. 1,204 471 --
Less: Post acquisition amounts already
included in ATLANTIC's historical
balances............................... -- -- --
Less: Disposition........................... (512) (257) --
------- ------- ------
Net adjustment to ATLANTIC's historical
balances................................. $ 2,138 $ 931 $ 120
======= ======= ======
FOR THE YEAR ENDED DECEMBER 31, 1995:
Group A properties.......................... $14,032 $ 6,398 $ 159
Group B properties.......................... 9,662 4,395 887
Group C properties.......................... 5,876 3,043 480
Other acquisitions in 1995.................. 4,005 1,578 620
Other acquisitions in 1996.................. 4,917 2,110 --
------- ------- ------
Totals for the year....................... 38,492 17,524 2,146
Less: Post acquisition amounts already in-
cluded in ATLANTIC's historical bal-
ances.................................. (10,338) (4,142) (583)
Less: Dispositions.......................... (6,666) (2,986) (459)
------- ------- ------
Net adjustment to ATLANTIC's historical
balances................................. $21,488 $10,396 $1,104
======= ======= ======
</TABLE>
- --------
(i) Includes property management fees and real estate taxes.
The following analysis reconciles the audited information for the Group A
properties, the Group B properties and the Group C properties to the amounts
contained in the pro forma statements of earnings (in thousands):
<TABLE>
<CAPTION>
RENTAL
EXPENSES,
EXCLUDING
RENTAL MORTGAGE MORTGAGE
INCOME INTEREST(I) INTEREST
------- ----------- --------
<S> <C> <C> <C>
Group A Properties: Audited
results of operations for
the year ended December 31,
1994....................... $13,338 $6,330 $159
Adjustment to reflect the
results of operations of
Group A properties for
1995..................... 694(ii) 68(ii) -- (ii)
------- ------ ----
Total 1995 Group A...... $14,032 $6,398 $159
======= ====== ====
Group B Properties: Audited
results of operations for
the nine months ended
September 30, 1995......... $ 7,126 $3,298 $653
Adjustment to reflect
fourth quarter 1995
results of operations of
Group B properties....... 2,536(iii) 1,097(iii) 234(iii)
------- ------ ----
Total 1995 Group B...... $ 9,662 $4,395 $887
======= ====== ====
</TABLE>
F-38
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
RENTAL
EXPENSES,
EXCLUDING
RENTAL MORTGAGE MORTGAGE
INCOME INTEREST(I) INTEREST
------ ----------- --------
<S> <C> <C> <C>
Group C Properties: Audited results of
operations for the year ended December 31,
1995.......................................... $5,876 $3,043 $ --
Adjustment to reflect interest on mortgage
debt assumed................................ -- -- 480
------ ------ -----
Total 1995 Group C......................... $5,876 $3,043 $ 480
====== ====== =====
</TABLE>
- --------
(i) Includes property management fees and real estate taxes.
(ii) Represents incremental income and expense adjustments necessary to
reconcile the 1994 audited results with the 1995 actual results.
(iii) Represents fourth quarter 1995 actual results which are added to the
audited results for the nine months ended September 30, 1995. This
adjustment is necessary to present twelve months of information for
Group B properties.
(g) Reflects pro forma interest expense for the three-month period ended
March 31, 1996 on a $6 million mortgage note which bears interest at 8%. The
mortgage note was assumed in connection with a property acquisition in April
1996.
(h) Represents the removal of depreciation expense recognized on properties
disposed of subsequent to December 31, 1994 which is included in ATLANTIC's
historical balances.
(i) Reflects depreciation expense for the three-month period ended March 31,
1996 for the properties acquired subsequent to March 31, 1996. This
depreciation adjustment is based on ATLANTIC's purchase cost assuming asset
lives of 10 to 40 years. Depreciation is computed using a straight-line
method.
(j) Reflects the additional REIT management fee that would have been
incurred in the three-month period ended March 31, 1996 had the property
acquisitions subsequent to March 31, 1996 occurred on January 1, 1995.
(k) Reflects the difference for the year ended December 31, 1995 between
historical make-ready expense and ATLANTIC's pro forma make-ready expense.
(l) Reflects the difference for the year ended December 31, 1995 between
historical property management fee expense and ATLANTIC's pro forma property
management fee expense.
(m) Reflects pro forma interest expense on mortgage notes payable assumed
subsequent to December 31, 1994 as if these mortgages were assumed by ATLANTIC
on January 1, 1995. The interest rates on the mortgage notes varies from 5.98%
to 7.75%.
(n) Reflects depreciation expense from January 1, 1995 through the
acquisition date for all properties acquired subsequent to December 31, 1994
(depreciation expense after the date of acquisition is included in ATLANTIC's
historical operating results). This depreciation adjustment is based on
ATLANTIC's purchase cost assuming asset lives of 10 to 40 years. Depreciation
is computed using a straight-line method.
(o) Reflects the additional REIT management fee that would have been
incurred in 1995 had the property acquisitions subsequent to December 31, 1994
all occurred on January 1, 1995.
(p) The number of shares used in the calculation of the pro forma per share
data was based on the weighted average number of common shares outstanding
during the period adjusted to give effect to common shares assumed to have
been issued on January 1, 1995 as necessary to complete the property
acquisitions which are all assumed to have been financed with equity proceeds
to the extent mortgage debt was not assumed.
(q) Represents the reduction to interest expense resulting from the pro
forma paydowns on the line of credit. The interest reduction is calculated
using the average daily interest rate for the applicable period (7.61% for
1996 and 7.92% for 1995).
F-39
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying combined Historical Summary of Gross Income
and Direct Operating Expenses (the Historical Summary) of the Group A
Properties described in Note 1 for the year ended December 31, 1994. This
combined Historical Summary is the responsibility of the Group A Properties
management. Our responsibility is to express an opinion on this combined
Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined Historical Summary is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined Historical
Summary. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the
overall presentation of the combined Historical Summary. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Security Capital Atlantic Incorporated as described in the accompanying
Note 1 of the combined Group A Properties and is not intended to be a complete
presentation of the income and expenses of the combined Group A Properties.
In our opinion, the combined Historical Summary of Gross Income and Direct
Operating Expenses referred to above presents fairly, in all material
respects, the combined gross income and direct operating expenses as described
in Note 1 of the combined Group A Properties for the year ended December 31,
1994, in conformity with generally accepted accounting principles.
Ernst & Young LLP
West Palm Beach, Florida
March 5, 1996
F-40
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
GROUP A PROPERTIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1994 AND THE PERIOD FROM JANUARY 1, 1995 THROUGH THE
EARLIER OF JUNE 30, 1995 OR DATE OF ACQUISITION
<TABLE>
<CAPTION>
1995
1994 (UNAUDITED)
----------- -----------
<S> <C> <C>
Gross income:
Rental................................................ $12,951,378 $6,432,457
Other................................................. 387,073 128,010
----------- ----------
Total gross income.................................. 13,338,451 6,560,467
----------- ----------
Direct operating expenses:
Utilities and other property operating expenses....... 3,051,955 1,629,333
Real estate taxes..................................... 1,255,172 589,640
Repairs and maintenance............................... 997,451 573,832
Management fees....................................... 601,533 334,262
Interest on certain obligations assumed............... 159,253 79,905
Advertising........................................... 217,925 93,086
Insurance............................................. 205,648 108,550
----------- ----------
Total direct operating expenses..................... 6,488,937 3,408,608
----------- ----------
Excess of gross income over direct operating expenses... $ 6,849,514 $3,151,859
=========== ==========
</TABLE>
See accompanying notes.
F-41
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
GROUP A PROPERTIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1994 AND THE PERIOD FROM JANUARY 1, 1995 THROUGH THE
EARLIER OF JUNE 30, 1995 OR DATE OF ACQUISITION
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined Historical Summary of Gross Income and Direct Operating
Expenses (the Historical Summary) for the year ended December 31, 1994 and the
Period from January 1, 1995 through the earlier of June 30, 1995 or the date
Security Capital Atlantic Incorporated (the "Company") acquired the property
(the Date of Acquisition) relates to the operations of the following Group A
Properties which were acquired from unaffiliated parties by the Company
between April 1, 1995 and September 30, 1995:
<TABLE>
<CAPTION>
DATE OF ACQUISITION PROPERTY NAME LOCATION ACQUISITION COST
------------------- ------------------------ ------------------------ ----------------
(IN 000'S)
<S> <C> <C> <C>
April 28,
1995 Enclave at Brentwood Nashville, Tennessee $15,110
July 20,
1995 Trails at Meadowlakes West Palm Beach, Florida 8,578
July 20,
1995 Country Place Village I Tampa, Florida 3,786
July 20,
1995 Country Place Village II Tampa, Florida 4,302
July 20,
1995 Kingston Village Orlando, Florida 5,849
July 20,
1995 Cypress Lakes Fort Lauderdale, Florida 8,186
July 20, Cameron Villas II Orlando, Florida 1,709
1995 (formerly Cedar Bay
Village)
August 1,
1995 WintersCreek Atlanta, Georgia 7,567
September
1, 1995 Woodlands I & II Atlanta, Georgia 25,256
</TABLE>
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of the Company. The combined Historical Summary is not intended to be a
complete presentation of combined income and expenses of the Group A
Properties for the year ended December 31, 1994 and the Period from January 1,
1995 through the earlier of June 30, 1995 or Date of Acquisition, as certain
costs such as depreciation, amortization, certain mortgage interest,
professional fees and other costs not directly related to the future
operations of the Group A Properties have been excluded. These costs are not
considered to be direct operating expenses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income from leasing activities consist of lease payments earned from
tenants under lease agreements with terms of one year or less.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
F-42
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
GROUP A PROPERTIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES--(CONTINUED)
Use of Estimates
The preparation of the combined Historical Summary in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined Historical
Summary and accompanying notes. Actual results could differ from those
estimates.
Unaudited Interim Historical Summary
The combined historical summary of gross income and direct operating
expenses for the period from January 1, 1995 through the earlier of June 30,
1995 or the Date of Acquisition is unaudited. In the opinion of management,
all adjustments necessary for a fair presentation of such combined historical
summary have been included. The results of operations for the period are not
necessarily indicative of the Group A Properties future results of operations.
3. RELATED PARTY TRANSACTIONS
Management fees of $601,533 and $334,262 (unaudited) were paid to affiliates
of the prior owners under property management contracts in 1994 and 1995,
respectively.
4. DEBT ASSUMPTION
The Company assumed outstanding debt in connection with the acquisition of
Country Place Village I and WintersCreek.
Country Place Village I
A 7.75% mortgage note with an outstanding balance of $2,051,078 at July 20,
1995 (the date of acquisition) was assumed by the Company. The note, which is
secured by the property, matures on November 1, 2000. The mortgage note
provides for monthly principal and interest payments of $15,862 through
maturity and for a balloon payment of $1,844,613 at maturity.
The mortgage note had an outstanding balance of $2,068,822 at December 31,
1994 and $2,051,078 (unaudited) at June 30, 1995. The Company's assumption of
this mortgage note did not provide for any modification to the original terms,
therefore, interest expense incurred prior to the Company's assumption is
representative of future interest expense. Accordingly, interest expense of
$159,253 for 1994 and $79,905 (unaudited) for 1995 is recognized in the
accompanying combined Historical Summary.
WintersCreek
A variable rate mortgage note securing a $5,000,000 tax-exempt bond issue
was assumed by the Company in connection with the acquisition of WintersCreek
on August 1, 1995. The mortgage note, which is secured by the property,
provides for monthly interest payments at the variable rate with the principal
amount of the bonds due at maturity on October 1, 2004.
Subsequent to the debt assumption, the Company obtained a swap agreement
which provides for interest payments on a fixed rate. On a continuing basis,
the interest expense incurred will differ from the amounts incurred prior to
the Company's assumption of the debt. Accordingly, no interest expense is
recognized in the accompanying combined Historical Summary.
F-43
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying combined Historical Summary of Gross Income
and Direct Operating Expenses (the Historical Summary) of the Group B
Properties described in Note 1 for the period from January 1, 1995 through
September 30, 1995. This combined Historical Summary is the responsibility of
the Group B Properties' management. Our responsibility is to express an
opinion on this combined Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined Historical Summary is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined Historical
Summary. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the
overall presentation of the combined Historical Summary. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Security Capital Atlantic Incorporated as described in the accompanying
Note 1 of the combined Group B Properties and is not intended to be a complete
presentation of the income and expenses of the combined Group B Properties.
In our opinion, the combined Historical Summary of Gross Income and Direct
Operating Expenses referred to above presents fairly, in all material
respects, the combined gross income and direct operating expenses as described
in Note 1 of the combined Group B Properties for the period from January 1,
1995 through September 30, 1995, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
West Palm Beach, Florida
March 5, 1996
F-44
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
GROUP B PROPERTIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
PERIOD FROM JANUARY 1, 1995
THROUGH SEPTEMBER 30, 1995
<TABLE>
<S> <C>
Gross income:
Rental............................................................ $6,825,589
Other............................................................. 300,734
----------
Total gross income.............................................. 7,126,323
----------
Direct operating expenses:
Utilities and other property operating expenses................... 1,685,757
Real estate taxes................................................. 503,766
Repairs and maintenance........................................... 582,710
Management fees................................................... 283,974
Interest on certain obligations assumed........................... 652,500
Advertising....................................................... 157,178
Insurance......................................................... 84,802
----------
Total direct operating expenses................................. 3,950,687
----------
Excess of gross income over direct operating expenses............... $3,175,636
==========
</TABLE>
See accompanying notes.
F-45
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
GROUP B PROPERTIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
PERIOD FROM JANUARY 1, 1995 THROUGH SEPTEMBER 30, 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined Historical Summary of Gross Income and Direct Operating
Expenses (the Historical Summary) for the period from January 1, 1995 to
September 30, 1995, relates to the operations of the following Group B
Properties which were acquired from unaffiliated parties by Security Capital
Atlantic Incorporated (the Company) between October 1, 1995 and December 31,
1995:
<TABLE>
<CAPTION>
ACQUISITION DATE PROPERTY NAME LOCATION ACQUISITION COST
----------------- ---------------- ---------------- ----------------
(IN 000S)
<S> <C> <C> <C>
November 9, 1995 Azalea Park Atlanta, Georgia $24,793
December 12, 1995 Cameron Place Atlanta, Georgia 7,496
December 12, 1995 Cameron Forest Atlanta, Georgia 5,892
December 15, 1995 Sheffield Forest Washington,D.C. 15,128
December 19, 1995 Cameron Station Atlanta, Georgia 15,584
</TABLE>
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration Statement on Form S-11
of the Company. The combined Historical Summary is not intended to be a
complete presentation of combined income and expenses of the Group B
Properties for the period from January 1, 1995 through September 30, 1995, as
certain costs such as depreciation, amortization, certain mortgage interest,
professional fees and other costs not directly related to the future
operations of the Group B Properties have been excluded. These costs are not
considered to be direct operating expenses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income from leasing activities consist of lease payments earned from
tenants under lease agreements with terms of one year or less.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
Use of Estimates
The preparation of the combined Historical Summary in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined Historical
Summary and accompanying notes. Actual results could differ from those
estimates.
F-46
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
GROUP B PROPERTIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES--(CONTINUED)
3. RELATED PARTY TRANSACTIONS
Management fees of $283,974 were paid to affiliates of the prior owners
under property management contracts.
4. DEBT ASSUMPTION
The Company assumed outstanding debt in connection with the acquisition of
Cameron Station and Azalea Park.
Cameron Station
A 6% fixed rate mortgage note securing a $14,500,000 tax-exempt bond issue
was assumed by the Company in connection with the acquisition of Cameron
Station on December 19, 1995. The mortgage note, which is secured by the
property, provides for monthly interest payments with the amount of the bonds
due at maturity on June 1, 2007.
The Company's assumption of this mortgage note did not provide for any
modification to the original terms, therefore, interest expense incurred prior
to the Company's assumption is representative of future interest expense.
Accordingly, interest expense of $652,500 is recognized in the accompanying
combined Historical Summary.
Azalea Park
A 12.76% mortgage note securing a $15,500,000 tax-exempt bond issue was
assumed by the Company in connection with the acquisition of Azalea Park on
November 9, 1995. The mortgage note, which is secured by the property,
provides for monthly interest payments with the principal amount of the bonds
due at maturity on February 1, 2008.
The Company intends to include this bond issue in its existing credit
enhancement agreement which will result in a reduction to the 12.76% interest
rate. On a continuing basis, the interest expense incurred will differ from
the amounts incurred prior to the Company's assumption of the debt.
Accordingly, no interest expense is recognized in the accompanying combined
Historical Summary.
F-47
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Security Capital Atlantic Incorporated
We have audited the accompanying combined Historical Summary of Gross Income
and Direct Operating Expenses (the Historical Summary) of the Group C
Properties described in Note 1 for the year ended December 31, 1995. This
combined Historical Summary is the responsibility of the Group C Properties'
management. Our responsibility is to express an opinion on this combined
Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined Historical Summary is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined Historical
Summary. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the
overall presentation of the combined Historical Summary. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the registration statement on Form S-11
of Security Capital Atlantic Incorporated as described in the accompanying
Note 1 of the combined Group C Properties and is not intended to be a complete
presentation of the income and expenses of the combined Group C Properties.
In our opinion, the combined Historical Summary of Gross Income and Direct
Operating Expenses referred to above presents fairly, in all material
respects, the combined gross income and direct operating expenses as described
in Note 1 of the combined Group C Properties for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
Ernst & Young LLP
West Palm Beach, Florida
April 26, 1996
F-48
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
GROUP C PROPERTIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Gross income:
Rental...................................................... $5,760,923
Other....................................................... 114,949
----------
Total gross income........................................ 5,875,872
----------
Direct operating expenses:
Utilities and other property operating expenses............. 1,279,237
Real estate taxes........................................... 615,907
Repairs and maintenance..................................... 783,851
Management fees............................................. 228,903
Advertising................................................. 88,289
Insurance................................................... 47,163
----------
Total direct operating expenses........................... 3,043,350
----------
Excess of gross income over direct operating expenses......... $2,832,522
==========
</TABLE>
See accompanying notes.
F-49
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
GROUP C PROPERTIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
DECEMBER 31, 1995
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined Historical Summary of Gross Income and Direct Operating
Expenses (the Historical Summary) for the year ended December 31, 1995,
relates to the operations of the following Group C Properties which were
acquired from unaffiliated parties by Security Capital Atlantic Incorporated
(the Company) between January 1, 1996 and April 29, 1996:
<TABLE>
<CAPTION>
ACQUISITION DATE PROPERTY NAME LOCATION ACQUISITION COST
---------------- ------------------------ -------------------------- ----------------
(IN 000S)
<S> <C> <C> <C>
April Charlotte, North Carolina $ 8,000
10, Cameron at Hickory Grove
1996 (formerly Esprit)
April Coral Springs, Florida 14,355
22, Park Place at Turtle Run
1996 (formerly Park Place)
April
22,
1996 Paces Court Greenville, South Carolina 11,007
</TABLE>
The accompanying combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Registration Statement on Form S-11
of the Company. The combined Historical Summary is not intended to be a
complete presentation of combined income and expenses of the Group C
Properties for the year ended December 31, 1995, as certain costs such as
depreciation, amortization, certain mortgage interest, professional fees and
other costs not directly related to the future operations of the Group C
Properties have been excluded. These costs are not considered to be direct
operating expenses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income from leasing activities consist of lease payments earned from
tenants under lease agreements with terms of one year or less.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
Advertising Expense
The cost of advertising is expensed as incurred.
Use of Estimates
The preparation of the combined Historical Summary in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined Historical
Summary and accompanying notes. Actual results could differ from those
estimates.
F-50
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
GROUP C PROPERTIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES--(CONCLUDED)
3. RELATED PARTY TRANSACTIONS
Management fees of $228,903 were paid to affiliates of the prior owners
under property management contracts.
4. DEBT ASSUMPTION
During 1995, the Cameron at Hickory Grove Apartments secured an 8.75%,
interest-only mortgage note with a balance of $6,660,000. The Company assumed
this mortgage note on April 10, 1996 in connection with the acquisition of the
property. Substantial modifications in the terms of the note were made prior
to the assumption by the Company. Therefore, on a continuing basis, the
interest expense incurred will differ from the amounts incurred prior to the
Company's assumption of the debt. Accordingly, no interest expense is
recognized in the accompanying combined Historical Summary.
F-51
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED AUGUST 6, 1996
HOMESTEAD VILLAGE INCORPORATED
PROSPECTUS
-----------
This Prospectus is a part of the Proxy Statement and Prospectus of Security
Capital Pacific Trust ("PTR") and the Information Statement and Prospectus of
Security Capital Atlantic Incorporated ("ATLANTIC") to which this Prospectus is
attached. This Prospectus also constitutes part of the Prospectus of Homestead
Village Incorporated ("Homestead") in connection with the distribution (the
"Distribution") by PTR and 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. Homestead has applied for listing of the
Homestead Common Stock and the Homestead Warrants on the American Stock
Exchange, although no assurance can be given that such application will be
approved.
SEE "RISK FACTORS" AT PAGE A-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 THE
PTR PROXY STATEMENT AND PROSPECTUS OR THE ATLANTIC INFORMATION STATEMENT
AND PROSPECTUS (OF WHICH THIS PROSPECTUS FORMS A PART). 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.
-----------
The date of this Prospectus is August , 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... A-2
RISK FACTORS.............................................................. A-8
Significant Influence of Principal Shareholder.......................... A-8
Limited Operating History............................................... A-8
Risks of Borrowing...................................................... A-8
General Real Estate Investment Risks.................................... A-9
Development Risks....................................................... A-9
Risks Associated with Rapid Growth...................................... A-9
Risks Associated with the Lodging Industry.............................. A-9
Competition in the Lodging Industry..................................... A-10
Need for Additional Capital............................................. A-10
Impact of Environmental Regulations..................................... A-10
Government Regulation and Compliance with Americans with Disabilities
Act.................................................................... A-11
Losses in Excess of Insurance Coverage.................................. A-11
Reliance on Key Personnel............................................... A-11
Limitations on Changes in Control....................................... A-12
Absence of Prior Public Market.......................................... A-13
Shares Eligible for Future Sale......................................... A-13
Absence of Dividends.................................................... A-13
DIVIDEND POLICY........................................................... A-13
CAPITALIZATION............................................................ A-14
HOMESTEAD PRO FORMA SELECTED FINANCIAL INFORMATION........................ A-15
PTR-HOMESTEAD VILLAGE GROUP SELECTED FINANCIAL INFORMATION................ A-17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF PTR-HOMESTEAD VILLAGE GROUP................................ A-18
Overview................................................................ A-18
Environmental Matters................................................... A-18
Liquidity and Capital Resources......................................... A-18
Results of Operations................................................... A-18
ATLANTIC-HOMESTEAD VILLAGE GROUP SELECTED FINANCIAL INFORMATION........... A-20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ATLANTIC-HOMESTEAD VILLAGE GROUP........................... A-21
Overview................................................................ A-21
Environmental Matters................................................... A-21
Liquidity and Capital Resources......................................... A-21
Results of Operations................................................... A-21
SCG-HOMESTEAD VILLAGE GROUP SELECTED FINANCIAL INFORMATION................ A-22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF SCG-HOMESTEAD VILLAGE GROUP................................ A-23
Overview................................................................ A-23
Liquidity and Capital Resources......................................... A-23
Results of Operations................................................... A-23
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS................................................................... A-24
Objectives............................................................... A-24
History.................................................................. A-25
The Facilities........................................................... A-26
Growth and Development Strategy.......................................... A-27
Operating Strategy....................................................... A-27
Homestead Village Properties............................................. A-28
Administrative Services Agreement........................................ A-28
Industry Overview........................................................ A-29
Competition.............................................................. A-30
Environmental Matters.................................................... A-31
Governmental Regulation.................................................. A-31
Trademarks............................................................... A-32
Insurance................................................................ A-32
Employees................................................................ A-32
Legal Proceedings........................................................ A-32
MANAGEMENT................................................................. A-32
Directors and Executive Officers......................................... A-32
Other Officers of Homestead.............................................. A-33
Management Philosophy.................................................... A-35
Committee of the Board................................................... A-36
Management Compensation.................................................. A-36
Long-Term Incentive Plan................................................. A-37
Outside Directors Plan................................................... A-38
RELATIONSHIP WITH SECURITY CAPITAL GROUP INCORPORATED...................... A-38
CERTAIN RELATIONSHIPS AND TRANSACTIONS..................................... A-39
Protection of Business Agreement......................................... A-39
SCG Investor Agreement................................................... A-40
Funding Commitment Agreements............................................ A-40
ATLANTIC and PTR Investor Agreements..................................... A-41
Escrow Agreement......................................................... A-41
Finder's Agreements...................................................... A-42
PRINCIPAL SHAREHOLDERS..................................................... A-43
DESCRIPTION OF HOMESTEAD SECURITIES........................................ A-44
General.................................................................. A-44
Homestead Common Stock................................................... A-44
Preferred Stock.......................................................... A-45
Purchase Rights.......................................................... A-45
Homestead Warrants....................................................... A-47
Convertible Mortgage Notes............................................... A-49
CERTAIN PROVISIONS OF MARYLAND LAW AND OF HOMESTEAD'S CHARTER AND BYLAWS... A-50
Classification of the Homestead Board.................................... A-50
Business Combinations.................................................... A-50
Control Share Acquisitions............................................... A-51
Advance Notice Provisions................................................ A-51
SHARES AVAILABLE FOR FUTURE SALE........................................... A-52
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS................................. A-52
ADDITIONAL INFORMATION..................................................... A-53
LEGAL MATTERS.............................................................. A-53
INDEX TO HOMESTEAD FINANCIAL STATEMENTS.................................... F-1
</TABLE>
A-ii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in either the PTR Proxy Statement and
Prospectus (or incorporated therein by reference), including this Prospectus or
the ATLANTIC Information Statement and Prospectus, including this Prospectus.
Shareholders are urged to review the entire PTR Proxy Statement and Prospectus
or the ATLANTIC Information Statement and Prospectus, as applicable, this
Prospectus and the Annexes thereto, and the documents, if any, incorporated
therein by reference. 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.
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. PTR's stabilized Homestead Village facilities have produced annual
returns (based on funds from operations over actual investment cost) in excess
of 14% for 1994 and 1995. No assurance can be given that Homestead will be able
to achieve or sustain such returns in the future.
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.
Homestead currently operates 29 facilities, has begun construction of 12
additional facilities and has an additional 39 properties in pre-development
planning. 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
quarter ended March 31, 1996, average physical occupancy and average weekly
rate for 17 stabilized properties was 87% and $217 per week, respectively, and,
for the same quarter, average physical occupancy and average weekly rate for
seven pre-stabilized properties was 59% and $217 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.
A-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 with an aggregate exercise price of approximately $51
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 requisite PTR and ATLANTIC shareholder vote is received and
that all other 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 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
A-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 4,062,788 shares of Homestead Common
Stock of which 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 or 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
have agreed to provide funding of $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, 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 adjustment. The PTR mortgage
loans and ATLANTIC mortgage loans will be used to finance the acquisition
and development 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 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 50.6% of the outstanding
Homestead Common Stock.
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<PAGE>
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>
- --------
(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.
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<PAGE>
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 and the notes thereto and 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
--------------------------
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATIONS SUMMARY:
Room Revenue....................................... $ 6,753 $ 18,337
Total Revenue...................................... 6,874 18,721
Property Operating Expenses(1)..................... 2,946 7,600
Corporate Operating Expenses....................... 2,000 6,188
Depreciation and Amortization...................... 1,112 5,241
Net (Loss)......................................... (88) (3,755)
<CAPTION>
PRO FORMA
MARCH 31,
1996
------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
FINANCIAL POSITION:
Property and Equipment, net........................ $ 156,988
Total Assets....................................... 238,270
Convertible Mortgage Notes Payable................. 51,563
Total Liabilities.................................. 59,766
Shareholders' Equity............................... 178,504
Common Stock Outstanding(2)........................ 17,749,735
<CAPTION>
PRO FORMA
--------------------------
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
PER SHARE DATA:
Net Income (Loss).................................. $ (.003) $ (.116)
Net Book Value..................................... 5.54 N/A
Weighted Average Number of Shares of Homestead
Common Stock Outstanding(3)....................... 32,233,474 32,233,474
OTHER DATA:
EBITDA(4).......................................... $ 1,928 $ 4,933
Cash Provided by (used in):
Operating Activities............................. (329) 924
Investing Activities............................. (23,791) (52,468)
Financing Activities............................. 25,302 53,001
</TABLE>
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<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 2,422,002 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)............... (1,640,786)
----------
Pro forma shares to be held in escrow......................... 2,422,002
==========
</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 4,483,739
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.
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<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 August 1, 1996, SCG beneficially owned approximately 37.8% of the
issued and outstanding PTR Common Shares and 64.1% of the issued and
outstanding shares of ATLANTIC Common Stock. 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 distribution by PTR and
ATLANTIC to their respective shareholders, SCG expects to beneficially own an
additional 3,588,965 and 2,693,842 shares of Homestead Common Stock,
respectively, for a total of 8,102,557 shares of Homestead Common Stock or
approximately 45.6% of the outstanding shares of Homestead Common Stock.
Through its beneficial ownership of Homestead Common Stock, it is expected
that SCG will control 45.6% 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
5,032,707 shares of Homestead Common Stock, which, if fully exercised, would
increase SCG's beneficial ownership of Homestead Common Stock to 57.7%. 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.
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<PAGE>
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, 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 1, 1996, Homestead had 12 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
A-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
A-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 condition 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
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<PAGE>
any of these individuals could have a material adverse effect upon Homestead.
See "Management--Directors and 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 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 initially for a term
expiring at the annual meeting of shareholders to be held in 1999 and another
class will 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
A-12
<PAGE>
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. Application has been made to list the Homestead
Common Stock and the Homestead Warrants on the American Stock Exchange,
although there can be no assurance that such application will be granted or
that, if granted, 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
4,483,739 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.
A-13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Homestead as of March
31, 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............... -- 51,563
Shareholders' equity:
Common Stock, par value $.01 per share, 1,000
shares authorized (250,000,000 shares
authorized pro forma);
0 shares issued and outstanding (17,749,735
shares issued and outstanding pro forma)...... -- (1) 177(2)(3)
Additional paid-in capital/contributed capital. -- 202,840(3)
Shares in escrow............................... -- (29,797)(3)
Retained earnings.............................. -- 5,284
---- --------
Total shareholders' equity................... $-- 178,504(2)
---- --------
Total capitalization......................... $-- $230,067(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
would 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.
A-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 and the notes thereto and unaudited
pro forma condensed consolidated financial information and the notes thereto
appearing elsewhere in this Prospectus. The unaudited selected pro forma
condensed consolidated financial information 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
-----------------------------------
YEAR ENDED
THREE MONTHS DECEMBER 31,
ENDED MARCH 31, 1996 1995
---------------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATIONS SUMMARY
Room Revenue............................. $ 6,753 $ 18,337
Total Revenue............................ 6,874 18,721
Property Operating Expenses(1)........... 2,946 7,600
Corporate Operating Expenses............. 2,000 6,188
Depreciation and Amortization............ 1,112 5,241
Net Loss................................. $ (88) $ (3,755)
<CAPTION>
PRO FORMA MARCH 31,
1996
----------------------
FINANCIAL POSITION: (DOLLARS IN THOUSANDS)
<S> <C> <C>
Property and Equipment, net.............. $ 156,988
Total Assets............................. 238,270
Convertible Mortgage Notes Payable....... 51,563
Total Liabilities........................ 59,766
Shareholders' Equity..................... 178,504
Common Stock Outstanding(2).............. 17,749,735
<CAPTION>
PRO FORMA
-----------------------------------
YEAR ENDED
THREE MONTHS DECEMBER 31,
ENDED MARCH 31, 1996 1995
---------------------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
PER SHARE DATA:
Net Income (Loss)........................ $ (.003) $ (.116)
Net Book Value........................... 5.54 N/A
Weighted Average Number of Shares of
Homestead Common Stock Outstanding(3)... 32,233,474 32,233,474
OTHER DATA:
EBITDA(4)................................ $ 1,928 $ 4,933
Cash Provided by (used in):
Operating Activities................... (329) 924
Investing Activities................... (23,791) (52,468)
Financing Activities................... 25,302 53,001
</TABLE>
A-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 2,422,002 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)............... (1,640,786)
----------
Pro forma shares to be held in escrow......................... 2,422,002
==========
</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 common
stock equivalents related to the Homestead Warrants and 4,483,739 shares
of 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.
A-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 three-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>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ----------------------------------
1996 1995 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Room Revenue............ $ 6,753 $ 3,359 $ 18,337 $ 7,827 $ 2,554 $ 377
Property Operating
Expenses(1)............ 2,946 1,261 7,600 3,146 1,157 232
Property management fees
paid to affiliates..... 500 197 1,018 460 145 22
Corporate Operating
Expenses............... 201 165 944 826 304 7
REIT management fees
paid to affiliate...... 362 206 989 332 109 9
Depreciation............ 859 397 2,343 845 234 36
Total Expenses.......... 5,829 2,766 15,852 7,018 2,204 367
Net Income.............. 1,039 683 2,851 974 409 10
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------------
1996 1995 1994 1993 1992
--------- -------- ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Property and Equipment,
net.................... $120,871 $105,002 $59,099 $23,898 $6,972
Total Assets............ 126,390 108,965 60,866 24,921 7,076
Current Liabilities..... 6,742 5,850 3,667 2,529 367
Intercompany Debt....... 11,185 80,144 45,131 19,290 5,123
Convertible Mortgage
Notes Payable.......... 77,289 -- -- -- --
Total Liabilities....... 95,216 85,994 48,798 21,818 5,490
Owners' Equity.......... 31,174 22,971 12,068 3,103 1,586
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------ -------------------------------------
1996 1995 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(2) $ 2,859 $ 1,620 $ 8,152 $ 3,228 $ 898 $ 107
Net cash provided by
(used in):
Operating
activities......... 2,264 200 6,019 2,381 599 374
Investing
activities......... (16,724) (10,480) (48,116) (35,474) (15,751) (7,007)
Financing
activities......... 15,495 9,985 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, property taxes,
insurance, maintenance and supply costs.
(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.
A-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 less than 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 affect
upon its business, financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
From inception through March 31, 1996, PTR-Homestead Village Group had
invested $125.2 million for the acquisition and development of 36 Homestead
Village properties, 23 of which were operating, seven of which were under
construction and six of which were in pre-development planning. These
investments have been financed through a combination of intercompany debt
borrowed from PTR and contributed capital.
At March 31, 1996, the PTR-Homestead Village Group expected to invest an
additional $158.8 million for the acquisition, development and construction of
18 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.
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 April 23, 1996, the PTR-Homestead Village Group had unfunded development
commitments for developments under construction of approximately $21.1
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 the (i) 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 primarily due to the eight new properties
opened in 1995 and the full year of depreciation being charged for the nine
properties opened in 1994.
A-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 increasing 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
primarily due 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.
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995
Total revenue for the three months ended March 31, 1996 was $6.9 million, an
increase of $3.4 million over the three months ended March 31, 1995. This
increase was due to both the addition of eleven properties over the period, as
well as a 6.9% increase in the average weekly rates for stabilized properties
from $203 to $217 per week.
Total costs and expenses increased from $2.8 million to $5.8 million over
the same period, an increase of $3.0 million. Property operating expenses and
property management fees contributed $2.0 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 $0.2 million as a result of increased property cash
flow.
The increase in depreciation expense of $0.5 million is primarily due to the
additional eleven properties which were opened between April 1995 and March
1996. An increase of $0.4 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%.
A-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 three month period ended March 31,
1996 is not necessarily indicative of results for subsequent periods or the
full year. These 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>
THREE MONTHS INCEPTION
ENDED (APRIL 3, 1995)
MARCH 31, TO
1996 DECEMBER 31, 1995
------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATIONS SUMMARY:
Corporate operating expenses................... $ 18 $ 63
Net Loss....................................... (12) (59)
OTHER DATA:
Net Cash Provided by (used in):
Operating activities......................... $ 158 $ 81
Investing activities......................... (6,994) (4,118)
Financing activities......................... 6,724 4,221
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
FINANCIAL POSITION:
Properties under development........................... $10,437 $2,627
Total Assets........................................... 12,326 4,317
Development Costs Payable.............................. 1,142 15
Total Current Liabilities.............................. 1,452 155
Intercompany Debt...................................... 9,295 2,627
Total Liabilities...................................... 10,747 2,782
Owners' Equity......................................... 1,579 1,535
</TABLE>
A-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 March 31, 1996, there were no operating properties. As of
March 31, 1996, the Atlantic-Homestead Village Group had one property under
construction and 25 in pre-development planning (as defined).
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 March 31, 1996, Atlantic-Homestead Village Group
invested $10.4 million for the acquisition and development of Homestead
Village properties. These investments have been financed through intercompany
debt.
At March 31, 1996, Atlantic-Homestead Village Group planned to invest an
additional $148.3 million for the acquisition, development and construction of
26 Homestead Village properties over approximately the next eighteen months.
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 March 31, 1996, the Atlantic-Homestead Village Group had unfunded
development commitments for developments under construction of approximately
$2.4 million.
RESULTS OF OPERATIONS
Period from April 3, 1995 (date of formation) through December 31, 1995 and
the Three Months Ended March 31, 1996
The Atlantic-Homestead Village Group consists of several entities that are
subsidiaries of ATLANTIC. During 1995 and the three months ended March 31,
1996, the Atlantic-Homestead Village Group has been developing Atlantic-
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 three months ended March 31, 1996 has been capitalized and
included in "Properties under development." Operating expenses during 1995 and
the three months ended March 31, 1996 pertain to pursuit costs relating to
abandoned projects and various administrative expenses.
A-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 three month period ended March 31, 1996 is
not necessarily indicative of results for subsequent periods or the full year.
These 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>
THREE MONTHS
ENDED MARCH 31, 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........... $ 861 $ 402 $ 2,007 $ 792 $ 254 $ 43
Payroll and Related
Expenses.................. 1,909 665 4,276 1,713 707 152
Total Expenses............. 3,097 920 7,176 2,454 922 233
Net Loss................... (2,236) (518) (5,155) (1,662) (668) (190)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1996 1995 1994 1993 1992
--------- ------- ----- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
REIT and Property Management Fees
Receivable............................. $ 481 $ 470 $ 55 $ 10 $16
Furniture and Equipment, net............ 233 228 47 -- --
Total Assets............................ 802 779 102 10 16
Intercompany Debt....................... 2,043 1,147 -- -- --
Current Liabilities..................... 2,543 2,046 251 96 --
Total Liabilities....................... 2,543 2,046 251 96 --
Owners' Equity (Deficit)................ (1,741) (1,267) (149) (86) 16
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ------------------------------
1996 1995 1995 1994 1993 1992
-------- ------- ------- ------- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(1).................. $ (2,177) $ (510) $(5,046) $(1,640) $(668) $(190)
Net Cash Provided by (used
in):
Operating activities..... (2,573) (737) (4,951) (1,545) (565) (206)
Investing activities..... (73) (55) (234) (55) -- --
Financing activities..... 2,658 792 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.
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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 March 31, 1996, SCG-Homestead Village Group invested
$0.3 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 (eight) 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.
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Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995
REIT and property management fees for the three months ended March 31, 1996
were $0.9 million, an increase of $0.5 million, or approximately 114%, over
the three months ended March 31, 1995. These additional fees are primarily
attributable to (i) the increased revenue and cash flow generated by four
Homestead Village properties which opened during the three months ended March
31, 1996 as well as seven Homestead Village properties which opened during the
period April 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 $2.2 million, or approximately 237%, to $3.1
million for the three months ended March 31, 1996 from $0.9 million for the
three months ended March 31, 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.
Homestead currently owns and operates 29 facilities in eight cities, has
begun construction on 12 additional facilities and has an additional 39
properties in pre-development planning. (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 twenty-
seven 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
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to determining 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, 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 July
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 to the
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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
Homestead has developed, owns and operates 29 Homestead Village properties
representing in the aggregate 4,025 units in eight cities. Homestead currently
has 12 Homestead Village properties under construction totaling 1,589 units
within four of these cities as well as five additional cities. In addition,
Homestead owns or controls through contracts 39 development sites for which it
plans to initiate construction within the next 12 months. Units operating,
under construction, or in pre-development planning aggregate 10,908 units in
23 cities. Homestead has 46 additional sites under review and is continually
searching for additional appropriate sites.
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 quarter ended March 31, 1996, the stabilized Homestead Village
properties had an average physical occupancy of 87% with an average weekly
rate of $217 per unit. Average physical occupancy and average weekly rate for
seven pre-stabilized properties were 59% and $217 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.
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<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. Homestead currently owns and operates 29 properties,
has begun construction of 12 additional properties and has an additional 39
properties in pre-development planning. 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 1, 1996:
<TABLE>
<CAPTION>
NUMBER OF PROPERTIES
-------------------------------
UNDER PERCENTAGE OF
OPERA- CONSTRUC- IN 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 1 4 6 8%
Austin, TX.................. 2 1 1 4 4%
Dallas, TX.................. 9 1 10 9%
Denver, CO.................. 2 2 4 5%
Houston, TX................. 8 8 7%
Jacksonville, FL............ 1 1 1%
Kansas City, MO............. 1 1 1%
Los Angeles, CA............. 1 1 1%
Miami/Ft. Lauderdale, FL.... 3 3 5%
Nashville, TN............... 2 2 3%
Orange County, CA........... 1 1 1%
Phoenix, AZ................. 3 1 4 5%
Portland, OR................ 1 1 2%
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 4 7 11%
Seattle, WA................. 4 4 6%
Tampa, FL................... 1 2 3 4%
Washington, DC.............. 7 7 10%
--- --- --- --- ----
Total................... 29 12 39 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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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
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distinct 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, both 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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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
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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 condition 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. 42 Chairman, President and Director
C. Ronald Blankenship 46 Director(1)
John P. Frazee, Jr. 51 Director
Jeffrey A. Klopf 48 Senior Vice President and Secretary
John R. Patterson 44 Senior Vice President
Donald J. Schultz 41 Senior Vice President
</TABLE>
- --------
(1) Mr. Blankenship will become an advisory director after the Closing. He
will attend meetings of the Homestead Board but will not have voting
rights.
DAVID C. DRESSLER, JR.--42--Director; Chairman of Homestead since May 1996
and President since January 1996; Director and Chairman of Homestead Village
Incorporated since June 1995; Managing Director of PTR since May 1993 and
Director and Managing Director of the PTR and ATLANTIC REIT 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.
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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.--51--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 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--44--Senior Vice President of Homestead since May 1996 and
Homestead Village 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--41--Senior Vice President of Homestead since May 1996 and
Homestead Village 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--33--Vice President of Homestead since May 1996, and
Homestead Village 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.
ROBERT E. CLARK--36--Vice President, Treasurer and Controller of Homestead
since May 1996 and Vice President of Homestead Village 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.
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GARY A. DELAPP--36--Vice President of Homestead since May 1996 and of
Homestead Village 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 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--53--Vice President of Homestead since May 1996 and
Homestead Village 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--39--Vice President of Homestead since May 1996 and
Homestead Village 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 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 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 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 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 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 Incorporated since June 1995 where he is a member of the development
group and with PTR since September 1994; from
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<PAGE>
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 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--37--Vice President of Homestead since May 1996 and Homestead
Village 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 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--32--Vice President of Homestead since May 1996 and
Homestead Village 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.
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
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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; 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>
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, 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. Each participant would
receive nonqualified stock options. 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
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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.
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 85,000 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.
OUTSIDE DIRECTORS PLAN
It is expected that Homestead will adopt, subject to approval of the
Homestead shareholders, an Outside Directors Plan 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. It is
expected that options will be granted under the Outside Directors Plan as of
the Distribution Record Date and as of the date of each annual meeting of
shareholders of Homestead commencing in 1997. 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 Mergers, SCG is expected to beneficially
own 8,102,557 shares of Homestead Common Stock or approximately 45.6% 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 45.6% 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 5,032,707 shares of
Homestead Common Stock, which, if fully exercised, would increase SCG's
beneficial ownership of Homestead Common Stock to 57.7%. 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
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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--PTR and
ATLANTIC Investor Agreements" and "--SCG Investor Agreement."
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.
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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 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
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<PAGE>
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.
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
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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 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 August 1, 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 August 1, 1996 and as adjusted to give effect to 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....... 13,135,264(2) 57.7%
125 Lincoln Avenue
Santa Fe, New Mexico 87501
William D. Sanders (Corporate
Ownership)............................. 13,135,264(3) 57.7%
7777 Market Center Avenue
El Paso, Texas 79912
William D. Sanders (Personal Ownership). 64,593(4) *
7777 Market Center Avenue
El Paso, Texas 79912
C . Ronald Blankenship.................... 7,962 *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
David C. Dressler, Jr..................... 909(5) *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
John P. Frazee, Jr........................ 3,143(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......................... 199(5) *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Directors and Executive Officers as a
group
(6 persons).............................. 12,213(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, 5,032,707,
25,935, 3,197, 365, 1,262 and 80, and 4,904 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 August 1, 1996, there were $165 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 August 1, 1996. SCG was in
compliance with all covenants under the line of credit as of March 31,
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 shares
voting and dispositive power with respect to all shares of Homestead
Common Stock owned by SCG. SCG and Mr. Sanders intend to play a major role
in the direction of Homestead for the purpose of maximizing the value of
Homestead.
(4) 3,455 of these shares of Homestead Common Stock will be owned by Mr.
Sanders directly. Mr. Sanders may be deemed to beneficially own 58,395 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
2,743 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 earlier to occur of: (1) 10 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 Rights), new stock certificates
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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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<PAGE>
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
A-48
<PAGE>
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 such party 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. 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. 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.
A-49
<PAGE>
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.
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
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.
A-50
<PAGE>
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.
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 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.
A-51
<PAGE>
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 8,102,557 shares of
Homestead Common Stock after 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.
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 April 30, 1996
appearing in the Prospectus of Homestead included in the Homestead
Registration Statement has been audited by Ernst & Young LLP, independent
certified public accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
A-52
<PAGE>
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, the PTR Proxy Statement and Prospectus
and the ATLANTIC Information Statement and Prospectus omit 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.
A-53
<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 March 31, 1996....... F-4
Pro Forma Condensed Consolidated Statement of Operations for the three
months ended March 31, 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 March 31, 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
three months ended March 31, 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 three months ended March 31, 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
three months ended March 31, 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 March 31, 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 three months ended March 31, 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 three months ended March 31, 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 three months ended March 31, 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 March 31, 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
three months ended March 31, 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 three months ended March 31, 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
three months ended March 31, 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 April 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 MARCH 31, 1996
(UNAUDITED)
The unaudited Pro Forma Condensed Consolidated Balance Sheet is presented as
if the following transactions had occurred on March 31, 1996; (I) the PTR-
Homestead Village Group including land parcels which were under contract as of
March 31, 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 March 31, 1996 and expected to be acquired prior to
the transaction 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 and distribution 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 date of the transaction, 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 April 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 March 31, 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 MARCH 31, 1996
(UNAUDITED)
(IN THOUSANDS EXCEPT 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....... $ 2,931 $ -- $ 1 (e) $ 2,932 $27,239 $ 12 $(1,500)(i) $ 28,683
Accounts
receivable........ 799 -- -- 799 -- 481 -- 1,280
Other current
assets............ 314 -- -- 314 -- 4 -- 318
-------- ------- ------- -------- ------- ------- ------- --------
Total current
assets.......... 4,044 -- 1 4,045 27,239 497 (1,500) 30,281
Property and
equipment, net..... 120,871 11,789 (c) -- 132,660 24,095 233 -- 156,988
Other assets....... 1,475 -- -- 1,475 1,817 72 1,500 (i) 4,864
Trademark and other
intangible assets.. -- -- -- -- -- 19,405 19,405
Deferred financing
costs.............. -- -- -- -- -- -- 26,732(j) 26,732
-------- ------- ------- -------- ------- ------- ------- --------
Total assets.... $126,390 $11,789 $ 1 $138,180 $53,151 $20,207 $26,732 $238,270
======== ======= ======= ======== ======= ======= ======= ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS'
EQUITY
- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current
liabilities:
Development costs
payable........... $ 3,590 $ -- $ -- $ 3,590 $ 1,142 $ -- $ -- $ 4,732
Accrued real
estate taxes...... 760 -- -- 760 5 -- -- 765
Accounts payable.. 342 -- -- 342 142 6 -- 490
Other accrued
expenses.......... 867 -- -- 867 163 3 -- 1,033
Accrued interest
payable........... 1,183 -- -- 1,183 -- -- -- 1,183
Advances from
shareholders...... -- -- -- -- -- -- -- --
-------- ------- ------- -------- ------- ------- ------- --------
Total current
liabilities..... 6,742 -- -- 6,742 1,452 9 -- 8,203
Intercompany
debt.............. 11,185 (11,185)(d) -- -- -- -- -- --
Convertible
mortgage notes
payable........... 77,289 (25,726)(b) -- 51,563 -- -- -- 51,563
-------- ------- ------- -------- ------- ------- ------- --------
Total
liabilities..... 95,216 (36,911) -- 58,305 1,452 9 -- 59,766
Shareholders'
Equity: --
Common stock...... -- -- 95 (f) 95 42 16 24(k) 177
Additional paid
in
capital/Contributed
capital........... 25,890 11,789 (c) 1 (e)
25,726 (b) 74,495 (f) 29,773(k)
11,185 (d) (74,590)(f) 74,496 51,657 20,182 26,732(j) 202,840
Shares in escrow.. -- -- -- -- -- -- (29,797)(k) (29,797)
Retained
earnings.......... 5,284 -- -- 5,284 -- -- -- 5,284
-------- ------- ------- -------- ------- ------- ------- --------
Total
shareholders'
equity.......... 31,174 48,700 1 79,875 51,699 20,198 26,732 178,504
-------- ------- ------- -------- ------- ------- ------- --------
Total liabilities
and shareholders'
equity............. $126,390 $11,789 $ 1 $138,180 $53,151 $20,207 $26,732 $238,270
======== ======= ======= ======== ======= ======= ======= ========
</TABLE>
F-4
<PAGE>
- --------
(a) Reflects the historical combined balance sheet of the PTR-Homestead
Village Group as of March 31, 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 date of merger (representing 30% of the
fair market value of its assets contributed at full funding). Based on the
pro forma costs at the merger date, the face value of the convertible
mortgages would be limited to $51,563. Therefore, the balance of
convertible mortgage notes payable at March 31, 1996 ($77,289) less the
maximum convertible mortgage notes payable at merger date ($51,563) equals
the convertible mortgage notes converted to capital ($25,726).
(c) Reflects the land to be acquired by the PTR-Homestead Village Group
subsequent to March 31, 1996 and prior to the date of transaction. The
land consists of 10 separate parcels of developed land that will be
contributed to Homestead unencumbered by any mortgage or other financial
obligation at the date of merger. 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 and
distribution agreement.
(e) Reflects the capitalization of Homestead through the issuance of 1,000
shares of 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.......... $10,437 $13,658(i) $24,095
Cash and cash equivalents............ 72 27,167(ii) 27,239
Other assets......................... 1,817 -- 1,817
------- ------- -------
Total assets....................... $12,326 $40,825 $53,151
======= ======= =======
Accounts payable..................... $ 142 $ -- $ 142
Accrued expenses and other
liabilities......................... 1,310 -- 1,310
Intercompany debt.................... 9,295 (9,295)(iii) --
------- ------- -------
Total liabilities.................. 10,747 (9,295) 1,452
------- ------- -------
Total shareholders' equity......... 1,579 50,120(iv) 51,699
------- ------- -------
Total liabilities and shareholders'
equity............................ $12,326 $40,825 $53,151
======= ======= =======
</TABLE>
F-5
<PAGE>
(i) Reflects estimated costs of $9,582 relating to the acquisition of
eight parcels of land under contract to be acquired for cash,
subsequent to March 31, 1996 and prior to the date of the Transaction.
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. Also see "The Transaction--Recommendations of the PTR Board
and Reasons for the Transaction" for further discussion of the
determination of estimated fair market value.
(ii) Reflects, for pro forma purposes, cash of $27,167 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 March 31, 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.......... $ 233 $ -- $ 233
Cash and cash equivalents............ 12 -- 12
Accounts receivable.................. 481 -- 481
Other assets......................... 76 19,405 19,481
------ ------- -------
Total assets....................... $ 802 $19,405 $20,207
====== ======= =======
Accounts payable..................... $ 6 $ -- $ 6
Accrued expenses and other
liabilities......................... 494 (491)(ii) 3
Intercompany debt.................... 2,043 (2,043)(iii) --
------ ------- -------
Total liabilities.................. 2,543 (2,534) 9
------ ------- -------
Total shareholders' equity......... (1,741) 21,939(iv) 20,198
------ ------- -------
Total liabilities and shareholders'
equity............................ $ 802 $19,405 $20,207
====== ======= =======
</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 date of the Transaction, SCG will receive a pro
rata portion (1,640,786) of the total shares, based upon the ratio
(40.4%) of actual funding provided by PTR and ATLANTIC to Homestead as
of March 31, 1996 to the total expected funding to be provided, as more
fully described in the Transaction (the 1,640,786 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 March 31, 1996 and
the Closing Date). Correspondingly, the proportional amount of the
estimated fair market value recorded at the date of the Transaction is
approximately $20,198, of which approximately $19,405 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 $19,405 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 $793 ($20,198-$19,405)
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. Also see "The Transaction--Recommendations
of the PTR Board and Reasons for the Transactions" for further
discussion of the determination of estimated 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 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 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 Warrants described herein.
(i) Reflects estimated expenses of consummating the merger 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
($3,632). $24,843 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 2,422 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 three months ended March 31, 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 March 31, 1996 and expected to close prior to the
date of the transaction; 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 three months ended March 31, 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 THREE MONTHS ENDED MARCH 31, 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........... $6,753 $-- $ -- $ -- $ 6,753 $ -- $6,753
Other.................. 115 6 861 (861)(b) 121 -- 121
------ ---- ------- ----- ------- ------- ------
Total Revenue........ 6,868 6 861 (861) 6,874 -- 6,874
COSTS AND EXPENSES:
Property operating
expenses.............. 2,946 -- -- -- 2,946 -- 2,946
Property management
fees paid to
affiliates............ 500 -- -- (500)(b) -- -- --
Corporate operating
expenses.............. 202 18 3,038 -- 3,258 (1,339)(c) 2,000
81 (d)
REIT management fees
paid to affiliates.... 361 -- -- (361)(b) -- -- --
Depreciation and
amortization.......... 859 -- 10 -- 869 243 (e) 1,112
Interest expense....... 961 -- 49 -- 1,010 (425)(f) 807
222 (i)
------ ---- ------- ----- ------- ------- ------
Total costs and
expenses............ 5,829 18 3,097 (861) 8,083 (1,218) 6,865
------ ---- ------- ----- ------- ------- ------
Income (loss) before
income tax expense.... 1,039 (12) (2,236) -- (1,209) 1,218 9
Income tax expense..... -- -- -- -- -- (97)(g) (97)
------ ---- ------- ----- ------- ------- ------
NET INCOME (LOSS)....... $1,039 $(12) $(2,236) $ -- $(1,209) $ 1,121 $ (88)
====== ==== ======= ===== ======= ======= ======
PRO FORMA NET INCOME PER COMMON SHARE................................................................ $(.003)
======
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING NOTE (H)............................................... 32,233
======
</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
three months ended March 31, 1996 including additional salaries and
benefits, ($44) and legal, accounting and other professional fees ($37).
(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 $243 for the three months ended
March 31, 1996. Upon release of the escrowed shares to SCG additional
trademark and other intangibles of $29,797 would be recorded and quarterly
amortization would increase by $372. Net loss for the three months ended
March 31, 1996, as adjusted for the increase in amortization, would be
$(460) or $(.014) per common share.
(f) Reflects the adjustment to reduce interest expense as a result of the
conversion of $25,726 of convertible mortgage notes, bearing interest at
9% and $11,185 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................................. $ 9
Amortization of trademark and other intangible assets acquired
from the SCG-Homestead Village Group not deductible for tax
purposes......................................................... 243
----
252
Assumed federal and state income tax rate......................... 38.6%
----
Pro forma adjustment.............................................. $ 97
====
</TABLE>
(h) Reflects the assumed number of weighted average common shares outstanding
during the three months ended March 31, 1996 based upon the assumed
issuance of 17,750 total shares of 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 4,484 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 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 -- 2,382 970 (e) 5,241
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 1,392 22,476
------- ----- ------- ------- ------- ------- -------
Income (loss) before
income tax expense.... 2,851 (59) (5,155) -- (2,363) (1,392) (3,755)
Income tax expense..... -- -- -- -- -- -- (g) --
------- ----- ------- ------- ------- ------- -------
NET INCOME (LOSS)....... $ 2,851 $ (59) $(5,155) $ -- $(2,363) $(1,392) $(3,755)
======= ===== ======= ======= ======= ======= =======
PRO FORMA NET LOSS PER COMMON SHARE.................................................................. $ (.116)
=======
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING NOTE (H)............................................... 32,233
=======
</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 $970 for the year ended
December 31, 1995. Upon release of the escrowed shares to SCG additional
trademark and other intangibles of $29,797 would be recorded and annual
amortization would increase by $1,490. Net loss for the year ended
December 31, 1995, as adjusted for the increase in amortization, would be
$(5,245) or $(.163) per Common Share.
(f) Reflects the adjustment to reduce interest expense as a result of the
conversion of $25,726 of convertible mortgage notes, bearing interest at
9% and $11,185 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, since there is a net loss from operations.
(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 4,484 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, MARCH 31,
---------------- -----------
1994 1995 1996
------- -------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 928 $ 1,896 $ 2,931
Accounts receivable.............................. 111 436 799
Other current assets............................. 145 353 314
------- -------- --------
Total current assets........................... 1,184 2,685 4,044
Property and equipment, net........................ 59,099 105,002 120,871
Other assets....................................... 583 1,278 1,475
------- -------- --------
Total assets....................................... $60,866 $108,965 $126,390
======= ======== ========
<CAPTION>
LIABILITIES AND OWNERS' EQUITY
------------------------------
<S> <C> <C> <C>
Current liabilities:
Development costs payable........................ $ 2,564 $ 3,389 $ 3,590
Accrued real estate taxes........................ 272 1,056 760
Accounts payable................................. 349 578 342
Other accrued expenses........................... 482 827 867
Accrued interest payable......................... -- -- 1,183
------- -------- --------
Total current liabilities...................... 3,667 5,850 6,742
Intercompany debt.................................. 45,131 80,144 11,185
Convertible mortgage notes payable................. -- -- 77,289
------- -------- --------
Total liabilities.............................. 48,798 85,994 95,216
------- -------- --------
Commitments and contingencies
Owners' equity:
Contributed capital.............................. 10,674 18,726 25,890
Retained earnings................................ 1,394 4,245 5,284
------- -------- --------
Total owners' equity........................... 12,068 22,971 31,174
------- -------- --------
Total liabilities and owners' equity............... $60,866 $108,965 $126,390
======= ======== ========
</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>
THREE MONTHS
YEARS ENDED DECEMBER ENDED
31, MARCH 31,
--------------------- -------------
1993 1994 1995 1995 1996
------ ------ ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Room revenue............................. $2,554 $7,827 $18,337 $3,359 $6,753
Other revenue............................ 59 165 366 90 115
------ ------ ------- ------ ------
Total revenue.......................... 2,613 7,992 18,703 3,449 6,868
------ ------ ------- ------ ------
COSTS AND EXPENSES:
Property operating expenses.............. 1,157 3,146 7,600 1,261 2,946
Property management fees paid to
affiliates.............................. 145 460 1,018 197 500
Corporate operating expenses............. 304 826 944 165 201
REIT management fees paid to affiliates.. 109 332 989 206 362
Depreciation............................. 234 845 2,343 397 859
Interest expense......................... 255 1,409 2,958 540 961
------ ------ ------- ------ ------
Total costs and expenses............... 2,204 7,018 15,852 2,766 5,829
------ ------ ------- ------ ------
NET INCOME................................. $ 409 $ 974 $ 2,851 $ 683 $1,039
====== ====== ======= ====== ======
</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)................. 7,164 -- 7,164
Net income (unaudited).......................... -- 1,039 1,039
------- ------ -------
Balance at March 31, 1996 (unaudited)............. $25,890 $5,284 $31,174
======= ====== =======
</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>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income................. $ 409 $ 974 $ 2,851 $ 683 $ 1,039
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation............. 234 845 2,343 397 859
Change in:
Accounts receivable...... (31) (62) (325) (177) (363)
Accounts payable and
accrued expenses........ (17) 752 1,358 (712) 690
Other current assets..... 4 (128) (208) 9 39
-------- -------- -------- -------- --------
Net cash provided by
operating activities.. 599 2,381 6,019 200 2,264
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Other assets............... (769) (186) (695) (142) (197)
Investment in property and
equipment, net of
development costs payable. (14,982) (35,288) (47,421) (10,338) (16,527)
-------- -------- -------- -------- --------
Net cash used in investing
activities................ (15,751) (35,474) (48,116) (10,480) (16,724)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from intercompany
debt...................... 15,275 33,832 43,065 9,985 15,495
-------- -------- -------- -------- --------
Net cash provided by
financing activities...... 15,275 33,832 43,065 9,985 15,495
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS... 123 739 968 (295) 1,035
BEGINNING BALANCE OF CASH AND
CASH EQUIVALENTS............ 66 189 928 928 1,896
-------- -------- -------- -------- --------
ENDING BALANCE OF CASH AND
CASH EQUIVALENTS............ $ 189 $ 928 $ 1,896 $ 633 $ 2,931
======== ======== ======== ======== ========
NON-CASH TRANSACTIONS:
Conversion of intercompany
debt to owners' equity.... $ 1,107 $ 7,991 $ 8,052 $ 5,284 $ 7,164
======== ======== ======== ======== ========
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
Transaction" included elsewhere in 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 $381,830 and $575,332 for the three months ended March
31, 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 $921,800 and $353,300 for the three months
ended March 31, 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 $840,000 at March 31, 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 March 31, 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 March 31, 1996 and for the three
months ended March 31, 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 three months ended March 31,
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, MARCH 31,
--------------- ---------
1994 1995 1996
------ ------ ---------
<S> <C> <C> <C>
MARKET:
Dallas, TX.................................... 38% 29% 26%
Houston, TX................................... 41 29 25
San Antonio, TX............................... 13 12 10
Austin, TX.................................... 3 9 9
Phoenix, AZ................................... 2 8 10
Denver, CO.................................... 3 6 8
Albuquerque, NM............................... -- 4 4
Bay Area, CA.................................. -- 3 5
Kansas City, KA............................... -- -- 1
Seattle, WA................................... -- -- 2
------ ------ ---
100% 100% 100%
====== ====== ===
</TABLE>
The following summarizes property and equipment (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1994 1995 1996
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT:
Land.................................... $ 7,044 $ 14,812 $ 17,053
Buildings and improvements.............. 29,611 52,697 61,059
Furniture, fixtures and equipment....... 4,973 10,760 11,396
------- -------- --------
Operating properties.................. 41,628 78,269 89,508
Construction in progress, excluding
land................................... 9,296 26,577 20,558
Land held for and under development..... 9,289 3,613 15,121
------- -------- --------
60,213 108,459 125,187
Less: accumulated depreciation........ (1,114) (3,457) (4,316)
------- -------- --------
Property and equipment, net............... $59,099 $105,002 $120,871
======= ======== ========
</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 the estimated fair value of the
assets, 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 March 31, 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 ($77,289,000) in
favor of PTR. These notes provide the PTR-Homestead Village Group with
borrowing capability in the aggregate amount of approximately $144 million 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>
THREE MONTHS ENDED
- ------------------
<S> <C>
March 31, 1995....... $205,630
March 31, 1996....... 361,558
</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>
THREE MONTHS ENDED
- ------------------
<S> <C>
March 31, 1995....... $196,704
March 31, 1996....... 499,661
</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 $481,000 at March 31, 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 $145,000 and $158,000 for
the three months ended March 31, 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 April 23, 1996, the PTR-Homestead Village Group had unfunded development
commitments for developments under construction of approximately $21.1
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, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 184 $ 72
------ -------
Total current assets............................... 184 72
Properties under development........................... 2,627 10,437
Other assets........................................... 1,506 1,817
------ -------
Total assets....................................... $4,317 $12,326
====== =======
<CAPTION>
LIABILITIES AND OWNERS' EQUITY
------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable..................................... $ 93 $ 142
Development costs payable............................ 15 1,142
Accrued real estate taxes............................ 3 5
Accrued expenses..................................... 44 163
------ -------
Total current liabilities.......................... 155 1,452
Intercompany debt...................................... 2,627 9,295
------ -------
Total liabilities.................................. 2,782 10,747
------ -------
Commitments and Contingencies
Owners' Equity:
Contributed capital.................................. 1,594 1,650
Retained earnings (deficit).......................... (59) (71)
------ -------
Total owners' equity............................... 1,535 1,579
------ -------
Total liabilities and owners' equity................... $4,317 $12,326
====== =======
</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) THREE MONTHS
THROUGH ENDED
DECEMBER 31, 1995 MARCH 31, 1996
------------------- --------------
(UNAUDITED)
<S> <C> <C>
Revenue:
Miscellaneous.............................. $ 4 $ 6
---- ----
Total revenue............................ 4 6
---- ----
Costs and Expenses:
Corporate operating expenses............... 63 18
---- ----
Total costs and expenses................. 63 18
---- ----
Net loss..................................... $(59) $(12)
==== ====
</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)................ 56 -- 56
Net loss (unaudited)........................... -- (12) (12)
------ ---- ------
Balance at March 31, 1996 (unaudited)............ $1,650 $(71) $1,579
====== ==== ======
</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 THREE MONTHS
(DATE OF FORMATION) ENDED
THROUGH MARCH 31,
DECEMBER 31, 1995 1996
------------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................... $ (59) $ (12)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Change in accounts payable and accrued
expenses................................. 140 170
------- -------
Net cash provided by operating
activities............................. 81 158
------- -------
Cash flows from investing activities:
Other assets................................ (1,506) (311)
Investment in properties, net of development
costs payable.............................. (2,612) (6,683)
------- -------
Net cash used in investing activities... (4,118) (6,994)
------- -------
Cash flows from financing activities:
Proceeds from intercompany debt............. 2,627 6,668
Capital contributions....................... 1,594 56
------- -------
Net cash provided by financing
activities............................. 4,221 6,724
------- -------
Net increase (decrease) in cash and cash
equivalents.................................. 184 (112)
Beginning balance of cash and cash
equivalents.................................. -- 184
------- -------
Ending balance of cash and cash equivalents... $ 184 $ 72
======= =======
</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 March 31, 1996, the Atlantic-Homestead Village
Group had three properties and seven 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 $117,409 for the three
months ended March 31, 1996. No interest was paid through March 31, 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 $1,090,000 at December 31, 1995 and March 31,
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 March 31, 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 March 31, 1996 and for the three
months ended March 31, 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 three months ended March 31, 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 7.6% at December 31,
1995 and March 31, 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
give the Atlantic-Homestead Village Group borrowing capability in the
aggregate amount of $81,244,906 and are secured by the 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 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 March 31, 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 March 31, 1996 as no properties were operating during
such periods.
6. COMMITMENTS AND CONTINGENCIES:
At March 31, 1996, the Atlantic-Homestead Village Group had unfunded
development commitments for developments under construction of approximately
$2.4 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, MARCH 31,
---------------- -----------
1994 1995 1996
------- ------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash........................................... $ -- $ -- $ 12
REIT and property management fees receivable... 55 470 481
Other current assets........................... -- 67 4
------- ------- -------
Total current assets......................... 55 537 497
Furniture and equipment, net................... 47 228 233
Other assets................................... -- 14 72
------- ------- -------
Total assets................................. $ 102 $ 779 $ 802
======= ======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
----------------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable............................... $ 13 $ 92 $ 6
Accrued expenses............................... 238 807 494
Intercompany debt.............................. -- 1,147 2,043
------- ------- -------
Total current liabilities.................... 251 2,046 2,543
------- ------- -------
Commitments and contingencies
Shareholder's equity (deficit):
Contributed capital............................ 2,371 6,408 8,170
Retained earnings (deficit).................... (2,520) (7,675) (9,911)
------- ------- -------
Total shareholder's equity (deficit)......... (149) (1,267) (1,741)
------- ------- -------
Total liabilities and shareholder's equity
(deficit)....................................... $ 102 $ 779 $ 802
======= ======= =======
</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 THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------------- ------------------
1993 1994 1995 1995 1996
----- ------- ------- ----- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
REIT and property management fees
earned from affiliates.......... $ 254 $ 792 $ 2,007 $ 402 $ 861
Other revenue.................... -- -- 14 -- --
----- ------- ------- ----- -------
Total revenue.................. 254 792 2,021 402 861
----- ------- ------- ----- -------
Costs and Expenses:
Payroll and related expenses..... 707 1,713 4,276 665 1,909
Office expenses.................. 22 67 273 31 147
Travel and entertainment......... 14 60 232 27 105
Recruiting and relocation........ 53 85 822 71 223
Other expenses................... 57 187 601 58 300
Allocation of SCG overhead....... 69 342 972 68 413
----- ------- ------- ----- -------
Total costs and expenses....... 922 2,454 7,176 920 3,097
----- ------- ------- ----- -------
Net loss........................... $(668) $(1,662) $(5,155) $(518) $(2,236)
===== ======= ======= ===== =======
</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)........... 1,762 -- 1,762
Net loss (unaudited)...................... -- (2,236) (2,236)
------ ------- -------
Balance at March 31, 1996 (unaudited)....... $8,170 $(9,911) $(1,741)
====== ======= =======
</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 THREE MONTHS
31, ENDED MARCH 31,
----------------------- ------------------
1993 1994 1995 1995 1996
----- ------- ------- ----- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(668) $(1,662) $(5,155) $(518) $(2,236)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization.. -- 8 39 3 10
Change in:
REIT and property management
fees receivable............... 6 (45) (416) (112) (11)
Accounts payable and accrued
expenses...................... 97 154 648 (106) (399)
Other current assets........... -- -- (67) (4) 63
----- ------- ------- ----- -------
Net cash used by operating
activities.................. (565) (1,545) (4,951) (737) (2,573)
----- ------- ------- ----- -------
Cash flows from investing
activities:
Other assets..................... -- -- (14) -- (58)
Investment in furniture and
equipment....................... -- (55) (220) (55) (15)
----- ------- ------- ----- -------
Net cash used in investing
activities.................. -- (55) (234) (55) (73)
----- ------- ------- ----- -------
Cash flows from financing
activities:
Intercompany debt................ -- -- 1,148 788 896
Capital contributions............ 565 1,600 4,037 4 1,762
----- ------- ------- ----- -------
Net cash provided by
financing activities........ 565 1,600 5,185 792 2,658
----- ------- ------- ----- -------
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 March 31, 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------- -----------
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment............................. $ 54 $ 274 $289
Less: accumulated depreciation.................... (7) (46) (56)
----- ------ ----
Furniture and equipment, net........................ $ 47 $ 228 $233
===== ====== ====
</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 $856,000 and $1,308,000 as of December 31,
1995 and March 31, 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 March 31, 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 March 31, 1996 and for the three
months ended March 31, 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
three months ended March 31, 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 March 31, 1996,
respectively). No interest was paid, all interest was added to the
intercompany debt balance as incurred. Interest expense was $69,843 and
$49,043 for the year ended December 31, 1995 and the three months ended March
31, 1996, respectively, and is included in the "Other expense" caption in the
combined statements of operations.
4. REIT MANAGEMENT AND PROPERTY MANAGEMENT FEES EARNED FROM AFFILIATES
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 March 31, 1996)
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
<S> <C>
March 31, 1995...... $205,630
March 31, 1996...... $361,558
</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>
THREE MONTHS ENDED
------------------
<S> <C>
March 31, 1995...... $196,704
March 31, 1996...... $499,661
</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 April 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 April 30, 1996, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
May 21, 1996
F-40
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
BALANCE SHEET
APRIL 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
APRIL 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.
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 27
operating Homestead Village properties, 5 properties under construction and 22
in pre-development planning (as defined) as of May 20, 1996. ATLANTIC had 1
Homestead Village property under construction and 25 in pre-development
planning as of May 20, 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 April 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 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 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 April 23, 1996, the PTR
subsidiary had approximately $21.1 million and at March 31, 1996 the Atlantic
subsidiary had approximately $2.4 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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS.......... 1
SECTION 1.1 DEFINITIONS.... 1
ARTICLE II THE MERGERS AND
DISTRIBUTION.................. 4
SECTION 2.1 THE MERGERS.... 4
SECTION 2.2 THE
DISTRIBUTION... 5
ARTICLE III REPRESENTATIONS AND
WARRANTIES OF PTR............. 6
SECTION 3.1 ORGANIZATION
AND
QUALIFICATION.. 6
SECTION 3.2 CAPITALIZATION. 6
SECTION 3.3 AUTHORITY; NON-
CONTRAVENTION;
APPROVALS...... 6
SECTION 3.4 REPORTS AND
FINANCIAL
STATEMENTS..... 7
SECTION 3.5 ABSENCE OF
CERTAIN CHANGES
OR EVENTS...... 8
SECTION 3.6 REGISTRATION
STATEMENT AND
PROXY STATEMENT
AND PROSPECTUS. 8
SECTION 3.7 TAXES.......... 8
SECTION 3.8 ABSENCE OF
UNDISCLOSED
LIABILITIES.... 9
SECTION 3.9 LITIGATION..... 9
SECTION 3.10 NO VIOLATION OF
LAW............ 9
SECTION 3.11 PTR ACQUISITION
PROPERTY
CONTRACTS...... 9
SECTION 3.12 ZONING......... 10
SECTION 3.13 TITLE
INSURANCE...... 10
SECTION 3.14 ENVIRONMENTAL
MATTERS........ 10
SECTION 3.15 DEFECTS........ 11
SECTION 3.16 INSURANCE...... 11
SECTION 3.17 UTILITIES AND
ACCESS......... 11
SECTION 3.18 CONDEMNATION... 11
SECTION 3.19 TAXES AND
ASSESSMENTS ON
PTR PROPERTIES. 11
SECTION 3.20 MORTGAGES...... 12
SECTION 3.21 BROKERS AND
FINDERS........ 12
SECTION 3.22 INVESTMENT
COMPANY ACT.... 12
SECTION 3.23 ADEQUACY OF PTR
CONSIDERATION.. 12
ARTICLE IV REPRESENTATIONS AND
WARRANTIES OF ATLANTIC........ 12
SECTION 4.1 ORGANIZATION
AND
QUALIFICATION.. 12
SECTION 4.2 CAPITALIZATION. 13
SECTION 4.3 AUTHORITY; NON-
CONTRAVENTION;
APPROVALS...... 13
SECTION 4.4 FINANCIAL
STATEMENTS..... 14
SECTION 4.5 ABSENCE OF
CERTAIN CHANGES
OR EVENTS...... 15
SECTION 4.6 REGISTRATION
STATEMENT AND
PROXY STATEMENT
AND PROSPECTUS. 15
SECTION 4.7 TAXES.......... 15
SECTION 4.8 ABSENCE OF
UNDISCLOSED
LIABILITIES.... 15
SECTION 4.9 LITIGATION..... 16
SECTION 4.10 NO VIOLATION OF
LAW............ 16
SECTION 4.11 ATLANTIC
ACQUISITION
PROPERTY
CONTRACTS...... 16
SECTION 4.12 ZONING......... 16
SECTION 4.13 TITLE
INSURANCE...... 17
SECTION 4.14 ENVIRONMENTAL
MATTERS........ 17
SECTION 4.15 DEFECTS........ 17
SECTION 4.16 INSURANCE...... 18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 4.17 UTILITIES AND
ACCESS......... 18
SECTION 4.18 CONDEMNATION... 18
SECTION 4.19 TAXES AND
ASSESSMENTS ON
ATLANTIC
PROPERTIES..... 18
SECTION 4.20 MORTGAGES...... 19
SECTION 4.21 BROKERS AND
FINDERS........ 19
SECTION 4.22 INVESTMENT
COMPANY ACT.... 19
SECTION 4.23 ADEQUACY OF
ATLANTIC
CONSIDERATION.. 19
ARTICLE V REPRESENTATIONS AND
WARRANTIES OF SCG............. 19
SECTION 5.1 ORGANIZATION
AND
QUALIFICATION.. 19
SECTION 5.2 CAPITALIZATION. 19
SECTION 5.3 AUTHORITY; NON-
CONTRAVENTION;
APPROVALS...... 20
SECTION 5.4 FINANCIAL
STATEMENTS..... 21
SECTION 5.5 ABSENCE OF
CERTAIN CHANGES
OR EVENTS...... 21
SECTION 5.6 REGISTRATION
STATEMENT AND
PROXY STATEMENT
AND PROSPECTUS. 21
SECTION 5.7 TAXES.......... 21
SECTION 5.8 ABSENCE OF
UNDISCLOSED
LIABILITIES.... 22
SECTION 5.9 LITIGATION..... 22
SECTION 5.10 NO VIOLATION OF
LAW............ 22
SECTION 5.11 SCG ACQUISITION
PROPERTY
CONTRACTS...... 22
SECTION 5.12 ZONING......... 23
SECTION 5.13 TITLE
INSURANCE...... 23
SECTION 5.14 ENVIRONMENTAL
MATTERS........ 23
SECTION 5.15 DEFECTS........ 24
SECTION 5.16 INSURANCE...... 24
SECTION 5.17 CONDEMNATION... 24
SECTION 5.18 TAXES AND
ASSESSMENTS ON
SCG PROPERTIES. 24
SECTION 5.19 EMPLOYEE
BENEFIT PLANS.. 24
SECTION 5.20 MORTGAGES...... 25
SECTION 5.21 INTELLECTUAL
PROPERTY....... 25
SECTION 5.22 BROKERS AND
FINDERS........ 25
SECTION 5.23 INVESTMENT
COMPANY ACT.... 25
SECTION 5.24 ADEQUACY OF SCG
CONSIDERATION.. 25
ARTICLE VI REPRESENTATIONS AND
WARRANTIES OF HOMESTEAD....... 25
SECTION 6.1 ORGANIZATION
AND
QUALIFICATION.. 25
SECTION 6.2 CAPITALIZATION. 25
SECTION 6.3 ISSUANCE OF
SECURITIES..... 26
SECTION 6.4 AUTHORITY; NON-
CONTRAVENTION;
APPROVALS...... 26
SECTION 6.5 REGISTRATION
STATEMENT AND
PROXY STATEMENT
AND PROSPECTUS. 27
SECTION 6.6 ABSENCE OF
UNDISCLOSED
LIABILITIES.... 27
SECTION 6.7 LITIGATION..... 27
SECTION 6.8 NO VIOLATION OF
LAW............ 27
SECTION 6.9 BROKERS AND
FINDERS........ 28
SECTION 6.10 INVESTMENT
COMPANY ACT.... 28
ARTICLE VII CONDUCT OF
BUSINESSES PENDING THE MERGER
CLOSING....................... 28
SECTION 7.1 CONDUCT OF
BUSINESS BY
ATLANTIC, PTR
AND SCG........ 28
SECTION 7.2 CONDUCT OF
BUSINESS BY
HOMESTEAD...... 29
ARTICLE VIII ADDITIONAL
AGREEMENTS.................... 29
SECTION 8.1 ACCESS TO
INFORMATION.... 29
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 8.2 REGISTRATION STATEMENT AND PROXY STATEMENT AND PROSPECTUS. 30
SECTION 8.3 SHAREHOLDERS' APPROVAL.................................... 30
SECTION 8.4 AFFILIATE AGREEMENTS...................................... 30
SECTION 8.5 EXCHANGE.................................................. 30
SECTION 8.6 EXPENSES.................................................. 30
SECTION 8.7 AGREEMENT TO COOPERATE.................................... 31
SECTION 8.8 PUBLIC STATEMENTS......................................... 31
SECTION 8.9 CORRECTIONS TO THE PROXY STATEMENT AND PROSPECTUS AND
REGISTRATION STATEMENT.................................... 31
SECTION 8.10 VOTING OF SHARES.......................................... 31
SECTION 8.11 ATLANTIC IPO REGISTRATION STATEMENT....................... 31
SECTION 8.12 CONFIDENTIALITY........................................... 32
SECTION 8.13 PERSONNEL................................................. 33
SECTION 8.14 EXHIBITS AND SCHEDULES.................................... 33
SECTION 8.15 REIMBURSEMENT OF PURSUIT COSTS............................ 33
SECTION 8.16 PRORATIONS................................................ 33
ARTICLE IX CONDITIONS..................................................... 34
SECTION 9.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.................... 34
SECTION 9.2 CONDITIONS TO OBLIGATIONS OF ATLANTIC..................... 35
SECTION 9.3 CONDITIONS TO OBLIGATIONS OF PTR.......................... 35
SECTION 9.4 CONDITIONS TO OBLIGATIONS OF SCG.......................... 36
SECTION 9.5 CONDITIONS TO OBLIGATIONS OF HOMESTEAD.................... 37
ARTICLE X TERMINATION, AMENDMENT AND WAIVER............................... 38
SECTION 10.1 TERMINATION............................................... 38
SECTION 10.2 EFFECT OF TERMINATION..................................... 38
SECTION 10.3 AMENDMENT................................................. 38
SECTION 10.4 WAIVER.................................................... 39
ARTICLE XI SURVIVAL AND REMEDY; INDEMNIFICATION........................... 39
SECTION 11.1 INDEMNIFICATION........................................... 39
SECTION 11.2 LIMITATION OF INDEMNIFICATION............................. 39
SECTION 11.3 NOTICE OF CLAIMS; ASSUMPTION OF DEFENSE................... 39
SECTION 11.4 SETTLEMENT OR COMPROMISE.................................. 40
SECTION 11.5 FAILURE OF INDEMNIFYING PARTY TO ACT...................... 40
SECTION 11.6 SURVIVAL.................................................. 40
ARTICLE XII GENERAL PROVISIONS............................................ 40
SECTION 12.1 NOTICES................................................... 40
SECTION 12.2 INTERPRETATION............................................ 41
SECTION 12.3 MISCELLANEOUS............................................. 41
SECTION 12.4 COUNTERPARTS.............................................. 41
SECTION 12.5 PARTIES IN INTEREST....................................... 41
SECTION 12.6 LIMITATION OF LIABILITY................................... 42
SECTION 12.7 NO PRESUMPTION AGAINST DRAFTER............................ 42
</TABLE>
iii
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT IARTICLES OF MERGER
EXHIBIT IIATLANTIC PROPERTIES
EXHIBIT IIIPTR PROPERTIES
EXHIBIT IVSCG PROPERTIES
EXHIBIT VOPINION OF MUNGER, TOLLES & OLSON
EXHIBIT VIOPINION OF MAYER, BROWN & PLATT
EXHIBIT VIIFUNDING COMMITMENT AGREEMENT
EXHIBIT VIIIINVESTOR AGREEMENT
EXHIBIT IXOPINION OF KING & SPALDING
EXHIBIT XSCG INVESTOR AGREEMENT
EXHIBIT XIPROTECTION OF BUSINESS AGREEMENT
EXHIBIT XIIESCROW AGREEMENT
EXHIBIT XIIIASSIGNMENT OF REGISTRATION
SCHEDULES
SCHEDULE 3.3(b)PTR REQUIRED CONSENTS
SCHEDULE 3.9PTR LITIGATION
SCHEDULE 4.3(b)ATLANTIC REQUIRED CONSENTS
SCHEDULE 4.9ATLANTIC LITIGATION
SCHEDULE 5.3(b)SCG REQUIRED CONSENTS
SCHEDULE 5.9SCG LITIGATION
SCHEDULE 5.21INTELLECTUAL PROPERTY
SCHEDULE 8.15PURSUIT COSTS
SCHEDULE 9.1(j)ADJUSTMENT OF CAPITAL CONTRIBUTION
</TABLE>
iv
<PAGE>
MERGER AND DISTRIBUTION AGREEMENT
THIS MERGER AND DISTRIBUTION AGREEMENT (this "Agreement"), is entered into
as of May 21, 1996 by and among Security Capital Pacific Trust, a Maryland
real estate investment trust ("PTR"), Security Capital Atlantic Incorporated,
a Maryland corporation ("Atlantic"), Security Capital Group Incorporated, a
Maryland corporation ("SCG"), and Homestead Village Properties Incorporated, a
Maryland corporation ("Homestead").
WHEREAS, the Board of Directors of Atlantic, SCG and Homestead and the Board
of Trustees of PTR have each approved this Agreement and the transactions
contemplated hereby upon the terms and subject to the conditions set forth
herein; and
WHEREAS, it is intended that pursuant to this Agreement each of PTR,
Atlantic and SCG will cause certain of their respective subsidiaries engaged
in the conduct of the extended-stay lodging businesses (the "Business") to be
merged with and into Homestead in exchange for certain securities of
Homestead.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Acquisition Properties" shall mean those PTR Properties, Atlantic
Properties or SCG Properties, as applicable, as to which PTR or a PTR
Subsidiary, Atlantic or an Atlantic Subsidiary or SCG or an SCG Subsidiary,
as applicable, has commenced due diligence, has executed a letter of intent
or acquisition agreement to acquire or has rights to acquire pursuant to an
option or right of first refusal. Such properties are identified as
"Acquisition Properties" on the applicable Exhibits II, III and IV.
Homestead may, with respect to any PTR Acquisition Property, Atlantic
Acquisition Property or SCG Acquisition Property, substitute any property
identified in Schedule 8.15 for any Acquisition Property identified in
Exhibits II, III or IV, respectively, upon prior notice to PTR, Atlantic or
SCG, as the case may be. In addition, Homestead may substitute another
property for an Acquisition Property identified in Exhibits II, III or IV
upon the written approval of PTR, Atlantic or SCG, as the case may be.
"Atlantic Board" shall mean the Board of Directors of Atlantic.
"Atlantic Common Stock" shall mean the shares of common stock, $0.01 par
value per share, of Atlantic.
"Atlantic Distribution Agent" shall mean the distribution agent for the
stockholders of Atlantic, as appointed by Atlantic to distribute shares of
Homestead Stock and Homestead Warrants pursuant to the Distribution.
"Atlantic Distribution Date" shall mean the close of business on the date
determined by the Atlantic Board (or a duly authorized committee thereof)
to be the date as of which the Distribution shall be effected by Atlantic.
"Atlantic Distribution Record Date" shall mean the close of business on
the date determined by the Atlantic Board (or a duly authorized committee
thereof) as the record date for the Distribution by Atlantic, but in no
event shall such date be prior to the later of (i) the date on which the
underwriters' over-allotment option in connection with the Atlantic IPO
shall have been fully exercised or expired or (ii) if a registration
statement relating to the Atlantic IPO has been filed and not withdrawn and
the Atlantic IPO is not
<PAGE>
consummated by November 30, 1996, such date or (iii) if the registration
statement relating to the Atlantic IPO has been filed and subsequently
withdrawn, the date of such withdrawal or (iv) if the registration relating
to the Atlantic IPO has not been filed pursuant to Section 8.11, the date
of the notice required by that Section or (v) the Atlantic Distribution
Date.
"Atlantic IPO" shall mean the initial public offering by Atlantic of
Atlantic Common Stock.
"Atlantic Mortgage" and "Atlantic Mortgages" shall have the meaning set
forth in Section 4.22.
"Atlantic Permitted Encumbrances" shall have the meaning set forth in
Section 4.13.
"Atlantic Properties" shall mean the real properties described in Exhibit
II hereto.
"Atlantic Required Statutory Approvals" shall have the meaning set forth
in Section 4.3(c).
"Atlantic Shareholders' Approval" shall have the meaning set forth in
Section 8.3.
"Atlantic Special Committee" shall have the meaning set forth in Section
9.2(c).
"Atlantic Subsidiaries" shall mean Alabama Homestead Incorporated, an
Alabama corporation, Atlantic Homestead Village Incorporated, a Maryland
corporation, Atlantic Homestead Village (1) Incorporated, a Maryland
corporation, Atlantic Homestead Village (2) Incorporated, a Maryland
corporation, and Atlantic Homestead Village Limited Partnership, a Delaware
limited partnership.
"Business" shall have the meaning set forth in the preamble to this
Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"Development Properties" shall mean those PTR Properties, Atlantic
Properties or SCG Properties, as applicable, which are owned by a PTR
Subsidiary, Atlantic Subsidiary or SCG Subsidiary, as applicable, and which
are in development or under construction or on which development or
construction is planned. Such properties are identified as "Development
Properties" on the applicable Exhibits II, III and IV.
"Distribution" shall mean the distribution by PTR to holders of PTR
Common Shares of the Homestead Stock and Homestead Warrants owned by PTR on
the PTR Distribution Date and the distribution by Atlantic to holders of
Atlantic Common Stock of Homestead Stock and Homestead Warrants owned by
Atlantic on the Atlantic Distribution Date.
"Distribution Agent" shall mean, as applicable, the Atlantic Distribution
Agent or the PTR Distribution Agent.
"Distribution Date" shall mean, as applicable, the Atlantic Distribution
Date or the PTR Distribution Date.
"Distribution Record Date" shall mean, as applicable, the Atlantic
Distribution Record Date or the PTR Distribution Record Date.
"Environmental Laws" means the Resource Conservation and Recovery Act and
the Comprehensive Environmental Response Compensation and Liability Act and
other federal laws governing the environment as in effect on the date of
this Agreement together with their implementing regulations as of the date
of this Agreement, and all state, regional, county, municipal and other
local laws, regulations and ordinances as in effect on the date hereof that
are equivalent or similar to the federal laws recited above or that purport
to regulate Hazardous Materials.
"Environmental Reports" shall mean the Phase I and Phase II environmental
assessments conducted on or with respect to the PTR Properties, Atlantic
Properties or SCG Properties, as applicable, previously delivered or made
available to each of the parties hereto.
"Escrow Agreement" shall mean the Escrow Agreement in substantially the
form set forth in Exhibit XII hereto.
"Exchange" shall mean either the New York Stock Exchange, Inc. or The
Nasdaq Stock Market, Inc.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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"Hazardous Materials" shall mean (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become
friable, polychlorinated biphenyls and, only to the extent it exists at
levels which are considered hazardous to human health, radon gas and (b)
any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "toxic substances," "toxic
pollutants," "contaminants" or "pollutants" or words of similar import,
under any applicable Environmental Laws.
"Homestead Board" shall mean the Board of Directors of Homestead.
"Homestead Required Statutory Approvals" shall have the meaning set forth
in Section 6.4(c).
"Homestead Stock" shall mean the shares of common stock, $0.01 par value
per share, of Homestead.
"Homestead Warrants" shall mean the warrants to acquire shares of
Homestead Stock to be issued pursuant to the terms of the Warrant Purchase
Agreement.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnified Parties" shall have the meaning set forth in Section 11.1.
"Indemnifying Parties" shall have the meaning set forth in Section 11.1.
"Intellectual Property" shall mean all United States and foreign patents,
patent applications, patent licenses, trade names, trademarks, trade name
and trademark registrations (and applications therefor), copyrights and
copyright registrations (and applications therefor), trade secrets,
inventions, processes, designs, know-how and formulae which are in any way
connected to the Business, other than names which include the name
"Security Capital."
"Losses" shall have the meaning set forth in Section 11.1.
"Merger Closing" shall have the meaning set forth in Section 2.1.
"Operating Properties" shall mean those PTR Properties or Atlantic
Properties, as applicable, as to which a PTR Subsidiary or an Atlantic
Subsidiary has commenced commercial operations. Such properties are
identified as "Operating Properties" on the applicable Exhibits II and III.
"Proxy Statement and Prospectus" shall mean the definitive
proxy/information statement and prospectus to be filed with the Commission
as a part of the Registration Statement.
"PTR Board" shall mean the Board of Trustees of PTR.
"PTR Common Shares" shall mean the common shares of beneficial interest,
$1.00 par value per share, of PTR.
"PTR Distribution Agent" shall mean the distribution agent for the
shareholders of PTR, as appointed by PTR to distribute shares of Homestead
Stock and Homestead Warrants pursuant to the Distribution.
"PTR Distribution Date" shall mean the close of business on the date
determined by the PTR Board (or a duly authorized committee thereof) to be
the date as of which the Distribution shall be effected by PTR.
"PTR Distribution Record Date" shall mean the close of business on the
date determined by the PTR Board (or a duly authorized committee thereof)
as the record date for the Distribution by PTR, but in no event shall such
date be prior to the later of (i) the date on which the underwriters' over-
allotment option in connection with the Atlantic IPO shall have been fully
exercised or expired or (ii) if a registration statement relating to the
Atlantic IPO has been filed and not withdrawn and the Atlantic IPO is not
consummated by November 30, 1996, such date or (iii) if the registration
statement relating to the Atlantic IPO has been filed and subsequently
withdrawn, the date of such withdrawal or (iv) if the registration
statement relating to the Atlantic IPO has not been filed pursuant to
Section 8.11, the date of the notice required by that Section or (v) the
PTR Distribution Date.
"PTR Mortgage" and "PTR Mortgages" shall have the meaning as set forth in
Section 3.21.
"PTR Permitted Encumbrances" shall have the meaning set forth in Section
3.13.
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"PTR Properties" shall mean the real properties described in Exhibit III
hereto.
"PTR Required Statutory Approvals" shall have the meaning set forth in
Section 3.3(c).
"PTR Shareholders' Approval" shall have the meaning set forth in Section
8.3.
"PTR Special Committee" shall have the meaning set forth in Section
9.3(c).
"PTR Subsidiaries" shall mean PTR Homestead Village Incorporated, a
Maryland corporation, PTR Homestead Village (1) Incorporated, a Maryland
corporation, and PTR Homestead Village Limited Partnership, a Delaware
limited partnership.
"Registration Statement" shall mean the registration statement on Form S-
4 of Homestead, of which the Proxy Statement and Prospectus will form a
part, to be filed with the Commission in connection with the transactions
contemplated hereby.
"Related Agreements" shall mean each of the agreements, instruments and
documents contemplated to be entered into in connection with this
Agreement, including, without limitation, the Articles of Merger, the
Warrant Purchase Agreement, the Funding Commitment Agreements, the PTR
Investor Agreement, the Atlantic Investor Agreement, the SCG Investor
Agreement, the Administrative Services Agreement, the Escrow Agreement and
the Protection of Business Agreement.
"Representatives" shall have the meaning set forth in Section 8.1.
"SCG Board" shall mean the Board of Directors of SCG.
"SCG Permitted Encumbrances" shall have the meaning set forth in Section
5.13.
"SCG Properties" shall mean the real properties and assets described in
Exhibit IV hereto.
"SCG Required Statutory Approvals" shall have the meaning set forth in
Section 5.3(c).
"SCG Subsidiaries" shall mean Homestead Village Incorporated, a Maryland
corporation, Homestead Realty Services Incorporated, a Maryland
corporation, and SCG Homestead Village Incorporated, a Maryland
corporation.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
including, without limitation, income, gross receipts, excise, property,
sales, withholding, social security, occupation, use, service, service use,
license, payroll, franchise, transfer and recording taxes, fees and
charges, imposed by the United States, or any state, local or foreign
government or subdivision or agency thereof whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall
include any interest, fines, penalties or additional amounts attributable
or imposed on or with respect to any such taxes, charges, fees, levies or
other assessments.
"Tax Returns" shall mean any return, report or other document or
information required to be supplied to a taxing authority in connection
with Taxes.
"Termination Date" shall have the meaning set forth in Section 10.1(b).
"Warrant Purchase Agreement" shall mean that certain Warrant Purchase
Agreement of even date herewith among PTR, Atlantic, SCG and Homestead.
ARTICLE II
THE MERGERS AND DISTRIBUTION
SECTION 2.1 THE MERGERS. The events set forth in this Section 2.1 shall be
effected, upon the terms and subject to the conditions of this Agreement,
immediately prior to the Distribution (the "Merger Closing"). Except as
otherwise specifically set forth herein, it is the intention of the parties
that each of the events set forth in this Section 2.1 shall occur
simultaneously.
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(a) PTR and PTR Subsidiaries. PTR and Homestead shall each take all actions
necessary to cause PTR Homestead Village Incorporated to be merged with and
into Homestead on the terms and conditions described in the Articles of Merger
substantially in the form of Exhibit I hereto (the "Articles of Merger"). All
shares of Homestead Stock issuable in connection with such merger shall be
issued by Homestead directly to the PTR Distribution Agent for the benefit of
the holders of PTR Common Shares on the PTR Distribution Record Date.
(b) Atlantic and Atlantic Subsidiaries. Atlantic and Homestead shall each
take all actions necessary to cause Alabama Homestead Incorporated and
Atlantic Homestead Village Incorporated to be merged with and into Homestead
on the terms and conditions described in the Articles of Merger. All shares of
Homestead Stock issuable in connection with such mergers shall be issued by
Homestead directly to the Atlantic Distribution Agent for the benefit of the
holders of Atlantic Common Stock on the Atlantic Distribution Record Date.
(c) SCG and SCG Subsidiaries. SCG and Homestead shall each take all actions
necessary to cause the SCG Subsidiaries to be merged with and into Homestead
on the terms and conditions described in the Articles of Merger. A portion of
the shares of Homestead Stock issuable in connection with such mergers shall
be issued directly to SCG and a portion of such shares shall be issued to the
escrow agent as provided in the Escrow Agreement.
SECTION 2.2 THE DISTRIBUTION.
(a) The PTR Board (or a duly authorized committee thereof) shall, in its
discretion, establish the PTR Distribution Record Date and the PTR
Distribution Date and any appropriate procedures in connection with the
Distribution by PTR, and the Atlantic Board (or a duly authorized committee
thereof) shall, in its discretion, establish the Atlantic Distribution Record
Date and the Atlantic Distribution Date and any appropriate procedures in
connection with the Distribution by Atlantic, but in no event shall the
Distribution occur prior to such time as all of the conditions set forth in
this Agreement have been satisfied or waived. Each of PTR and Atlantic will
cooperate with one another to make their respective Distribution Record Dates
and Distribution Dates the same.
(b) On the PTR Distribution Date, subject to the conditions and rights of
termination set forth in this Agreement, PTR shall deliver to the PTR
Distribution Agent written instructions to distribute as soon as practicable
following the PTR Distribution Record Date a pro rata number of shares of
Homestead Stock issuable to PTR in connection with the merger contemplated by
Section 2.1(a) and a pro rata number of Homestead Warrants issuable to PTR
pursuant to the Warrant Purchase Agreement to each holder of record of PTR
Common Shares on the PTR Distribution Record Date or designated transferee or
transferees of such holder (and, if applicable, cash in lieu of fractional
shares and fractional warrants pursuant to Section 2.2(d)). PTR shall provide
all certificates and other instruments that the PTR Distribution Agent shall
reasonably require in order to effect the Distribution.
(c) On the Atlantic Distribution Date, subject to the conditions and rights
of termination set forth in this Agreement, Atlantic shall deliver to the
Atlantic Distribution Agent written instructions to distribute as soon as
practicable following the Atlantic Distribution Record Date a pro rata number
of shares of Homestead Stock issuable to Atlantic in connection with the
mergers contemplated by Section 2.1(b) and a pro rata number of Homestead
Warrants issuable to Atlantic in connection with the Warrant Purchase
Agreement to each holder of record of Atlantic Common Stock on the Atlantic
Distribution Record Date or designated transferee or transferees of such
holder (and, if applicable, cash in lieu of fractional shares and fractional
warrants pursuant to Section 2.2(d)). Atlantic shall provide all certificates
and other instruments that the Atlantic Distribution Agent shall reasonably
require in order to effect the Distribution.
(d) No certificates or scrip representing fractional shares of Homestead
Stock or Homestead Warrants shall be issued in connection with the
Distribution. With respect to each of the Homestead Stock and the Homestead
Warrants, the Distribution Agent shall be directed to determine the number of
whole shares and warrants allocable to each holder of record of PTR or
Atlantic, as applicable, to aggregate all remaining fractional shares and
warrants, to sell the whole shares and warrants obtained through such
aggregation on an Exchange or, if the
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Homestead Stock and Homestead Warrants are not listed or quoted on an
Exchange, in such method and for such price as the Distribution Agent shall
deem reasonable, and to cause to be distributed to each such holder to which a
fractional share or warrant shall be allocable, such holder's ratable share of
the net proceeds of such sale. Any fractional shares of Homestead Stock or any
fractional Homestead Warrants remaining after the application of the
provisions of this Section shall be returned to Homestead for cancellation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PTR
PTR represents and warrants to each of the other parties as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. PTR and each of the PTR
Subsidiaries is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and each has the requisite power,
corporate or otherwise, and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted and as it
is proposed by it to be conducted. Each PTR Subsidiary is qualified to do
business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so
qualified and in good standing would not reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of any such
PTR Subsidiaries. True, accurate and complete copies of each of the
Declaration of Trust and Bylaws of PTR and the charter and bylaws, partnership
agreement or other organizational documents of each PTR Subsidiary as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to each of the other parties hereto.
SECTION 3.2 CAPITALIZATION.
(a) The authorized stock of PTR Homestead Village Incorporated consists of
1,000 shares of common stock, $1.00 par value per share, all of which is owned
by PTR, and is validly issued, fully paid and nonassessable. The authorized
stock of PTR Homestead Village (1) Incorporated consists of 1,000 shares of
common stock, $1.00 par value per share, all of which is owned by PTR
Homestead Village Incorporated, and is validly issued, fully paid and
nonassessable. The sole general partner of PTR Homestead Village Limited
Partnership is PTR Homestead Village (1) Incorporated and the sole limited
partner is PTR Homestead Village Incorporated, and all such partnership
interests are validly issued and fully paid.
(b) PTR owns good and marketable title to the stock of the PTR Subsidiaries
owned by it and each PTR Subsidiary owns good and marketable title to the
securities of each other PTR Subsidiary owned by it, in each case, free and
clear of all liens, encumbrances, claims, security interests and defects.
(c) There are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement that is presently exercisable obligating PTR or
any PTR Subsidiary to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of any PTR Subsidiary or obligating PTR or any PTR
Subsidiary to grant, extend or enter into any such agreement or commitment.
There are no voting trusts, proxies or other agreements or understandings to
which PTR or a PTR Subsidiary is a party or is bound with respect to the
voting of any shares of any PTR Subsidiary.
SECTION 3.3 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) PTR and each of the PTR Subsidiaries have full power, corporate or
otherwise, and authority to enter into this Agreement and the Related
Agreements to which it is a party and, subject to PTR Shareholders' Approval
and PTR Required Statutory Approvals, to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Related Agreements, and the consummation by
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PTR and the PTR Subsidiaries of the transactions contemplated hereby and
thereby, have been duly authorized by the PTR Board or the board or other
governing body of each PTR Subsidiary and no other proceedings on the part of
PTR or a PTR Subsidiary are necessary to authorize the execution and delivery
of this Agreement or the Related Agreements and the consummation by PTR and
the PTR Subsidiaries of the transactions contemplated hereby and thereby,
except for PTR Shareholders' Approval and the obtaining of PTR Required
Statutory Approvals. This Agreement has been duly and validly executed and
delivered by PTR, and, assuming the due authorization, execution and delivery
hereof by each other party hereto, constitutes a valid and binding agreement
of PTR enforceable against PTR in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally, (ii) general equitable principles and (iii) to
the extent this Agreement or any of the Related Agreements contains
indemnification provisions for violations of federal or state securities laws,
as enforceability of such provisions may be limited under federal and state
securities laws.
(b) The execution and delivery of this Agreement and the Related Agreements
by PTR and each PTR Subsidiary to the extent it is a party thereto do not, and
the consummation by PTR and the PTR Subsidiaries of the transactions
contemplated hereby and thereby will not, violate, conflict with or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the PTR Properties
under any of the terms, conditions or provisions of (i) subject to obtaining
PTR Shareholders' Approval, PTR's Declaration of Trust or Bylaws, (ii) subject
to obtaining PTR Required Statutory Approvals and PTR Shareholders' Approval,
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to PTR or any PTR Subsidiary or, to PTR's best knowledge, any of
the PTR Properties, (iii) subject to receiving the approvals of the
shareholders and board or other governing body of the PTR Subsidiaries, the
charter or bylaws or other organizational documents of a PTR Subsidiary or
(iv) except as set forth on Schedule 3.3(b) hereto, any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which PTR or
any PTR Subsidiary is now a party or by which PTR or any PTR Subsidiary or, to
PTR's best knowledge, any of the PTR Properties may be bound, excluding from
the foregoing clauses (ii) and (iv) such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the aggregate, be
reasonably expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of PTR or, taken as a whole, the PTR Subsidiaries.
(c) Except for (i) any filings by the parties hereto that may be required by
the HSR Act, (ii) the filing of the Registration Statement, including the
Proxy Statement and Prospectus, with the Commission pursuant to the Securities
Act and the Exchange Act, and the declaration of the effectiveness thereof by
the Commission and filings with various state blue sky authorities, (iii) any
required filings by PTR or a PTR Subsidiary pursuant to Section 2.1(a), (iv)
any required filings with or approvals from applicable federal or state
environmental authorities and (v) any required filings with or approvals from
applicable federal or state housing authorities (the filings and approvals
referred to in clauses (i) through (v) are collectively referred to as the
"PTR Required Statutory Approvals"), to PTR's best knowledge, no declaration,
filing or registration with, or notice to, or authorization, consent or
approval of, any governmental or regulatory body or authority is necessary for
the execution and delivery of this Agreement and the Related Agreements by PTR
or a PTR Subsidiary or the consummation by PTR or a PTR Subsidiary of the
transactions contemplated hereby or thereby, other than such declarations,
filings, registrations, notices, authorizations, consents or approvals which,
if not made or obtained, as the case may be, would not, in the aggregate, be
reasonably expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of PTR or, taken as a whole, the PTR Subsidiaries.
SECTION 3.4 REPORTS AND FINANCIAL STATEMENTS.
(a) PTR has previously delivered or made available to each of the other
parties hereto copies of its audited consolidated financial statements (the
"PTR Financial Statements") for the fiscal year ended December 31,
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1995. The PTR Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis and
fairly present the financial position of PTR and PTR Subsidiaries on a
consolidated basis as of the dates thereof and the results of their operations
and cash flows for the periods then ended.
(b) All of the accounts receivable of the PTR Subsidiaries included in the
PTR Financial Statements or otherwise, including any transactions with related
parties, reflect actual transactions and will not be subject to offset or
deduction and have arisen in the ordinary course of business.
(c) The combined financial statements prepared by PTR with respect to the
Business for the years ended December 31, 1993, 1994 and 1995 have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis and fairly present the financial position of the PTR
Subsidiaries as of the dates presented and the results of their operations and
cash flows for the periods presented.
SECTION 3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1995,
there has not been any material adverse change or any event (other than
general economic or market conditions) which would reasonably be expected to
result in a material adverse change, individually or in the aggregate, in the
business, operations, properties, assets, liabilities, condition (financial or
other), results of operations or prospects of the PTR Subsidiaries, taken as a
whole.
SECTION 3.6 REGISTRATION STATEMENT AND PROXY STATEMENT AND PROSPECTUS. None
of the information to be supplied by PTR for inclusion or incorporation by
reference in (a) the Registration Statement or (b) the Proxy Statement and
Prospectus will, in the case of the Proxy Statement and Prospectus or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and Prospectus and any amendments thereof or supplements
thereto, and at the time of the meetings of shareholders of Atlantic and PTR
to be held in connection with the transactions contemplated by this Agreement
or, in the case of the Registration Statement, as amended or supplemented, at
the time it becomes effective and at the time of such meeting of the
shareholders of Atlantic and PTR, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Proxy Statement
and Prospectus will comply as to form in all material respects with all
applicable laws, including the provisions of the Exchange Act and the rules
and regulations promulgated thereunder, except that no representation is made
by PTR with respect to information supplied by Atlantic, SCG or Homestead or
derived therefrom for inclusion therein.
SECTION 3.7 TAXES.
(a) Each PTR Subsidiary has duly filed with the appropriate governmental
authorities all Tax Returns required to be filed by it for all periods ending
on or prior to the Merger Closing, except to the extent of any Tax Returns for
which an extension of time for filing has been properly filed. Each such
return and filing is true and correct in all material respects. All Taxes
shown as due on all such returns and other filings have been paid. No material
issues have been raised in any examination by any taxing authority with
respect to the businesses and operations of PTR which, by application of
similar principles, reasonably could be expected to result in a proposed
adjustment to the liability for Taxes for any other period not so examined.
All Taxes which each PTR Subsidiary is required by law to withhold or collect,
including without limitation, sales and use taxes, have been duly withheld or
collected and, to the extent required, have been paid over to the proper
governmental authorities or are held in separate bank accounts for such
purpose. There are no liens for Taxes upon the PTR Properties which are
Operating Properties or Development Properties except for statutory liens for
current Taxes not yet due.
(b) PTR has not filed for an extension of a statute of limitations with
respect to any Tax and no governmental authorities have requested an extension
of the statute of limitations with respect to any Tax.
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SECTION 3.8 ABSENCE OF UNDISCLOSED LIABILITIES. Neither PTR nor any PTR
Subsidiary had, at December 31, 1995, and neither has incurred since that
date, any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature (other than ordinary and recurring operating
expenses), with respect to the PTR Properties (a) except liabilities,
obligations or contingencies which are accrued or reserved against in the PTR
Business Financial Statements or reflected in the notes thereto and (b) except
for any liabilities, obligations or contingencies which (i) would not, in the
aggregate, be reasonably expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of the PTR Subsidiaries, taken as a whole
or (ii) have been discharged or paid in full prior to the date hereof.
SECTION 3.9 LITIGATION. Except as set forth on Schedule 3.9, there are no
claims, suits, actions or proceedings pending or, to the best of PTR's
knowledge without any independent investigation, threatened, against, relating
to or affecting any PTR Subsidiary or any of the PTR Properties which are
Operating Properties or Development Properties before or by any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator that could reasonably be expected, either alone or in the
aggregate with all such claims, actions or proceedings, to affect materially
and adversely the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of the PTR
Subsidiaries, taken as a whole. No PTR Subsidiary is subject to any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator which
prohibits or restricts the consummation of the transactions contemplated
hereby or would have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of the PTR Subsidiaries, taken as a whole.
SECTION 3.10 NO VIOLATION OF LAW. To the knowledge of PTR, none of the PTR
Subsidiaries is in violation of or has been given notice or been charged with
any violation of any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental law,
ordinance or regulation) of any governmental or regulatory body or authority,
except for violations which, in the aggregate, would not reasonably be
expected to have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of the PTR Subsidiaries, taken as a whole. To the knowledge of PTR,
none of the PTR Subsidiaries is in violation or has been given notice or been
charged with any violation of any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or regulatory
body or authority with respect to the PTR Properties which are Operating
Properties or Development Properties, except for violations which, in the
aggregate, would not reasonably be expected to have a material adverse effect
on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of the PTR Subsidiaries, taken as a
whole. No investigation or review of the PTR Subsidiaries by any governmental
or regulatory body or authority is pending or, to the best knowledge of PTR
without any independent investigation, threatened, nor has any governmental or
regulatory body or authority indicated to PTR or any PTR Subsidiary an
intention to conduct the same, other than, in each case, those the outcome of
which, as far as reasonably can be foreseen, would not reasonably be expected
to have a material adverse effect on the business, operations, properties,
assets, condition (financial or other), results of operations or prospects of
the PTR Subsidiaries, taken as a whole. Each of the PTR Subsidiaries has all
permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct its
business as presently conducted and as proposed by such PTR Subsidiary to be
conducted, except for permits, licenses, franchises, variances, exemptions,
orders, authorizations, consents and approvals the absence of which, alone or
in the aggregate, would not reasonably be expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial
or other), results of operations or prospects of the PTR Subsidiaries, taken
as a whole.
SECTION 3.11 PTR ACQUISITION PROPERTY CONTRACTS. Copies of all contracts,
arrangements and understandings to which PTR or a PTR Subsidiary is a party
relating to the acquisition of each PTR Property which is an Acquisition
Property have previously been delivered or made available to each of the other
parties
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hereto. To PTR's knowledge, all such contracts, arrangements and
understandings are, to the extent provided therein, valid and binding
agreements of the parties thereto and enforceable against the parties thereto
in accordance with their respective terms, except that such enforcement may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) general equitable principles. The execution and delivery of
this Agreement and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby will not result in a breach of
any provision of, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, any of such contract, arrangement or understanding.
SECTION 3.12 ZONING. No application filed by PTR or any PTR Subsidiary for
variance or change in zoning or in use or occupancy with respect to any PTR
Property which is an Operating Property or a Development Property is pending
before any governmental agency or authority except for those consistent with
the intended use of such properties in the Business and except for those the
failure of which to obtain would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the PTR Subsidiaries, taken as a whole. Neither PTR
nor any PTR Subsidiary has received written notice from any federal, state,
municipal, or other governmental instrumentality (a) requiring the correction
of any condition with respect to any PTR Property which is an Operating
Property or a Development Property, or any part thereof, by reason of a
violation of current applicable laws, regulations, ordinances, building codes
and rules of all applicable municipal, local, state and federal jurisdictions,
including, without limitation, the Americans with Disabilities Act, zoning
ordinances and building codes or (b) that any PTR Property which is an
Operating Property or a Development Property or its current use or operation
violates any restriction, condition or agreement contained in any easement,
restrictive covenant, or similar instrument or agreement affecting any PTR
Property which is an Operating Property or a Development Property. PTR or a
PTR Subsidiary (i) has obtained or holds all certificates of occupancy,
licenses, and permits which, to PTR's knowledge, are required for operating
the PTR Properties which are Operating Properties for their current or
intended use and (ii) has not received any written notice of violation from
any federal, state, municipal, or other governmental instrumentality, or
written notice of an intention by any of the foregoing to revoke any
certificate of occupancy, license, or permit issued by it in connection with
the current or intended use of any PTR Property which is an Operating Property
or a Development Property.
SECTION 3.13 TITLE INSURANCE. An owner's policy of title insurance, or a
commitment to issue such a policy, issued by a nationally recognized title
insurance company has been obtained for each PTR Property which is an
Operating Property or a Development Property. Each owner's policy of title
insurance or commitment (a) insures or will insure the fee simple ownership
interest of the appropriate PTR Subsidiary in each such PTR Property subject
only to those liens, encumbrances, claims, security interests and defects, (i)
disclosed in such title insurance policies and commitments, (ii) created by
the PTR Mortgages and (iii) those which would not, either individually or in
the aggregate, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of the PTR Subsidiaries, taken as a whole (collectively, the "PTR
Permitted Encumbrances") and (b) is in an amount at least equal to the sum of
(x) the cost of the acquisition of such PTR Property and (y) the estimated
costs of any subsequent construction and installation of the improvements made
by such PTR Subsidiary located on such PTR Property (measured at the time of
such construction).
SECTION 3.14 ENVIRONMENTAL MATTERS. Except as set forth in the Environmental
Reports (copies of which have previously been provided or made available to
each of the other parties hereto), PTR has no knowledge of (a) any violation
of Environmental Laws relating to any PTR Property which is an Operating
Property or a Development Property, (b) the release or potential release of
Hazardous Materials on or from any PTR Property which is an Operating Property
or a Development Property in violation of any Environmental Laws, (c)
underground storage tanks located on any PTR Property which is an Operating
Property or a Development Property, or (d) asbestos in or on any PTR Property
which is an Operating Property or a Development Property. Except as set forth
in the Environmental Reports, neither PTR nor any PTR Subsidiary
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has manufactured, introduced, released or discharged from or onto any PTR
Property which is an Operating Property or a Development Property any
Hazardous Materials or any toxic wastes, substances or materials (including,
without limitation, asbestos) in violation of any Environmental Laws, and
neither PTR nor any PTR Subsidiary has used any PTR Property which is an
Operating Property or a Development Property or any part thereof for the
generation, treatment, storage, handling or disposal of any Hazardous
Materials, in violation of any Environmental Laws.
SECTION 3.15 DEFECTS. To the best of PTR's knowledge without any independent
investigation, there are no material defects in the improvements located on a
PTR Property which is an Operating Property or a Development Property
including, without limitation, any defect in the foundation, structural
systems or roof or the electrical, plumbing, heating, ventilating or air
conditioning systems included within the improvements located on such PTR
Property and there are no material repairs or deferred maintenance required to
be made thereto.
SECTION 3.16 INSURANCE. PTR or the PTR Subsidiaries maintain insurance
coverage for the PTR Subsidiaries and the PTR Properties which are Operating
Properties or Development Properties of a type, and in amounts, typical of
similar companies engaged in the extended-stay lodging business. All such
insurance policies are in full force and effect, and with respect to all
policies none of PTR or any PTR Subsidiary is delinquent in the payment of any
premiums thereon, and no notice of cancellation or termination has been
received with respect to any such policy. All such policies are sufficient for
compliance with all requirements of law and of all agreements to which PTR or
the PTR Subsidiaries are a party or otherwise bound and are valid,
outstanding, collectable, and enforceable policies and will remain in full
force and effect through the Merger Closing. Neither PTR nor any PTR
Subsidiary has received written notice within the last 12 months from any
insurance company or board of fire underwriters of any defects or inadequacies
in, on or about any PTR Property which is an Operating Property or a
Development Property or any part or component thereof that would materially
adversely affect the insurability of such PTR Property or cause any material
increase in the premiums for such PTR Property that have not been cured or
repaired to the satisfaction of the party issuing the notice.
SECTION 3.17 UTILITIES AND ACCESS. The improvements located on each PTR
Property which is an Operating Property are connected and serviced by water,
solid waste, sewage disposal, storm drainage, telephone, gas (if applicable)
and electricity which, to PTR's knowledge, meet all requirements imposed by
applicable law. Neither PTR nor any PTR Subsidiary has received notice of any
fact or condition which would result or could result in the termination of the
current access from any PTR Property which is an Operating Property to
existing roads and highways, or to sewer or other utility services currently
serving any such PTR Property.
SECTION 3.18 CONDEMNATION. Neither PTR nor any PTR Subsidiary has been
served with a complaint in a public or private condemnation or similar
proceeding relating to the taking by eminent domain of a PTR Property which is
an Operating Property or a Development Property or any part thereof which
would reasonably be expected to have a material adverse effect upon the
present maintenance, operation, occupancy or use of such PTR Property nor, to
the best of PTR's knowledge without any independent investigation, has any
such proceeding been threatened in writing against PTR or any PTR Subsidiary.
SECTION 3.19 TAXES AND ASSESSMENTS ON PTR PROPERTIES. All real estate taxes
and assessments imposed by governmental authority and any assessments assessed
by governmental authority or by private covenant due and payable for the
current year or other applicable period and all prior years or periods for any
PTR Property which is an Operating Property or a Development Property have
been paid, except for installments due and not yet delinquent, and no such
taxes or assessments are delinquent. All impact fees or other assessments,
fees or charges, however denominated, which may constitute a lien or charge on
any PTR Property which is an Operating Property or a Development Property as a
result of existing improvements or developments or which have been assessed or
charged as a result of any permit, license or approval obtained for any such
PTR Property have been paid when due. To PTR's knowledge, there is not
presently pending any such assessments, fees or charges of any nature with
respect to any such PTR Property or any part thereof, nor has
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PTR received notice of any such assessments, fees or charges being
contemplated. Neither PTR nor any PTR Subsidiary has received notice of, nor
has other knowledge or information of, any proposed change in the valuation of
any PTR Property which is an Operating Property or a Development Property for
real estate taxes from that assessed for the current assessment period, nor
does PTR have any other knowledge or information of any action or proceeding
designed to levy any special assessment against any such PTR Property other
than such as would not, in the aggregate, be reasonably expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the PTR
Subsidiaries, taken as a whole. Neither PTR nor any PTR Subsidiary has
received written notice of any possible future improvements by a governmental
instrumentality, any part of the cost of which would or might be assessed
against any PTR Property which is an Operating Property or a Development
Property, or of any contemplated future assessments of any kind other than
such as would not, in the aggregate, be reasonably expected to have a material
adverse effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of the PTR
Subsidiaries, taken as a whole.
SECTION 3.20 MORTGAGES. Other than any mortgages that will secure the
payment of notes issuable by Homestead to PTR pursuant to the Funding
Commitment Agreement and other than any mortgages that secure payment of notes
issued by a PTR Subsidiary to PTR or another PTR Subsidiary (individually, a
"PTR Mortgage" and collectively, the "PTR Mortgages"), the PTR Properties
which are Operating Properties and Development Properties are not encumbered
by any mortgage, deed of trust, deed to secure debt or other similar security
interest. Each PTR Mortgage is valid and enforceable, is in full force and
effect, and has not been amended, modified or supplemented. All payments,
installments and charges due and payable under a PTR Mortgage have been paid
in full. To the best of PTR's knowledge, no condition or event exists which
with the giving of notice or the passage of time, or both, would constitute a
default by any PTR Subsidiary under a PTR Mortgage. The occurrence of any of
the transactions contemplated by this Agreement will not require the consent
or approval of the holder of a PTR Mortgage and will not violate, conflict
with or constitute a default by any PTR Subsidiary under a PTR Mortgage or
result in a condition or event which with the giving of notice or the passage
of time, or both, would constitute a default by any PTR Subsidiary under a PTR
Mortgage.
SECTION 3.21 BROKERS AND FINDERS. PTR has not employed any broker, finder or
other intermediary in connection with the transactions contemplated by this
Agreement which would be entitled to any brokerage, finder's or similar fee or
commission in connection with this Agreement or the transactions contemplated
hereby.
SECTION 3.22 INVESTMENT COMPANY ACT. PTR is not, and as of the Distribution
Date will not be, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 3.23 ADEQUACY OF PTR CONSIDERATION. No part of the Business as
conducted by PTR is conducted by PTR through any entity other than a PTR
Subsidiary.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ATLANTIC
Atlantic represents and warrants to each of the other parties as follows:
SECTION 4.1 ORGANIZATION AND QUALIFICATION. Atlantic and each of the
Atlantic Subsidiaries is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization and each has the requisite
power, corporate or otherwise, and authority to own, lease and operate its
assets and properties and to carry on its business as it is now being
conducted and as it is proposed by it to be conducted. Each Atlantic
Subsidiary is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not
reasonably be expected to
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have a material adverse effect on the business, operations, properties,
assets, condition (financial or other), results of operations or prospects of
any such Atlantic Subsidiaries. True, accurate and complete copies of each of
the charter and Bylaws of Atlantic and the charter and bylaws, partnership
agreement or other organizational documents of each Atlantic Subsidiary as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to each of the other parties hereto.
SECTION 4.2 CAPITALIZATION.
(a) The authorized capital stock of Alabama Homestead Incorporated consists
of 1,000 common shares, $0.01 par value per share, all of which is owned by
Atlantic, and is validly issued, fully paid and nonassessable. The authorized
stock of Atlantic Homestead Village Incorporated consists of 1,000 shares of
common stock, $1.00 par value per share, all of which is owned by Atlantic,
and is validly issued, fully paid and nonassessable. The authorized stock of
Atlantic Homestead Village (1) Incorporated consists of 1,000 shares of common
stock, $1.00 par value per share, all of which is owned by Atlantic Homestead
Village Incorporated, and is validly issued, fully paid and nonassessable. The
authorized stock of Atlantic Homestead Village (2) Incorporated consists of
1,000 shares of common stock, $1.00 par value per share, all of which is owned
by Atlantic Homestead Village Incorporated, and is validly issued, fully paid
and nonassessable. The sole general partner of Atlantic Homestead Village
Limited Partnership is Atlantic Homestead Village (1) Incorporated and the
sole limited partner is Atlantic Homestead Village (2) Incorporated, and all
such partnership interests are validly issued and fully paid.
(b) Atlantic owns good and marketable title to the stock of the Atlantic
Subsidiaries owned by it and each Atlantic Subsidiary owns good and marketable
title to the securities of each other Atlantic Subsidiary owned by it, in each
case, free and clear of all liens, encumbrances, claims, security interests
and defects.
(c) There are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement that is presently exercisable obligating
Atlantic or any Atlantic Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of Atlantic or any Atlantic
Subsidiary or obligating Atlantic or any Atlantic Subsidiary to grant, extend
or enter into any such agreement or commitment. There are no voting trusts,
proxies or other agreements or understandings to which Atlantic is a party or
is bound with respect to the voting of any shares of Atlantic or any Atlantic
Subsidiary.
SECTION 4.3 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Atlantic and each of the Atlantic Subsidiaries have full power,
corporate or otherwise, and authority to enter into this Agreement and the
Related Agreements to which it is a party and, subject to Atlantic
Shareholders' Approval and Atlantic Required Statutory Approvals, to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Related Agreements, and the consummation by
Atlantic and the Atlantic Subsidiaries of the transactions contemplated hereby
and thereby, have been duly authorized by the Atlantic Board or the board or
other governing body of each Atlantic Subsidiary and no other proceedings on
the part of Atlantic or an Atlantic Subsidiary are necessary to authorize the
execution and delivery of this Agreement or the Related Agreements and the
consummation by Atlantic and the Atlantic Subsidiaries of the transactions
contemplated hereby and thereby, except for the obtaining of Atlantic Required
Statutory Approvals. This Agreement has been duly and validly executed and
delivered by Atlantic, and, assuming the due authorization, execution and
delivery hereof by each other party hereto, constitutes a valid and binding
agreement of Atlantic enforceable against Atlantic in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally, (ii) general equitable
principles and (iii) to the extent this Agreement or any of the Related
Agreements contains indemnification provisions for violations of federal or
state securities laws, as enforceability of such provisions may be limited
under federal and state securities laws.
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(b) The execution and delivery of this Agreement and the Related Agreements
by Atlantic and each Atlantic Subsidiary to the extent it is a party thereto
do not, and the consummation by Atlantic and the Atlantic Subsidiaries of the
transactions contemplated hereby and thereby will not, violate, conflict with
or result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or result in
the creation of any lien, security interest, charge or encumbrance upon any of
the Atlantic Properties under any of the terms, conditions or provisions of
(i) Atlantic's Articles of Incorporation or Bylaws, (ii) subject to obtaining
Atlantic Required Statutory Approvals, any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of
any court or governmental authority applicable to Atlantic or any Atlantic
Subsidiary or, to Atlantic's best knowledge, any of the Atlantic Properties,
(iii) subject to receiving the approvals of the shareholders and board or
other governing body of the Atlantic Subsidiaries, the charter or bylaws or
other organizational documents of an Atlantic Subsidiary or (iv) except as set
forth on Schedule 4.3(b) hereto, any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Atlantic or any
Atlantic Subsidiary is now a party or by which Atlantic or any Atlantic
Subsidiary or, to Atlantic's best knowledge, any of the Atlantic Properties
may be bound, excluding from the foregoing clauses (ii) and (iv) such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances that would
not, in the aggregate, be reasonably expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial
or other), results of operations or prospects of Atlantic or, taken as a
whole, the Atlantic Subsidiaries.
(c) Except for (i) any filings by the parties hereto that may be required by
the HSR Act, (ii) the filing by Atlantic of a registration statement in
connection with the Atlantic IPO and the filing of the Registration Statement,
including the Proxy Statement and Prospectus, with the Commission pursuant to
the Securities Act and the Exchange Act, and the declaration of the
effectiveness thereof by the Commission and filings with various state blue
sky authorities, (iii) any required filings by Atlantic or an Atlantic
Subsidiary pursuant to Section 2.1(b), (iv) any required filings with or
approvals from applicable federal or state environmental authorities and (v)
any required filings with or approvals from applicable federal or state
housing authorities (the filings and approvals referred to in clauses (i)
through (v) are collectively referred to as the "Atlantic Required Statutory
Approvals"), to Atlantic's best knowledge, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the execution
and delivery of this Agreement and the Related Agreements by Atlantic or an
Atlantic Subsidiary or the consummation by Atlantic or an Atlantic Subsidiary
of the transactions contemplated hereby or thereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in
the aggregate, be reasonably expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of Atlantic or, taken as a whole, the
Atlantic Subsidiaries.
SECTION 4.4 FINANCIAL STATEMENTS.
(a) Atlantic has previously delivered or made available to each of the other
parties hereto copies of its audited consolidated financial statements (the
"Atlantic Financial Statements") for the fiscal year ended December 31, 1995.
The Atlantic Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis and
fairly present the financial position of Atlantic and the Atlantic
Subsidiaries on a consolidated basis as of the dates thereof and the results
of their operations and cash flows for the periods then ended.
(b) All of the accounts receivable of the Atlantic Subsidiaries included in
the Atlantic Financial Statements or otherwise, including any transactions
with related parties, reflect actual transactions, are collectible consistent
with Atlantic's past history and will not be subject to offset or deduction
and have arisen in the ordinary course of business.
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(c) The combined financial statements prepared by Atlantic with respect to
the Business for the years ended December 31, 1993, 1994 and 1995 (the
"Atlantic Business Financial Statements") have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
and fairly present the financial position of the Atlantic Subsidiaries as of
the dates presented and the results of their operations and cash flows for the
periods presented.
SECTION 4.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1995,
there has not been any material adverse change or any event (other than
general economic or market conditions) which would reasonably be expected to
result in a material adverse change, individually or in the aggregate, in the
business, operations, properties, assets, liabilities, condition (financial or
other), results of operations or prospects of the Atlantic Subsidiaries, taken
as a whole.
SECTION 4.6 REGISTRATION STATEMENT AND PROXY STATEMENT AND PROSPECTUS. None
of the information to be supplied by Atlantic for inclusion or incorporation
by reference in (a) the Registration Statement or (b) the Proxy Statement and
Prospectus will, in the case of the Proxy Statement and Prospectus or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and Prospectus and any amendments thereof or supplements
thereto, and at the time of the meetings of shareholders of Atlantic and PTR
to be held in connection with the transactions contemplated by this Agreement
or, in the case of the Registration Statement, as amended or supplemented, at
the time it becomes effective and at the time of such meeting of the
shareholders of Atlantic and PTR, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by Atlantic with respect to information supplied by
PTR, SCG or Homestead or derived therefrom for inclusion therein.
SECTION 4.7 TAXES.
(a) Each Atlantic Subsidiary has duly filed with the appropriate
governmental authorities all Tax Returns required to be filed by it for all
periods ending on or prior to the Merger Closing, except to the extent of any
Tax Returns for which an extension of time for filing has been properly filed.
Each such return and filing is true and correct in all material respects. All
Taxes shown as due on all such returns and other filings have been paid. No
material issues have been raised in any examination by any taxing authority
with respect to the businesses and operations of Atlantic which, by
application of similar principles, reasonably could be expected to result in a
proposed adjustment to the liability for Taxes for any other period not so
examined. All Taxes which each Atlantic Subsidiary is required by law to
withhold or collect, including without limitation, sales and use taxes, have
been duly withheld or collected and, to the extent required, have been paid
over to the proper governmental authorities or are held in separate bank
accounts for such purpose. There are no liens for Taxes upon the Atlantic
Properties which are Operating Properties or Development Properties except for
statutory liens for Taxes not yet due.
(b) Atlantic has not filed for an extension of a statute of limitations with
respect to any Tax and no governmental authorities have requested an extension
of the statute of limitations with respect to any Tax.
SECTION 4.8 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Atlantic nor any
Atlantic Subsidiary had, at December 31, 1995, and neither has incurred since
that date, any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature (other than ordinary and recurring
operating expenses), with respect to the Atlantic Properties (a) except
liabilities, obligations or contingencies which are accrued or reserved
against in the Atlantic Business Financial Statements or reflected in the
notes thereto and (b) except for any liabilities, obligations or contingencies
which (i) would not, in the aggregate, be reasonably expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the
Atlantic Subsidiaries, taken as a whole or (ii) have been discharged or paid
in full prior to the date hereof.
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SECTION 4.9 LITIGATION. Except as set forth on Schedule 4.9, there are no
claims, suits, actions or proceedings pending or, to the best of Atlantic's
knowledge without any independent investigation, threatened, against, relating
to or affecting any Atlantic Subsidiary or any of the Atlantic Properties
which are Operating Properties or Development Properties before or by any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that could reasonably be expected, either alone
or in the aggregate with all such claims, actions or proceedings, to affect
materially and adversely the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the
Atlantic Subsidiaries, taken as a whole. No Atlantic Subsidiary is subject to
any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority, or any
arbitrator which prohibits or restricts the consummation of the transactions
contemplated hereby or would have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the Atlantic Subsidiaries, taken as a whole.
SECTION 4.10 NO VIOLATION OF LAW. To the knowledge of Atlantic, none of the
Atlantic Subsidiaries is in violation of or has been given notice or been
charged with any violation of any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or regulatory
body or authority, except for violations which, in the aggregate, would not
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the Atlantic Subsidiaries, taken as a whole. To the
knowledge of Atlantic, none of the Atlantic Subsidiaries is in violation or
has been given notice or been charged with any violation of any law, statute,
order, rule, regulation, ordinance or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any governmental
or regulatory body or authority with respect to the Atlantic Properties which
are Operating Properties or Development Properties, except for violations
which, in the aggregate, would not reasonably be expected to have a material
adverse effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of the Atlantic
Subsidiaries, taken as a whole. No investigation or review of the Atlantic
Subsidiaries by any governmental or regulatory body or authority is pending
or, to the best knowledge of Atlantic without any independent investigation,
threatened, nor has any governmental or regulatory body or authority indicated
to Atlantic or any Atlantic Subsidiary an intention to conduct the same, other
than, in each case, those the outcome of which, as far as reasonably can be
foreseen, would not reasonably be expected to have a material adverse effect
on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of the Atlantic Subsidiaries, taken
as a whole. Each of the Atlantic Subsidiaries has all permits, licenses,
franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct its business as
presently conducted and as proposed by such Atlantic Subsidiary to be
conducted, except for permits, licenses, franchises, variances, exemptions,
orders, authorizations, consents and approvals the absence of which, alone or
in the aggregate, would not reasonably be expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial
or other), results of operations or prospects of the Atlantic Subsidiaries,
taken as a whole.
SECTION 4.11 ATLANTIC ACQUISITION PROPERTY CONTRACTS. Copies of all
contracts, arrangements and understandings to which Atlantic or an Atlantic
Subsidiary is a party relating to the acquisition of each Atlantic Property
which is an Acquisition Property have previously been delivered or made
available to each of the other parties hereto. To Atlantic's knowledge, all
such contracts, arrangements and understandings are, to the extent provided
therein, valid and binding agreements of the parties thereto and enforceable
against the parties thereto in accordance with their respective terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles. The execution and delivery of this Agreement and the Related
Agreements and the consummation of the transactions contemplated hereby and
thereby will not result in a breach of any provision of, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, any of such contract, arrangement
or understanding.
SECTION 4.12 ZONING. No application filed by Atlantic or any Atlantic
Subsidiary for variance or change in zoning or in use or occupancy with
respect to any Atlantic Property which is an Operating Property or a
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Development Property is pending before any governmental agency or authority
except for those consistent with the intended use of such properties in the
Business and except for those the failure of which to obtain would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of the Atlantic
Subsidiaries, taken as a whole. Neither Atlantic nor any Atlantic Subsidiary
has received written notice from any federal, state, municipal, or other
governmental instrumentality (a) requiring the correction of any condition
with respect to any Atlantic Property which is an Operating Property or a
Development Property, or any part thereof, by reason of a violation of current
applicable laws, regulations, ordinances, building codes and rules of all
applicable municipal, local, state and federal jurisdictions, including,
without limitation, the Americans with Disabilities Act, zoning ordinances and
building codes or (b) that any Atlantic Property which is an Operating
Property or a Development Property or its current use or operation violates
any restriction, condition or agreement contained in any easement, restrictive
covenant, or similar instrument or agreement affecting any Atlantic Property
which is an Operating Property or a Development Property. Atlantic or an
Atlantic Subsidiary (i) has obtained or holds all certificates of occupancy,
licenses, and permits which, to Atlantic's knowledge, are required for
operating the Atlantic Properties which are Operating Properties for their
current or intended use and (ii) has not received any written notice of
violation from any federal, state, municipal, or other governmental
instrumentality, or written notice of an intention by any of the foregoing to
revoke any certificate of occupancy, license, or permit issued by it in
connection with the current or intended use of any Atlantic Property which is
an Operating Property or a Development Property.
SECTION 4.13 TITLE INSURANCE. An owner's policy of title insurance, or a
commitment to issue such a policy, issued by a nationally recognized title
insurance company has been obtained for each Atlantic Property which is an
Operating Property or a Development Property. Each owner's policy of title
insurance or commitment (a) insures or will insure the fee simple ownership
interest of the appropriate Atlantic Subsidiary in each such Atlantic Property
subject only to those liens, encumbrances, claims, security interests and
defects, (i) disclosed in the title insurance policies and commitments, (ii)
created by the Atlantic Mortgages and (iii) those which would not, either
individually or in the aggregate, have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of the Atlantic Subsidiaries, taken as a
whole (collectively, the "Atlantic Permitted Encumbrances") and (b) is in an
amount at least equal to the sum of (x) the cost of the acquisition of such
Atlantic Property and (y) the estimated costs of any subsequent construction
and installation of the improvements made by such Atlantic Subsidiary located
on such Atlantic Property (measured at the time of such construction).
SECTION 4.14 ENVIRONMENTAL MATTERS. Except as set forth in the Environmental
Reports (copies of which have previously been provided or made available to
each of the other parties hereto), Atlantic has no knowledge of (a) any
violation of Environmental Laws relating to any Atlantic Property which is an
Operating Property or a Development Property, (b) the release or potential
release of Hazardous Materials on or from any Atlantic Property which is an
Operating Property or a Development Property in violation of any Environmental
Laws, (c) underground storage tanks located on any Atlantic Property which is
an Operating Property or a Development Property, or (d) asbestos in or on any
Atlantic Property which is an Operating Property or a Development Property.
Except as set forth in the Environmental Reports, neither Atlantic nor any
Atlantic Subsidiary has manufactured, introduced, released or discharged from
or onto any Atlantic Property which is an Operating Property or a Development
Property any Hazardous Materials or any toxic wastes, substances or materials
(including, without limitation, asbestos) in violation of any Environmental
Laws, and neither Atlantic nor any Atlantic Subsidiary has used any Atlantic
Property which is an Operating Property or a Development Property or any part
thereof for the generation, treatment, storage, handling or disposal of any
Hazardous Materials, in violation of any Environmental Laws.
SECTION 4.15 DEFECTS. To the best of Atlantic's knowledge without any
independent investigation, there are no material defects in the improvements
located on an Atlantic Property which is an Operating Property or a
Development Property including, without limitation, any defect in the
foundation, structural systems or roof or the electrical, plumbing, heating,
ventilating or air conditioning systems included within the improvements
located on such Atlantic Property and there are no material repairs or
deferred maintenance required to be made thereto.
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SECTION 4.16 INSURANCE. Atlantic or the Atlantic Subsidiaries maintain
insurance coverage for the Atlantic Subsidiaries and the Atlantic Properties
which are Operating Properties or Development Properties of a type, and in
amounts, typical of similar companies engaged in the extended-stay lodging
business. All such insurance policies are in full force and effect, and with
respect to all policies, none of Atlantic nor any Atlantic Subsidiary is
delinquent in the payment of any premiums thereon, and no notice of
cancellation or termination has been received with respect to any such policy.
All such policies are sufficient for compliance with all requirements of law
and of all agreements to which Atlantic or the Atlantic Subsidiaries are a
party or otherwise bound and are valid, outstanding, collectable, and
enforceable policies and will remain in full force and effect through the
Merger Closing. Neither Atlantic nor any Atlantic Subsidiary has received
written notice within the last 12 months from any insurance company or board
of fire underwriters of any defects or inadequacies in, on or about any
Atlantic Property which is an Operating Property or a Development Property or
any part or component thereof that would materially adversely affect the
insurability of such Atlantic Property or cause any material increase in the
premiums for such Atlantic Property that have not been cured or repaired to
the satisfaction of the party issuing the notice.
SECTION 4.17 UTILITIES AND ACCESS. The improvements located on each Atlantic
Property which is an Operating Property are connected and serviced by water,
solid waste, sewage disposal, storm drainage, telephone, gas (if applicable)
and electricity which, to Atlantic's knowledge, meet all requirements imposed
by applicable law. Neither Atlantic nor any Atlantic Subsidiary has received
notice of any fact or condition which would result or could result in the
termination of the current access from any Atlantic Property which is an
Operating Property to existing roads and highways, or to sewer or other
utility services currently serving any such Atlantic Property.
SECTION 4.18 CONDEMNATION. Neither Atlantic nor any Atlantic Subsidiary has
been served with a complaint in a public or private condemnation or similar
proceeding relating to the taking by eminent domain of an Atlantic Property
which is an Operating Property or a Development Property or any part thereof
which would reasonably be expected to have a material adverse effect upon the
present maintenance, operation, occupancy or use of such Atlantic Property
nor, to the best of Atlantic's knowledge without independent investigation,
has any such proceeding been threatened in writing against Atlantic or any
Atlantic Subsidiary.
SECTION 4.19 TAXES AND ASSESSMENTS ON ATLANTIC PROPERTIES. All real estate
taxes and assessments imposed by governmental authority and any assessments
assessed by governmental authority or by private covenant due and payable for
the current year or other applicable period and all prior years or periods for
any Atlantic Property which is an Operating Property or a Development Property
have been paid, except for installments due and not yet delinquent, and no
such taxes or assessments are delinquent. All impact fees or other
assessments, fees or charges, however denominated, which may constitute a lien
or charge on any Atlantic Property which is an Operating Property or a
Development Property as a result of existing improvements or developments or
which have been assessed or charged as a result of any permit, license or
approval obtained for any such Atlantic Property have been paid when due. To
Atlantic's knowledge, there is not presently pending any such assessments,
fees or charges of any nature with respect to any such Atlantic Property or
any part thereof, nor has Atlantic received notice of any such assessments,
fees or charges being contemplated. Neither Atlantic nor any Atlantic
Subsidiary has received notice of, nor has other knowledge or information of,
any proposed change in the valuation of any Atlantic Property which is an
Operating Property or a Development Property for real estate taxes from that
assessed for the current assessment period, nor does Atlantic have any other
knowledge or information of any action or proceeding designed to levy any
special assessment against any such Atlantic Property other than such as would
not, in the aggregate, be reasonably expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial
or other), results of operations or prospects of the Atlantic Subsidiaries,
taken as a whole. Neither Atlantic nor any Atlantic Subsidiary has received
written notice of any possible future improvements by a governmental
instrumentality, any part of the cost of which would or might be assessed
against any Atlantic Property, or of any contemplated future assessments of
any kind other than such as would not, in the aggregate, be reasonably
expected to have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of the Atlantic Subsidiaries, taken as a whole.
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SECTION 4.20 MORTGAGES. Other than any mortgages that will secure the
payment of notes issuable by Homestead to Atlantic pursuant to the Funding
Commitment Agreement and other than any mortgages that secure payment of notes
issued by an Atlantic Subsidiary to Atlantic or another Atlantic Subsidiary
(individually, an "Atlantic Mortgage" and collectively, the "Atlantic
Mortgages"), the Atlantic Properties which are Operating Properties and
Development Properties are not encumbered by any mortgage, deed of trust, deed
to secure debt or other similar security interest. Each Atlantic Mortgage is
valid and enforceable, is in full force and effect, and has not been amended,
modified or supplemented. All payments, installments and charges due and
payable under an Atlantic Mortgage have been paid in full. To the best of
Atlantic's knowledge, no condition or event exists which with the giving of
notice or the passage of time, or both, would constitute a default by any
Atlantic Subsidiary under an Atlantic Mortgage. The occurrence of any of the
transactions contemplated by this Agreement will not require the consent or
approval of the holder of an Atlantic Mortgage and will not violate, conflict
with or constitute a default by any Atlantic Subsidiary under an Atlantic
Mortgage or result in a condition or event which with the giving of notice or
the passage of time, or both, would constitute a default by any Atlantic
Subsidiary under an Atlantic Mortgage.
SECTION 4.21 BROKERS AND FINDERS. Atlantic has not employed any broker,
finder or other intermediary in connection with the transactions contemplated
by this Agreement which would be entitled to any brokerage, finder's or
similar fee or commission in connection with this Agreement or the
transactions contemplated hereby.
SECTION 4.22 INVESTMENT COMPANY ACT. Atlantic is not, and as of the
Distribution Date will not be, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
SECTION 4.23 ADEQUACY OF ATLANTIC CONSIDERATION. No part of the Business as
conducted by Atlantic is conducted by Atlantic through any entity other than
an Atlantic Subsidiary.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SCG
SCG represents and warrants to each of the other parties as follows:
SECTION 5.1 ORGANIZATION AND QUALIFICATION. SCG and each of the SCG
Subsidiaries is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and each has the requisite power,
corporate or otherwise, and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted and as it
is proposed by it to be conducted. Each SCG Subsidiary is qualified to do
business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so
qualified and in good standing would not reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of any such
SCG Subsidiaries. True, accurate and complete copies of each of the charter
and Bylaws of SCG and the charter and bylaws, partnership agreement or other
organizational documents of each SCG Subsidiary as in effect on the date
hereof, including all amendments thereto, have heretofore been delivered to
each of the other parties hereto.
SECTION 5.2 CAPITALIZATION.
(a) The authorized stock of each SCG Subsidiary (other than SCG Homestead
Village Incorporated) consists of 1,000 shares of common stock, $1.00 par
value per share, all of which is owned by SCG or a wholly owned subsidiary of
SCG. The authorized stock of SCG Homestead Village Incorporated consists of
1,000 shares of common stock, $0.01 par value per share, 100 shares of which
is outstanding and owned by SCG or a wholly owned subsidiary of SCG. All such
shares of stock are validly issued, fully paid and nonassessable. SCG or one
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of its wholly owned subsidiaries owns good and marketable title to the capital
stock of the SCG Subsidiaries, in each case, free and clear of all liens,
encumbrances, claims, security interests and defects, except such liens,
encumbrances, claims, security interests and defects disclosed on Schedule
5.3(b) hereto.
(b) There are no outstanding subscriptions, options, call, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement that is presently exercisable obligating SCG or
any subsidiary of SCG to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of any SCG Subsidiary or obligating SCG
or any subsidiary of SCG to grant, extend or enter into any such agreement or
commitment. There are no voting trusts, proxies or other agreements or
understandings to which SCG or any subsidiary of SCG is a party or is bound
with respect to the voting of any shares of any SCG Subsidiary.
SECTION 5.3 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) SCG and each of the SCG Subsidiaries have full power, corporate or
otherwise, and authority to enter into this Agreement and the Related
Agreements to which it is party and, subject to SCG Required Statutory
Approvals, to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Related Agreements, and the
consummation by SCG and the SCG Subsidiaries of the transactions contemplated
hereby and thereby, have been duly authorized by the SCG Board and the board
of each SCG Subsidiary and no other corporate proceedings on the part of SCG
or any SCG Subsidiary are necessary to authorize the execution and delivery of
this Agreement or the Related Agreements and the consummation by SCG and the
SCG Subsidiaries of the transactions contemplated hereby and thereby, except
for the obtaining of SCG Required Statutory Approvals. This Agreement has been
duly and validly executed and delivered by SCG, and, assuming the due
authorization, execution and delivery hereof by each other party hereto,
constitutes a valid and binding agreement of SCG enforceable against SCG in
accordance with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally, (ii)
general equitable principles and (iii) to the extent this Agreement or any of
the Related Agreements contains indemnification provisions for violations of
federal or state securities laws, as enforceability of such provisions may be
limited under federal and state securities laws.
(b) The execution and delivery of this Agreement and the Related Agreements
by SCG and each SCG Subsidiary to the extent it is a party thereto do not, and
the consummation by SCG and the SCG Subsidiaries of the transactions
contemplated hereby and thereby will not, violate, conflict with or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the SCG Properties
under any of the terms, conditions or provisions of (i) SCG's Articles of
Incorporation or Bylaws, (ii) subject to obtaining SCG Required Statutory
Approvals, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to SCG or any SCG Subsidiary or, to SCG's best knowledge,
any of the SCG Properties, (iii) subject to receiving the approvals of the
shareholders and board of the SCG Subsidiaries, the charter or bylaws of an
SCG Subsidiary or (iv) except as set forth on Schedule 5.3(b) hereto, any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of
any kind to which SCG or any SCG Subsidiary is now a party or by which SCG or
any SCG Subsidiary or, to SCG's best knowledge, any of the SCG Properties may
be bound, excluding from the foregoing clauses (ii) and (iv) such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not, in the
aggregate, be reasonably expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of SCG or, taken as a whole, the SCG
Subsidiaries.
(c) Except for (i) any filings by the parties hereto that may be required by
the HSR Act, (ii) the filing of the Registration Statement, including the
Proxy Statement and Prospectus, with the Commission pursuant to the
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Securities Act and the Exchange Act, and the declaration of the effectiveness
thereof by the Commission and filings with various state blue sky authorities,
(iii) any required filings by SCG or an SCG Subsidiary pursuant to Section
2.1(c), (iv) any required filings with or approvals from applicable federal or
state environmental authorities and (v) any required filings with or approvals
from applicable federal or state housing authorities (the filings and
approvals referred to in clauses (i) through (v) are collectively referred to
as the "SCG Required Statutory Approvals"), to SCG's best knowledge, no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement and the Related
Agreements by SCG or any SCG Subsidiary or the consummation by SCG or any SCG
Subsidiary of the transactions contemplated hereby or thereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in
the aggregate, be reasonably expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of SCG or, taken as a whole, the SCG
Subsidiaries.
SECTION 5.4 FINANCIAL STATEMENTS. The combined financial statements prepared
by SCG with respect to the Business for the years ended December 31, 1993,
1994 and 1995 (the "SCG Business Financial Statements") have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis and fairly present the financial position of the SCG
Subsidiaries as of the dates presented and the results of their operations and
cash flows for the periods presented.
SECTION 5.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1995,
there has not been any material adverse change or any event (other than
general economic or market conditions) which would reasonably be expected to
result in a material adverse change, individually or in the aggregate, in the
business, operations, properties, assets, liabilities, condition (financial or
other), results of operations or prospects of the SCG Subsidiaries, taken as a
whole.
SECTION 5.6 REGISTRATION STATEMENT AND PROXY STATEMENT AND PROSPECTUS. None
of the information to be supplied by SCG for inclusion or incorporation by
reference in (a) the Registration Statement or (b) the Proxy Statement and
Prospectus will, in the case of the Proxy Statement and Prospectus or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and Prospectus and any amendments thereof or supplements
thereto, and at the time of the meetings of shareholders of Atlantic and PTR
to be held in connection with the transactions contemplated by this Agreement
or, in the case of the Registration Statement, as amended or supplemented, at
the time it becomes effective and at the time of such meeting of the
shareholders of Atlantic and PTR, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by SCG with respect to information supplied by PTR,
Atlantic or Homestead or derived therefrom for inclusion therein.
SECTION 5.7 TAXES.
(a) Each SCG Subsidiary has duly filed with the appropriate governmental
authorities all Tax Returns required to be filed by it for all periods ending
on or prior to the Merger Closing, except to the extent of any Tax Returns for
which an extension of time for filing has been properly filed. Each such
return and filing is true and correct in all material respects. Each such
return and filing is true and correct in all material respects. All Taxes
shown as due on all such returns and other filings have been paid. No material
issues have been raised in any examination by any taxing authority with
respect to the businesses and operations of SCG which, by application of
similar principles, reasonably could be expected to result in a proposed
adjustment to the liability for Taxes for any other period not so examined.
All Taxes which each SCG Subsidiary is required by law to withhold or collect,
including without limitation, sales and use taxes, have been duly withheld or
collected and, to the extent required, have been paid over to the proper
governmental authorities or are held in separate bank accounts for such
purpose. There are no liens for Taxes upon the SCG Properties which are
Development Properties except for statutory liens for Taxes not yet due.
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(b) SCG has not filed for an extension of a statute of limitations with
respect to any Tax and no governmental authorities have requested an extension
of the statute of limitations with respect to any Tax.
SECTION 5.8 ABSENCE OF UNDISCLOSED LIABILITIES. Neither SCG nor any SCG
Subsidiary had, at December 31, 1995, and neither has incurred since that
date, any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature (other than ordinary and recurring operating
expenses), with respect to the SCG Properties (a) except liabilities,
obligations or contingencies which are accrued or reserved against in the SCG
Business Financial Statements or reflected in the notes thereto and (b) except
for any liabilities, obligations or contingencies which (i) would not, in the
aggregate, be reasonably expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of the SCG Subsidiaries, taken as a whole
or (ii) have been discharged or paid in full prior to the date hereof.
SECTION 5.9 LITIGATION. Except as set forth on Schedule 5.9, there are no
claims, suits, actions or proceedings pending or, to the best of SCG's
knowledge without any independent investigation, threatened, against, relating
to or affecting any SCG Subsidiary or any of the SCG Properties which are
Development Properties before or by any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that could
reasonably be expected, either alone or in the aggregate with all such claims,
actions or proceedings, to affect materially and adversely the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the SCG Subsidiaries, taken as a whole. No SCG
Subsidiary is subject to any judgment, decree, injunction, rule or order of
any court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator which prohibits or restricts the consummation of
the transactions contemplated hereby or would have a material adverse effect
on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of the SCG Subsidiaries, taken as a
whole.
SECTION 5.10 NO VIOLATION OF LAW. To the knowledge of SCG, none of the SCG
Subsidiaries is in violation of or has been given notice or been charged with
any violation of any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental law,
ordinance or regulation) of any governmental or regulatory body or authority,
except for violations which, in the aggregate, would not reasonably be
expected to have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of the SCG Subsidiaries, taken as a whole. To the knowledge of SCG,
none of the SCG Subsidiaries is in violation or has been given notice or been
charged with any violation of any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or regulatory
body or authority with respect to the SCG Properties which are Development
Properties, except for violations which, in the aggregate, would not
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the SCG Subsidiaries, taken as a whole. No
investigation or review of the SCG Subsidiaries by any governmental or
regulatory body or authority is pending or, to the best knowledge of SCG
without any independent investigation, threatened, nor has any governmental or
regulatory body or authority indicated to SCG or any SCG Subsidiary an
intention to conduct the same, other than, in each case, those the outcome of
which, as far as reasonably can be foreseen, would not reasonably be expected
to have a material adverse effect on the business, operations, properties,
assets, condition (financial or other), results of operations or prospects of
the SCG Subsidiaries, taken as a whole. Each of the SCG Subsidiaries has all
permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct its
business as presently conducted and as proposed by such SCG Subsidiary to be
conducted, except for permits, licenses, franchises, variances, exemptions,
orders, authorizations, consents and approvals the absence of which, alone or
in the aggregate, would not reasonably be expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial
or other), results of operations or prospects of the SCG Subsidiaries, taken
as a whole.
SECTION 5.11 SCG ACQUISITION PROPERTY CONTRACTS. Copies of all contracts,
arrangements and understandings to which SCG or an SCG Subsidiary is a party
relating to the acquisition of each SCG
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Property which is an Acquisition Property have previously been delivered or
made available to each of the other parties hereto. To SCG's knowledge, all
such contracts, arrangements and understandings are, to the extent provided
therein, valid and binding agreements of the parties thereto and enforceable
against the parties thereto in accordance with their respective terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles. The execution and delivery of this Agreement and the Related
Agreements and the consummation of the transactions contemplated hereby and
thereby will not result in a breach of any provision of, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, any of such contract, arrangement
or understanding.
SECTION 5.12 ZONING. No application filed by SCG or any SCG Subsidiary for
variance or change in zoning or in use or occupancy with respect to any SCG
Property which is a Development Property is pending before any governmental
agency or authority except for those consistent with the intended use of such
properties in the Business and except for those the failure of which to obtain
would not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the SCG
Subsidiaries, taken as a whole. Neither SCG nor any SCG Subsidiary has
received written notice from any federal, state, municipal, or other
governmental instrumentality requiring (a) the correction of any condition
with respect to any SCG Property which is a Development Property, or any part
thereof, by reason of a violation of current applicable laws, regulations,
ordinances, building codes and rules of all applicable municipal, local, state
and federal jurisdictions, including, without limitation, the Americans with
Disabilities Act, zoning ordinances and building codes or (b) that any SCG
Property which is a Development Property or its current use or operation
violates any restriction, condition or agreement contained in any easement,
restrictive covenant, or similar instrument or agreement affecting any SCG
Property which is a Development Property. SCG or an SCG Subsidiary has not
received any written notice of violation from any federal, state, municipal,
or other governmental instrumentality, or written notice of an intention by
any of the foregoing to revoke any certificate of occupancy, license, or
permit issued by it in connection with the current or intended use of any SCG
Property which is a Development Property.
SECTION 5.13 TITLE INSURANCE. An owner's policy of title insurance, or a
commitment to issue such a policy, issued by a nationally recognized title
insurance company has been obtained for each SCG Property which is a
Development Property. Each owner's policy of title insurance or commitment (a)
insures or will insure the fee simple ownership interest of the appropriate
SCG Subsidiary in each SCG Property subject only to those liens, encumbrances,
claims, security interests and defects, (i) disclosed in the title insurance
policies and commitments, and (ii) those which would not, either individually
or in the aggregate, have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the SCG Subsidiaries, taken as a whole
(collectively, the "SCG Permitted Encumbrances") and (b) is in an amount at
least equal to the sum of (x) the cost of the acquisition of such SCG Property
and (y) the estimated costs of any subsequent construction and installation of
the improvements made by such SCG Subsidiary located on such SCG Property
(measured at the time of such construction).
SECTION 5.14 ENVIRONMENTAL MATTERS. Except as set forth in the Environmental
Reports (copies of which have previously been provided or made available to
each of the other parties hereto), SCG has no knowledge of (a) any violation
of Environmental Laws relating to any SCG Property which is a Development
Property, (b) the release or potential release of Hazardous Materials on or
from any SCG Property which is a Development Property in violation of any
Environmental Laws, (c) underground storage tanks located on any SCG Property
which is a Development Property, or (d) asbestos in or on any SCG Property
which is a Development Property. Except as set forth in the Environmental
Reports, neither SCG nor any SCG Subsidiary has manufactured, introduced,
released or discharged from or onto any SCG Property any Hazardous Materials
or any toxic wastes, substances or materials (including, without limitation,
asbestos) in violation of any Environmental Laws, and neither SCG nor any SCG
Subsidiary has used any SCG Property which is a Development Property or any
part thereof for the generation, treatment, storage, handling or disposal of
any Hazardous Materials, in violation of any Environmental Laws.
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SECTION 5.15 DEFECTS. To the best of SCG's knowledge without any independent
investigation, there are no material defects in the improvements located on an
SCG Property which is a Development Property including, without limitation,
any defect in the foundation, structural systems or roof or the electrical,
plumbing, heating, ventilating or air conditioning systems included within the
improvements located on such SCG Property and there are no material repairs or
deferred maintenance required to be made thereto.
SECTION 5.16 INSURANCE. SCG or the SCG Subsidiaries maintain insurance
coverage for the SCG Subsidiaries and the SCG Properties which are Development
Properties of a type, and in amounts, typical of similar companies engaged in
the extended-stay lodging business. All such insurance policies are in full
force and effect, and with respect to all policies, none of SCG nor any SCG
Subsidiary is delinquent in the payment of any premiums thereon, and no notice
of cancellation or termination has been received with respect to any such
policy. All such policies are sufficient for compliance with all requirements
of law and of all agreements to which SCG or the SCG Subsidiaries are a party
or otherwise bound and are valid, outstanding, collectable, and enforceable
policies and will remain in full force and effect through the Merger Closing.
Neither SCG nor any SCG Subsidiary has received written notice within the last
12 months from any insurance company or board of fire underwriters of any
defects or inadequacies in, on or about any SCG Property which is a
Development Property or any part or component thereof that would materially
adversely affect the insurability of such SCG Property or cause any material
increase in the premiums for such SCG Property that have not been cured or
repaired to the satisfaction of the party issuing the notice.
SECTION 5.17 CONDEMNATION. Neither SCG nor any SCG Subsidiary has been
served with a complaint in a public or private condemnation or similar
proceeding affecting an SCG Property which is an Operating Property or a
Development Property or any part thereof which would reasonably be expected to
have a material adverse effect upon the present maintenance, operation,
occupancy or use of such SCG Property nor, to the best of SCG's knowledge
without independent investigation, has any such proceeding been threatened in
writing against SCG or any SCG Subsidiary.
SECTION 5.18 TAXES AND ASSESSMENTS ON SCG PROPERTIES. All real estate taxes
and assessments imposed by governmental authority and any assessments assessed
by governmental authority or by private covenant due and payable for the
current year or other applicable period and all prior years or periods for any
SCG Property which is a Development Property have been paid, except for
installments due and not yet delinquent, and no such taxes or assessments are
delinquent. All impact fees or other assessments, fees or charges, however
denominated, which may constitute a lien or charge on any SCG Property which
is a Development Property as a result of existing improvements or developments
or which have been assessed or charged as a result of any permit, license or
approval obtained for any such SCG Property have been paid when due. To SCG's
knowledge, there is not presently pending any such assessments, fees or
charges of any nature with respect to any such SCG Property or any part
thereof, nor has SCG received notice of any such assessments, fees or charges
being contemplated. Neither SCG nor any SCG Subsidiary has received notice of,
nor has other knowledge or information of, any proposed change in the
valuation of any SCG Property which is an Operating Property or a Development
Property for real estate taxes from that assessed for the current assessment
period, nor does SCG have any other knowledge or information of any action or
proceeding designed to levy any special assessment against any such SCG
Property. Neither SCG nor any SCG Subsidiary has received written notice of
any possible future improvements by a governmental instrumentality, any part
of the cost of which would or might be assessed against any SCG Property, or
of any contemplated future assessments of any kind other than such as would
not, in the aggregate, be reasonably expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial
or other), results of operations or prospects of the SCG Subsidiaries, taken
as a whole.
SECTION 5.19 EMPLOYEE BENEFIT PLANS. SCG has previously provided or made
available to each of the other parties hereto a copy of each written employee
benefit plan maintained by SCG and/or their affiliates ("Employee Benefit
Plans") that provides retirement, pension, health care, long term disability
income, life insurance and any other post-retirement benefits that as of the
date hereof covers any employee of an SCG
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Subsidiary who will become an employee of Homestead or one of its subsidiaries
after the Merger Closing ("Employees"). Each Employee Benefit Plan complies
and has been administered in form and in operation in all material respects
with all applicable requirements of law and no notice has been issued by any
governmental authority questioning or challenging such compliance.
SECTION 5.20 MORTGAGES. The SCG Properties are not subject to any mortgages,
deeds of trust, deeds to secure debt and other similar security interests
encumbering the SCG Properties or any part thereof.
SECTION 5.21 INTELLECTUAL PROPERTY. Schedule 5.21 is a true and complete
list of all of the Intellectual Property used in the conduct of the Business.
SCG owns all right, title and interest in the Intellectual Property, free and
clear of all liens, encumbrances, claims, security interests and defects,
except for licenses granted by SCG to the PTR Subsidiaries, PTR, and the
Atlantic Subsidiaries. None of the Intellectual Property has been or is the
subject of any pending adverse claim, or to the best knowledge of SCG, any
threatened litigation or claim of infringement. SCG has not received any
notice contesting its right to use any Intellectual Property.
SECTION 5.22 BROKERS AND FINDERS. SCG has not employed any broker, finder or
other intermediary in connection with the transactions contemplated by this
Agreement which would be entitled to any brokerage, finder's or similar fee or
commission in connection with this Agreement or the transactions contemplated
hereby.
SECTION 5.23 INVESTMENT COMPANY ACT. SCG is not, and as of the Distribution
Date will not be, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 5.24 ADEQUACY OF SCG CONSIDERATION. Except for the Intellectual
Property described on Schedule 5.21, no part of the Business as conducted by
SCG is conducted by SCG through any entity other than an SCG Subsidiary.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF HOMESTEAD
SECTION 6.1 ORGANIZATION AND QUALIFICATION. Homestead is duly organized,
validly existing and in good standing under the laws of the State of Maryland
and has the requisite power, corporate or otherwise, and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted and as it is proposed by it to be conducted. As of the
Merger Closing, Homestead will be qualified to do business and in good
standing in each jurisdiction in which the properties owned, leased or
operated by it or proposed to be owned, leased or operated or the nature of
the business conducted by it or proposed to be conducted by it makes such
qualification necessary, except where the failure to be so qualified and in
good standing would not reasonably be expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial
or other), results of operations or prospects of Homestead. True, accurate and
complete copies of each of the charter and Bylaws of Homestead, including all
amendments thereto, have heretofore been delivered to each of the other
parties.
SECTION 6.2 CAPITALIZATION.
(a) The authorized stock of Homestead consists of 250,000,000 shares of
Homestead Stock, of which 1,000 shares of Homestead Stock are issued and
outstanding as of the date hereof. All of the issued and outstanding shares of
Homestead Stock are validly issued, fully paid and nonassessable and free of
preemptive rights. As of the date hereof, Homestead has no subsidiaries.
(b) Except as contemplated by this Agreement and the Related Agreements, as
of the date hereof, there are no outstanding subscriptions, options, calls,
contracts, commitments, understandings, restrictions, arrangements,
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rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement that is presently
exercisable obligating Homestead to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of Homestead Stock or obligating
Homestead to grant, extend or enter into any such agreement or commitment;
provided, however, that the foregoing shall not apply to the adoption by
Homestead of any stock option plan providing for grants of options to
directors and employees nor to any grant of options thereunder nor shall the
foregoing apply to the adoption by Homestead of a shareholder rights plan and
any dividend of rights to acquire securities thereunder. There are no voting
trusts, proxies or other agreements or understandings to which Homestead is a
party or is bound with respect to the voting of any shares of Homestead Stock.
SECTION 6.3 ISSUANCE OF SECURITIES. The shares of Homestead Stock issuable
to PTR, Atlantic and SCG hereunder, when issued in accordance with the
provisions of this Agreement and the Related Agreements, will be duly and
validly authorized and issued and will be fully paid and nonassessable.
SECTION 6.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Homestead has full power, corporate or otherwise, and authority to enter
into this Agreement and the Related Agreements and, subject to the Homestead
Required Statutory Approvals, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the Related
Agreements, and the consummation by Homestead of the transactions contemplated
hereby and thereby, have been duly authorized by the Homestead Board and no
other corporate proceedings on the part of Homestead are necessary to
authorize the execution and delivery of this Agreement and the Related
Agreements and the consummation by Homestead of the transactions contemplated
hereby and thereby, except for the obtaining of Homestead Required Statutory
Approvals. This Agreement has been duly and validly executed and delivered by
Homestead, and, assuming the due authorization, execution and delivery hereof
by each other party hereto, constitutes a valid and binding agreement of
Homestead enforceable against Homestead in accordance with its terms, except
that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally, (ii) general equitable principles
and (iii) to the extent this Agreement or any of the Related Agreements
contains indemnification provisions for violations of federal or state
securities laws, as enforceability of such provisions may be limited under
federal and state securities laws.
(b) The execution and delivery of this Agreement and the Related Agreements
by Homestead to the extent it is a party thereto do not, and the consummation
by Homestead of the transactions contemplated hereby and thereby will not,
violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of its properties under any of the terms,
conditions or provisions of (i) Homestead's charter or Bylaws, (ii) subject to
obtaining Homestead Required Statutory Approvals, any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction, writ, permit or license
of any court or governmental authority applicable to Homestead or, to
Homestead's best knowledge, any of its properties, or (iii) any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which Homestead is now a party or by which Homestead or any of its properties
may be bound, excluding from the foregoing clauses (ii) and (iii) such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances that would
not, in the aggregate, be reasonably expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial
or other), results of operations or prospects of Homestead.
(c) Except for (i) any filings by the parties hereto that may be required by
the HSR Act, (ii) the filing of the Registration Statement, including the
Proxy Statement and Prospectus with the Commission pursuant to the Securities
Act and the Exchange Act, and the declaration of the effectiveness thereof by
the Commission and
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filings with various state blue sky authorities, (iii) any required filings by
Homestead pursuant to Section 2.1, (iv) any required filings with or approvals
from applicable federal or state environmental authorities and (v) any
required filings with or approvals from applicable federal or state housing
authorities (the filings and approvals referred to in clauses (i) through (v)
are collectively referred to as the "Homestead Required Statutory Approvals"),
to Homestead's best knowledge, no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and delivery of
this Agreement and the Related Agreements by Homestead or the consummation by
Homestead of the transactions contemplated hereby or thereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in
the aggregate, be reasonably expected to have a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of Homestead.
SECTION 6.5 REGISTRATION STATEMENT AND PROXY STATEMENT AND PROSPECTUS. None
of the information to be supplied by Homestead for inclusion or incorporation
by reference in (a) the Registration Statement or Atlantic's registration
statement in connection with the Atlantic IPO or (b) the Proxy Statement and
Prospectus will, in the case of the Proxy Statement and Prospectus or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and Prospectus and any amendments thereof or supplements
thereto, and at the time of the meetings of shareholders of Atlantic and PTR
to be held in connection with the transactions contemplated by this Agreement
or, in the case of the Registration Statement or Atlantic's registration
statement in connection with the Atlantic IPO, as amended or supplemented, at
the time it becomes effective and in the case of the Registration Statement at
the time of such meeting of the shareholders of Atlantic and PTR, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Proxy Statement and Prospectus will comply as to form in all
material respects with all applicable laws, including the provisions of the
Securities Act and the Exchange Act (as applicable thereto) and the rules and
regulations promulgated thereunder, except that no representation is made by
Homestead with respect to information supplied by Atlantic or PTR or derived
therefrom for inclusion therein.
SECTION 6.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except in connection with
the negotiation, execution and delivery of this Agreement and the Related
Agreements, Homestead has not incurred any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature (other than ordinary
and recurring operating expenses) except for any liabilities, obligations or
contingencies which (i) would not, in the aggregate, be reasonably expected to
have a material adverse effect on the business, operations, properties,
assets, condition (financial or other), results of operations or prospects of
Homestead or (ii) have been discharged or paid in full prior to the date
hereof.
SECTION 6.7 LITIGATION. Except as set forth on Schedule 6.7, there are no
claims, suits, actions or proceedings pending or, to the best of Homestead's
knowledge without any independent investigation, threatened, against, relating
to or affecting Homestead or any of its properties before or by any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator that could reasonably be expected, either alone or in the
aggregate with all such claims, actions or proceedings, to affect materially
and adversely the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of Homestead.
Homestead is not subject to any judgment, decree, injunction, rule or order of
any court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator which prohibits or restricts the consummation of
the transactions contemplated hereby or would have a material adverse effect
on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of Homestead.
SECTION 6.8 NO VIOLATION OF LAW. To the knowledge of Homestead, Homestead is
not in violation of or has been given notice or been charged with any
violation of any law, statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable environmental law, ordinance or
regulation) of any governmental or regulatory body or authority, except for
violations which, in the aggregate, would not
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reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of Homestead. To the knowledge of Homestead, none of
Homestead's properties is in violation or has been given notice or been
charged with any violation of any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or regulatory
body or authority, except for violations which, in the aggregate, would not
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of Homestead. No investigation or review of Homestead
by any governmental or regulatory body or authority is pending or, to the best
knowledge of Homestead without any independent investigation, threatened, nor
has any governmental or regulatory body or authority indicated to Homestead an
intention to conduct the same, other than, in each case, those the outcome of
which, as far as reasonably can be foreseen, would not reasonably be expected
to have a material adverse effect on the business, operations, properties,
assets, condition (financial or other), results of operations or prospects of
Homestead. Homestead has all permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations, consents and
approvals necessary to conduct its business as presently conducted and as
proposed by Homestead to be conducted, except for permits, licenses,
franchises, variances, exemptions, orders, authorizations, consents and
approvals the absence of which, alone or in the aggregate, would not
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of Homestead.
SECTION 6.9 BROKERS AND FINDERS. Homestead has not employed any broker,
finder or other intermediary in connection with the transactions contemplated
by this Agreement which would be entitled to any brokerage, finder's or
similar fee or commission in connection with this Agreement or the
transactions contemplated hereby.
SECTION 6.10 INVESTMENT COMPANY ACT. Homestead is not, and as of the
Distribution Date will not be, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
ARTICLE VII
CONDUCT OF BUSINESSES PENDING THE MERGER CLOSING
SECTION 7.1 CONDUCT OF BUSINESS BY ATLANTIC, PTR AND SCG. After the date
hereof and prior to the Merger Closing or earlier termination of this
Agreement, except as each other party shall otherwise agree in writing or as
may be otherwise specifically contemplated by this Agreement and the Related
Agreements, each of PTR, Atlantic and SCG shall, with respect to the Business
as conducted by it:
(a) conduct its Business in the ordinary and usual course of business and
consistent with past practice (subject to clause (c) below);
(b) use its respective best efforts to take, or cause to be taken, all
actions reasonably necessary to continue, in the ordinary and normal course
of business and consistent with past practice, with the development of, or
construction on, any of its properties which is a Development Property;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of capital stock of a PTR
Subsidiary, Atlantic Subsidiary or SCG Subsidiary of any class or any debt
or equity securities convertible into or exchangeable for such stock or
amend or modify the terms and conditions of any of the foregoing;
(d) not (i) incur or become contingently liable with respect to any
additional indebtedness for borrowed money in respect of the PTR
Properties, Atlantic Properties or SCG Properties, (ii) take any action
which would jeopardize PTR's or Atlantic's status as a real estate
investment trust under the Code, (iii) sell any PTR Properties, Atlantic
Properties or SCG Properties, (iv) prepay or cause to be prepaid any
principal amount outstanding under any notes secured by any of the PTR
Mortgages or the Atlantic Mortgages (other than a prepayment by a PTR
Subsidiary to the extent that all costs to acquire or develop the PTR
Properties
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is less than the amount outstanding under any such notes immediately prior
to the Merger Closing), (v) purchase or acquire any properties for use as
extended-stay lodging facilities other than pursuant to any contract,
agreement with respect to an Acquisition Property or (vi) enter into any
contract, agreement, commitment or arrangement with respect to any of the
foregoing;
(e) use reasonable efforts to preserve intact its Business organization
and goodwill, keep available the services of its present officers, and
preserve the goodwill and business relationships with all lessees,
operators, suppliers, distributors, customers, and others having business
relationships with it and not engage in any action, directly or indirectly,
with the intent to adversely impact the transactions contemplated by this
Agreement;
(f) confer with one or more representatives of each other party when
requested to report on material operational matters and the general status
of ongoing operations of its respective business to be contributed to
Homestead pursuant to this Agreement; and
(g) maintain, in full force and effect, with all premiums due thereon
paid, policies of insurance covering all of the insurable tangible assets
and businesses of the Atlantic Subsidiaries and Atlantic Properties, the
PTR Subsidiaries and PTR Properties and the SCG Subsidiaries and SCG
Properties in amounts and as to foreseeable risks usually insured against
by persons operating similar businesses under valid and enforceable
policies of insurance issued by nationally recognized insurers.
SECTION 7.2 CONDUCT OF BUSINESS BY HOMESTEAD. After the date hereof and
prior to the Merger Closing or earlier termination of this Agreement, except
as each other party shall otherwise agree in writing or as may be otherwise
specifically contemplated by this Agreement or the Related Agreements,
Homestead shall:
(a) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of stock of Homestead of any class
or any debt or equity securities convertible into or exchangeable for such
stock or amend or modify the terms and conditions of any of the foregoing
(provided that the foregoing shall not apply to the adoption by Homestead
of any stock option plan providing for grants of options to directors and
employees nor to any grant of options thereunder nor shall the foregoing
apply to the adoption by Homestead of a shareholders rights agreement and
any dividend of rights to acquire securities thereunder);
(b) except as described in clause (c) below, not incur or become
contingently liable with respect to any indebtedness for borrowed money or
enter into any contract or arrangement with respect thereto; and
(c) not enter into any contract, arrangement or understanding relating to
the purchase or acquisition of any property or any contract, arrangement or
understanding relating to the disposition of any PTR Property, Atlantic
Property or SCG Property; provided, however, that Homestead may purchase or
acquire properties for use as extended-stay lodging facilities with the
consent of each of the other parties hereto provided that the funds
therefor are loaned from SCG to Homestead at a rate of interest no greater
than the prime rate of interest as announced from time to time by Wells
Fargo Realty Advisors Funding, Incorporated at its Atlanta, Georgia office,
plus one-half of one percent.
ARTICLE VIII
ADDITIONAL AGREEMENTS
SECTION 8.1 ACCESS TO INFORMATION. Each of the parties shall afford to each
of the other parties hereto and their respective accountants, counsel,
financial advisors and other representatives (the "Representatives") full
access during normal business hours throughout the period prior to the Merger
Closing to all properties, books, contracts, commitments and records
(including, but not limited to, Tax Returns) of such party, as appropriate,
and, during such period, each shall furnish promptly to the other (a) a copy
of each report, schedule and other document filed or received pursuant to the
requirements of federal or state securities laws or filed with the Commission
in connection with the transactions contemplated by this Agreement, and (b)
such
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other information concerning their respective businesses, properties and
personnel which are the subject of this Agreement or the Related Agreements as
shall be reasonably requested; provided that no investigation pursuant to this
Section 8.1 shall affect any representation or warranty made herein or the
conditions to the obligations of the respective parties hereto to consummate
the transactions contemplated hereby or thereby. Each party shall promptly
advise each other party in writing of any change or the occurrence of any
event after the date of this Agreement or the Related Agreements having, or
which, insofar as can reasonably be foreseen, in the future may have, any
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the
properties which are the subject of this Agreement or the Related Agreements.
SECTION 8.2 REGISTRATION STATEMENT AND PROXY STATEMENT AND PROSPECTUS. PTR,
Atlantic and Homestead shall file with the Commission as soon as is reasonably
practicable after the date hereof the Proxy Statement and Prospectus and shall
use all reasonable efforts to have the Registration Statement declared
effective by the Commission as promptly as practicable. PTR, Atlantic and
Homestead shall also take any action required to be taken under applicable
state blue sky or securities laws in connection with the Distribution. PTR,
Atlantic and Homestead shall promptly furnish to each other all information,
and take such other actions as may reasonably be requested in connection with
any action by any of them in connection with this Section and shall cooperate
with one another and use their respective best efforts to facilitate the
expeditious consummation of the transactions contemplated by this Agreement
and the Related Agreements.
SECTION 8.3 SHAREHOLDERS' APPROVAL. PTR shall promptly take such action as
may be required by its Declaration of Trust and applicable law, and Atlantic
shall promptly seek to obtain the requisite shareholder approval of this
Agreement and the transactions contemplated hereby, including, in the case of
PTR, amendments to PTR's Declaration of Trust necessary to consummate the
transactions contemplated hereby (the "PTR Shareholders' Approval" and
"Atlantic Shareholders' Approval," as appropriate), and PTR and Atlantic shall
each use their respective best efforts to obtain shareholder approval and
adoption of this Agreement and the transactions contemplated hereby as soon as
practicable following the date upon which the Registration Statement is
declared effective by the Commission. The PTR Board and the Atlantic Board
shall recommend to their respective shareholders the approval of this
Agreement and of the transactions contemplated by this Agreement; provided,
however, that prior to the meeting of shareholders of PTR or Atlantic, the PTR
Board or the Atlantic Board, as the case may be, may withdraw, modify or amend
such recommendation to the extent that the PTR Board or the Atlantic Board, as
the case may be, deems it necessary to do so in the exercise of its fiduciary
obligations to PTR or Atlantic, as the case may be, after being so advised by,
in the case of PTR, Munger, Tolles & Olson, and, in the case of Atlantic, King
& Spalding, or in either case, other nationally recognized counsel not having
an interest in the transactions contemplated by this Agreement or the Related
Agreements.
SECTION 8.4 AFFILIATE AGREEMENTS. PTR and Atlantic shall use their
respective best efforts to cause each principal executive officer, each
director, trustee and each other person who is an "affiliate," as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act, of PTR or
Atlantic to deliver to Homestead on or prior to the Distribution Date a
written agreement (an "Affiliate Agreement") to the effect that such person
will not offer to sell, sell or otherwise dispose of any Homestead Stock or
Homestead Warrants issued in the Distribution, except, in each case, pursuant
to an effective registration statement or in compliance with Rule 145, as
amended from time to time, or in a transaction which, in the opinion of legal
counsel satisfactory to Homestead, is exempt from the registration
requirements of the Securities Act.
SECTION 8.5 EXCHANGE. Homestead shall use its best efforts to effect, at or
before the Distribution Date, authorization for listing or quotation on an
Exchange upon official notice of issuance of the Homestead Stock and Homestead
Warrants to be issued in connection with the Distribution.
SECTION 8.6 EXPENSES. All costs and expenses incurred in connection with
this Agreement, the Related Agreements and the transactions contemplated
hereby and thereby shall be paid by the party incurring such expenses, except
that (a) those expenses incurred in connection with filing, printing and
distributing the Proxy
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Statement and Prospectus shall be paid 63.64%, 28.18% and 8.18% by PTR,
Atlantic and SCG, respectively, (b) and all costs relating to the Atlantic IPO
shall be paid by Atlantic, (c) all transfer, excise or other taxes payable by
reason of the transactions contemplated pursuant to Section 2.1 shall be borne
63.64%, 28.18% and 8.18% by PTR, Atlantic and SCG, respectively, and (d) the
filing fees payable in connection with any required filing under the HSR Act
shall be borne by SCG.
SECTION 8.7 AGREEMENT TO COOPERATE. Subject to the terms and conditions
herein provided, each of the parties hereto shall cooperate and use its
respective best efforts to take, or cause to be taken, all action and to do,
or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement and the Related Agreements,
including using its best efforts to identify and obtain all necessary or
appropriate waivers, consents and approvals to effect all necessary
registrations, filings and submissions (including, but not limited to,
Atlantic Required Statutory Approvals, PTR Required Statutory Approvals, SCG
Required Statutory Approvals, Homestead Required Statutory Approvals, any
filings under federal and state securities laws and the HSR Act and any
submissions requested by the Federal Trade Commission or Department of Justice
in connection therewith) and to lift any injunction or other legal bar to the
transactions contemplated hereby and thereby (and, in such case, to proceed
with such transactions as expeditiously as possible), subject, however, to
obtaining Atlantic Shareholders' Approval and PTR Shareholders' Approval.
SECTION 8.8 PUBLIC STATEMENTS. The parties shall consult with each other
prior to issuing any press release or any written public statement with
respect to this Agreement and the Related Agreements or the transactions
contemplated hereby and thereby and shall not issue any such press release or
written public statement prior to review and approval by the other parties,
except that prior review and approval shall not be required if, in the
reasonable judgment of the party seeking to issue such release or public
statement, prior review and approval would prevent the timely dissemination of
such release or announcement in violation of any applicable law, rule,
regulation or policy of an Exchange.
SECTION 8.9 CORRECTIONS TO THE PROXY STATEMENT AND PROSPECTUS AND
REGISTRATION STATEMENT. Prior to the date of Atlantic Shareholders' Approval
and PTR Shareholders' Approval, each of PTR, Atlantic, SCG and Homestead shall
correct promptly any information provided by it to be used specifically in the
Proxy Statement and Prospectus and Registration Statement or relating to it
and incorporated by reference into the Proxy Statement and Prospectus and
Registration Statement that shall have become false or misleading in any
material respect and shall take all steps necessary to file with the
Commission and have declared effective or cleared by the Commission any
amendment or supplement to the Proxy Statement and Prospectus or the
Registration Statement so as to correct the same and to cause the Proxy
Statement and Prospectus as so corrected to be disseminated to the
shareholders of Atlantic and PTR, in each case to the extent required by
applicable law.
SECTION 8.10 VOTING OF SHARES. SCG will vote all PTR Common Shares and all
shares of Atlantic Common Stock owned by it in favor of the approval and
adoption of this Agreement, the Related Agreements and the transactions
contemplated hereby and thereby; provided, however, that SCG shall not be
obligated to vote any PTR Common Shares or shares of Atlantic Common Stock in
favor of such matters in the event that the PTR Board or the Atlantic Board
withdraws, modifies or amends its recommendation pursuant to Section 8.3.
SECTION 8.11 ATLANTIC IPO REGISTRATION STATEMENT. Atlantic shall file with
the Commission as soon as is reasonably practicable after the date hereof a
registration statement relating to the Atlantic IPO and shall use all
reasonable efforts to have such registration statement declared effective by
the Commission as promptly as practicable. Atlantic shall also take any action
required to be taken under applicable state blue sky or securities laws in
connection with the Atlantic IPO. Atlantic shall promptly furnish to each
other party copies of all information filed by Atlantic with any governmental
authority in connection with the Atlantic IPO. In the event the Atlantic Board
determines that it is not reasonably practicable to file a registration
statement relating to the Atlantic IPO during the term of this Agreement, the
Atlantic Board will give written notice of such determination as promptly as
practicable to each of PTR, SCG and Homestead.
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SECTION 8.12 CONFIDENTIALITY
(a) As used herein, "Confidential Material" means, with respect to any party
hereto (the "Providing Party"), all information, whether oral, written or
otherwise, furnished to any other party hereto (the "Receiving Party") or such
Receiving Party's directors, trustees, officers, partners, Affiliates (as
defined in Rule 12b-2 under the Exchange Act), employees, agents or
representatives (collectively, "Representatives"), by the Providing Party and
all reports, analyses, compilations, studies and other material prepared by
the Receiving Party or its Representatives (in whatever form maintained,
whether documentary, computer storage or otherwise) containing, reflecting or
based upon, in whole or in part, any such information. The term "Confidential
Material" does not include information which (i) is or becomes generally
available, to the public other than as a result of a disclosure by the
Receiving Party, its Representatives or anyone to whom the Receiving Party or
any of its Representatives transmit any Confidential Material in violation of
this Agreement, (ii) is or becomes known or available to the Receiving Party
on a non-confidential basis from a source (other than the Providing Party or
one of its Representatives) who is not, to the knowledge of the Receiving
Party after reasonable inquiry, prohibited from transmitting the information
to the Receiving Party or its Representatives by a contractual, legal,
fiduciary or other obligation or (iii) is contained in the Registration
Statement.
(b) Subject to paragraph (c) below or except as required by applicable laws,
regulations or legal process, the Confidential Material will be kept
confidential and will not, without the prior written consent of the Providing
Party, be disclosed by the Receiving Party or its Representatives, in whole or
in part, and will not be used by the Receiving Party or its Representatives,
directly or indirectly, for any purpose other than in connection with this
Agreement, the Related Agreement and the transactions contemplated hereby or
thereby or evaluating, negotiating or advising with respect to such matters.
Moreover, each Receiving Party agrees to transmit Confidential Material to its
Representatives only if and to the extent that such Representatives need to
know the Confidential Material for purposes of such transactions and are
informed by such Receiving Party of the confidential nature of the
Confidential Material and of the terms of this Section. In any event, each
Receiving Party will be responsible for any actions by its Representatives
which are not in accordance with the provisions hereof.
(c) In the event that any Receiving Party, its Representatives or anyone to
whom such Receiving Party or its Representatives supply the Confidential
Material, are requested (by oral questions, interrogatories, requests for
information or documents, subpoena, civil or criminal investigative demand,
any informal or formal investigation by any government or governmental agency
or authority or otherwise in connection with legal process) to disclose any
Confidential Material, such Receiving Party agrees (i) to immediately notify
the Providing Party of the existence, terms and circumstances surrounding such
a request, (ii) to consult with the Providing Party on the advisability of
taking legal available steps to resist or narrow such request and (iii) if
disclosure of such information is required, to furnish only that portion of
the Confidential Material which, in the opinion of such Receiving Party's
counsel, such Receiving Party is legally compelled to disclose and to
cooperate with any action by the Providing Party to obtain an appropriate
protective order or other reliable assurance that confidential treatment will
be accorded the Confidential Material (it being agreed that the Providing
Party shall reimburse the Receiving Party for all reasonable out-of-pocket
expenses incurred by the Receiving Party in connection with such cooperation).
(d) In the event of the termination of this Agreement in accordance with its
terms, promptly upon request from a Providing Party, the Receiving Party
shall, except to the extent prohibited by applicable laws, regulations or
legal process, redeliver to the Providing Party or destroy all tangible
Confidential Material and will not retain any copies, extracts or other
reproductions thereof in whole or in part. Any such destruction shall be
certified in writing to the Providing Party by an authorized officer of the
Receiving Party supervising the same. Notwithstanding the foregoing, each
Receiving Party and one Representative designated by each Receiving Party
shall be permitted to retain one permanent file copy of each document
constituting Confidential Material to be used only in connection with
litigation arising from the transactions contemplated by this Agreement.
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SECTION 8.13 PERSONNEL.
(a) SCG Liability for Employee Obligations. SCG shall indemnify and hold
harmless Homestead for any and all obligations, debts or liabilities relating
to or arising from any Employee's employment with SCG or an SCG Subsidiary,
which obligation, debt or liability arises prior to the date of the Merger
Closing. SCG shall honor or cause its insurance carriers to honor all claims
for benefits by the Employees under each Employee Benefit Plan with respect to
claims incurred by the Employees or their covered dependents before the
Closing Date.
(b) Homestead Employee Benefit Plans. Homestead shall establish or cause to
be established employee benefit plans for the Employees that are substantially
similar to the SCG Employee Benefit Plans, which plans shall recognize service
of the Employees with Homestead and SCG and its affiliates to the same extent
such service has been recognized under the Employee Benefit Plans.
Notwithstanding the foregoing, (i) the medical plan established by Homestead
shall recognize any deductibles and co-payments Employees have made under the
SCG medical plan in the current plan year and (ii) the 401(k) plan established
by Homestead shall permit investment in Homestead common stock and, to the
extent permitted by applicable law, either accept rollovers of Employees'
accounts under the SCG 401(k) plan or merge the portion of the SCG 401(k) plan
that covers the Employees with and into the new plan.
(c) Homestead's Nonassumption of Liability. Except as provided in paragraph
(b) above, Homestead shall not incur any liability with respect to an Employee
Benefit Plan.
(d) WARN Act. SCG agrees to assume responsibility for giving all notices
required, if any, by the Worker Adjustment and Retraining Notification Act of
1988 (the "WARN Act") or any similar state law or regulation, to assume
liability for any alleged failure to give such notice, and to indemnify and
hold harmless Homestead and its affiliates for any and all claims asserted
under the WARN Act or any similar state law or regulation because of a "plant
closing" or a "mass layoff" occurring on or before the Merger Closing date.
For purposes of this Agreement, the Merger Closing date is the "effective
date" for purposes of the WARN Act.
SECTION 8.14 EXHIBITS AND SCHEDULES.
(a) Immediately prior to the Merger Closing, each of PTR, Atlantic and SCG
shall update Exhibits II, III and IV, as appropriate, to reflect changes in
the status of the properties identified by such parties as Acquisition
Properties, Development Properties and Operating Properties.
(b) Each party hereto shall deliver to each other party hereto at least two
days prior to the Merger Closing date updated schedules to this Agreement
reflecting any changes in such party's scheduled items occurring from the date
hereto to the Merger Closing date.
SECTION 8.15 REIMBURSEMENT OF PURSUIT COSTS. Set forth on Schedule 8.15
hereto is a complete list of all properties identified by PTR, Atlantic or SCG
as to which PTR, Atlantic or SCG, as the case may be, has expended funds in
furtherance of the potential acquisition thereof. Set forth opposite the name
of each such property is the aggregate amount expended by PTR, Atlantic or
SCG, as the case may be, for such purpose as of the date hereof. Upon the
acquisition by Homestead of any of such properties, Homestead shall reimburse
PTR, Atlantic or SCG, as the case may be, all such costs. Homestead further
agrees that any and all additional expenses in furtherance of the acquisition
of such properties shall be borne exclusively by Homestead.
SECTION 8.16 PRORATIONS. Homestead and SCG hereby agree that all of the
items referred to in clauses (i) through (iii) of this Section 8.16 relating
to the operation of the Business as conducted by SCG or an SCG Subsidiary will
be prorated as of the Merger Closing, with SCG liable or entitled to the
benefit of such items to the extent such items relate to any time period up to
and including the date of the Merger Closing, and Homestead liable or entitled
to the benefit of such items to the extent such items relate to periods
subsequent to the date of the Merger Closing: (i) REIT management and property
management fees and expenses relating to
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the operation of the Business; (ii) travel costs and expenses of attorneys,
accountants and other professional related to the operation of the Business;
and (iii) fees and expenses relating to any contract, arrangement or
understanding involving the purchase of goods or the provision of services
relating to the operation of the Business. At the Merger Closing, Homestead
will pay to SCG and SCG will pay to Homestead the amount in cash, if any, due
under this Section 8.16.
ARTICLE IX
CONDITIONS
SECTION 9.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligation of each party to effect the transactions contemplated hereby and by
the Related Agreements shall be subject to the fulfillment at or prior to the
Merger Closing of the following conditions:
(a) Each other party shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Merger Closing and the representations and warranties of each such
other party shall be true and correct in all material respects on and as of
(i) the date made and (ii) the Merger Closing with the same effect as if
made on that date; and each other party shall have received a certificate
of an executive officer of such party to that effect;
(b) This Agreement, the Related Agreements and the transactions
contemplated hereby and thereby shall have been approved by the requisite
vote of shareholders of PTR and Atlantic;
(c) The PTR Board and the Atlantic Board shall have each declared the
dividend contemplated by the Distribution;
(d) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, and no stop order suspending
such effectiveness shall have been issued and remain in effect and no
proceeding for that purpose shall have been initiated or threatened by the
Commission;
(e) Each of PTR and Atlantic shall have received either a favorable
opinion of Mayer, Brown & Platt (in form and substance reasonably
satisfactory to PTR and Atlantic) or a favorable ruling from the Internal
Revenue Service to the effect that the mergers described in Section 2.1
will constitute a transaction subject to Section 351 or the reorganization
provisions of the Code and related provisions;
(f) No preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the
transactions contemplated by this Agreement and the Related Agreements
shall have been issued and remain in effect (each party agreeing to use its
best efforts to have any such injunction, order or decree lifted);
(g) The waiting period applicable to the consummation of the Merger
Closing and the Distribution under the HSR Act shall have expired or been
terminated;
(h) All governmental consents, orders and approvals legally required for
the consummation of the transactions contemplated by this Agreement and the
Related Agreements shall have been obtained and be in effect at the Merger
Closing (including Atlantic Required Statutory Approvals, PTR Required
Statutory Approvals, SCG Required Statutory Approvals and Homestead
Required Statutory Approvals), and all consents, orders and approvals
legally required for the consummation of the transactions contemplated by
this Agreement and the Related Agreements shall have become final orders;
(i) The Homestead Warrants shall have been issued pursuant to the Warrant
Purchase Agreement;
(j) Atlantic shall have contributed $18,620,245 (which amount shall be
adjusted in accordance with the formula set forth in Schedule 9.1(j)) in
cash to Atlantic Homestead Village and shall not have encumbered or
otherwise disposed of such funds;
(k) The registration statement relating to the Atlantic IPO, if filed
with the SEC, shall have been declared effective by the SEC or withdrawn by
Atlantic or, if such registration statement has not been filed, Atlantic
shall have given the notice required by Section 8.11;
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(l) Each of PTR, Atlantic and SCG shall have forgiven all indebtedness
owing to it from each PTR Subsidiary, Atlantic Subsidiary and SCG
Subsidiary, respectively, other than any indebtedness secured by a PTR
Mortgage or an Atlantic Mortgage, as the case may be; and
(m) Each of the parties shall have acquired all material consents
required from third parties necessary to consummate the transactions
contemplated by this Agreement.
SECTION 9.2 CONDITIONS TO OBLIGATIONS OF ATLANTIC. Unless waived by
Atlantic, the obligation of Atlantic to effect the transactions contemplated
hereby and by the Related Agreements shall be subject to the fulfillment at or
prior to the Merger Closing of the following additional conditions:
(a) Atlantic shall have received an opinion from Munger, Tolles & Olson,
counsel to the PTR Special Committee, dated as of the Merger Closing,
substantially in the form set forth in Exhibit V hereto;
(b) Atlantic shall have received an opinion from Mayer, Brown & Platt,
counsel to SCG and Homestead, dated as of the Merger Closing, substantially
in the form set forth in Exhibit VI hereto;
(c) The Special Committee of the Atlantic Board (the "Atlantic Special
Committee") shall have received from an investment banking firm
satisfactory to the Atlantic Special Committee, a written opinion to the
effect that, as of the date of the Proxy Statement and Prospectus, the
consideration to be paid to Atlantic in the transactions contemplated by
this Agreement and by the Related Agreements is fair, from a financial
point of view, to Atlantic shareholders (other than SCG), and such opinion
shall not have been withdrawn, revoked or modified;
(d) The Homestead Stock and Homestead Warrants to be issued in connection
with the Distribution shall have been authorized for listing or quotation
on an Exchange upon official notice of issuance;
(e) Homestead shall have executed and delivered to Atlantic the Funding
Commitment Agreement substantially in the form set forth in Exhibit VII
hereto;
(f) Homestead shall have executed and delivered to Atlantic the Atlantic
Investor Agreement substantially in the form set forth in Exhibit VIII
hereto;
(g) Homestead shall have executed and delivered to Atlantic the
Protection of Business Agreement substantially in the form of Exhibit XI
hereto;
(h) Atlantic shall have received "comfort letters" from the independent
public accountants of PTR, SCG and Homestead, dated as of the effective
date of the Registration Statement, with respect to financial information
of PTR, SCG and Homestead included or incorporated by reference in the
Registration Statement in form and substance reasonably satisfactory to
Atlantic and customary in scope and substance for "comfort letters"
delivered by independent public accountants in connection with registration
statements and proxy statements;
(i) No governmental consent, order or approval legally required for the
consummation of the transactions contemplated by this Agreement and by the
Related Agreements shall have any terms which in the reasonable judgment of
Atlantic, when taken together with the terms of all such consents, orders
or approvals, would materially impair the value of the Homestead Stock and
Homestead Warrants to be received by shareholders of Atlantic as a result
of the transactions contemplated hereby and thereby, and no governmental
authority shall have promulgated any statement, rule or regulation which,
when taken together with all such promulgations, would materially impair
the value of the Homestead Stock and Homestead Warrants to be received by
shareholders of Atlantic as a result of the transactions contemplated
hereby and thereby; and
(j) Atlantic shall have received an opinion from Mayer, Brown & Platt
that the performance of this Agreement will not jeopardize the status of
Atlantic as a "real estate investment trust" under the Code.
SECTION 9.3 CONDITIONS TO OBLIGATIONS OF PTR. Unless waived by PTR, the
obligation of PTR to effect the transactions contemplated hereby and by the
Related Agreements shall be subject to the fulfillment at or prior to the
Merger Closing of the additional following conditions:
(a) PTR shall have received an opinion from King & Spalding, counsel to
the Atlantic Special Committee, dated as of the Merger Closing,
substantially in the form set forth in Exhibit IX hereto;
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(b) PTR shall have received an opinion of Mayer, Brown & Platt, counsel
to SCG and Homestead, dated as of the Merger Closing, substantially in the
form set forth in Exhibit VI hereto;
(c) The Special Committee of the PTR Board (the "PTR Special Committee")
shall have received from an investment banking firm satisfactory to the PTR
Special Committee, an opinion to the effect that, as of the date of the
Proxy Statement and Prospectus, the aggregate consideration to be received
by PTR in exchange for the contribution by PTR to Homestead of the PTR
Properties and the agreement by PTR to enter into the Funding Commitment
Agreement was fair to PTR, and such opinion shall not have been withdrawn,
revoked or modified;
(d) The Homestead Stock and Homestead Warrants to be issued in connection
with the Distribution shall have been authorized for listing or quotation
on an Exchange upon official notice of issuance;
(e) Homestead shall have executed and delivered to PTR the Funding
Commitment Agreement substantially in the form set forth in Exhibit VII
hereto;
(f) Homestead shall have executed and delivered to PTR the PTR Investor
Agreement substantially in the form set forth in Exhibit VIII hereto;
(g) Homestead shall have executed and delivered to PTR the Protection of
Business Agreement substantially in the form of Exhibit XI hereto;
(h) PTR shall have received "comfort letters" from the independent public
accountants of Atlantic, SCG and Homestead, dated as of the effective date
of the Registration Statement, with respect to financial information of
Atlantic, SCG and Homestead included or incorporated by reference in the
Registration Statement in form and substance reasonably satisfactory to PTR
and customary in scope and substance for "comfort letters" delivered by
independent public accountants in connection with registration statements
and proxy statements;
(i) No governmental consent, order or approval legally required for the
consummation of the transactions contemplated by this Agreement and by the
Related Agreements shall have any terms which in the reasonable judgment of
PTR, when taken together with the terms of all such consents, orders or
approvals, would materially impair the value of the Homestead Stock and
Homestead Warrants to be received by shareholders of PTR as a result of the
transactions contemplated hereby and thereby, and no governmental authority
shall have promulgated any statute, rule or regulation which, when taken
together with all such promulgations, would materially impair the value of
the Homestead Stock and Homestead Warrants to be received by shareholders
of PTR as a result of the transactions contemplated hereby and thereby; and
(j) PTR shall have received an opinion from Mayer, Brown & Platt that the
performance of this Agreement will not jeopardize the status of PTR as a
"real estate investment trust" under the Code.
SECTION 9.4 CONDITIONS TO OBLIGATIONS OF SCG. Unless waived by SCG, the
obligation of SCG to effect the transactions contemplated hereby and by the
Related Agreements shall be subject to the fulfillment at or prior to the
Merger Closing of the additional following conditions:
(a) SCG shall have received an opinion from Munger, Tolles & Olson,
counsel to the PTR Special Committee, dated as of the Merger Closing,
substantially in the form set forth in Exhibit V hereto;
(b) SCG shall have received an opinion from King & Spalding, counsel to
the Atlantic Special Committee, dated as of the Merger Closing,
substantially in the form set forth in Exhibit IX hereto;
(c) SCG shall have received "comfort letters" from the independent public
accountants of Atlantic, PTR and Homestead, dated as of the effective date
of the Registration Statement, with respect to financial information of
Atlantic, PTR and Homestead included or incorporated by reference in the
Registration Statement in form and substance reasonably satisfactory to SCG
and customary in scope and substance for "comfort letters" delivered by
independent public accountants in connection with registration statements
and proxy statements;
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(d) Homestead shall have executed and delivered to SCG an Investor
Agreement substantially in the form set forth in Exhibit X hereto;
(e) Homestead shall have executed and delivered to SCG an Administrative
Services Agreement in a form to be agreed upon between SCG and Homestead
and not inconsistent with the description thereof as described in the Proxy
Statement and Prospectus;
(f) Homestead shall have executed and delivered to SCG the Protection of
Business Agreement substantially in the form of Exhibit XI hereto; and
(g) No governmental consent, order or approval legally required for the
consummation of the transactions contemplated by this Agreement shall have
any terms which in the reasonable judgment of SCG, when taken together with
the terms of all such consents, orders or approvals, would materially
impair the value of the Homestead Stock and Homestead Warrants to be
received by SCG in connection with the transactions contemplated hereby and
thereby, and no governmental authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations,
would materially impair the value of the Homestead Stock and Homestead
Warrants to be received by SCG in connection with the transactions
contemplated hereby and thereby.
SECTION 9.5 CONDITIONS TO OBLIGATIONS OF HOMESTEAD. Unless waived by
Homestead, the obligation of Homestead to effect the transactions contemplated
hereby and by the Related Agreements shall be subject to the fulfillment at or
prior to the Merger Closing of the additional following conditions:
(a) Homestead shall have received an opinion from Munger, Tolles & Olson,
counsel to the PTR Special Committee, dated as of the Merger Closing,
substantially in the form set forth in Exhibit V hereto;
(b) Homestead shall have received an opinion from King & Spalding,
counsel to the Atlantic Special Committee, dated as of the Merger Closing,
substantially in the form set forth in Exhibit IX hereto;
(c) Homestead shall have received an opinion from Mayer, Brown & Platt,
counsel to SCG, dated as of the Merger Closing, substantially in the form
set forth in Exhibit VI hereto;
(d) The Affiliate Agreements required to be delivered by affiliates of
PTR and Atlantic pursuant to Section 8.4 shall have been furnished as
required by Section 8.4;
(e) Each of PTR and Atlantic shall have executed and delivered to
Homestead a Funding Commitment Agreement substantially in the form set
forth in Exhibit VII hereto;
(f) Each of PTR and Atlantic shall have executed and delivered to
Homestead an Investor Agreement substantially in the form set forth in
Exhibit VIII hereto;
(g) Homestead shall have received "comfort letters" from the independent
public accountants of Atlantic, PTR and SCG, dated as of the effective date
of the Registration Statement, with respect to financial information of
Atlantic, PTR and SCG included or incorporated by reference in the
Registration Statement in form and substance reasonably satisfactory to
Homestead and customary in scope and substance for "comfort letters"
delivered by independent public accountants in connection with registration
statements and proxy statements;
(h) SCG shall have executed and delivered to Homestead an Investor
Agreement substantially in the form set forth in Exhibit X hereto;
(i) SCG shall have executed and delivered to Homestead an Administrative
Services Agreement substantially in a form to be agreed upon between SCG
and Homestead and not inconsistent with the description thereof as
described in the Proxy Statement and Prospectus;
(j) Each of Atlantic, PTR and SCG shall have executed and delivered to
Homestead the Protection of Business Agreement substantially in the form
set forth in Exhibit XI hereto;
(k) SCG shall have executed and delivered to Homestead the Escrow
Agreement substantially in the form set forth in Exhibit XII hereto;
(l) SCG shall have executed and delivered to SCG Homestead Village
Incorporated, the Assignment of Registration substantially in the form set
forth in Exhibit XIII hereto; and
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(m) No governmental consent, order or approval legally required for the
consummation of the transactions contemplated by this Agreement and by the
Related Agreements shall have any terms which in the reasonable judgment of
Homestead, when taken together with the terms of all such consents, orders
or approvals, would materially impair the value to Homestead of the
transactions contemplated hereby and thereby, and no governmental authority
shall have promulgated any statute, rule or regulation which, when taken
together with all such promulgations, would materially impair to Homestead
the value of the transactions contemplated hereby and thereby.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1 TERMINATION. This Agreement may be terminated at any time prior
to the Merger Closing, whether before or after approval by the shareholders of
PTR and Atlantic:
(a) by mutual consent of each of the parties hereto;
(b) by any of the parties hereto, so long as such party has not breached
any of its obligations hereunder (except for such breaches as are
immaterial), if the transactions contemplated hereby shall not have been
consummated on or before December 31, 1996 (the "Termination Date");
(c) unilaterally by any of the parties hereto (i) if any of the other
parties (A) fails to perform any covenant or agreement in this Agreement in
any material respect, and does not cure the failure, in all material
respects within 15 business days after the terminating party delivers
written notice of the alleged failure or (B) fails to fulfill or complete a
condition to the obligations of the terminating party (which condition is
not waived) by reason of a breach by the non-terminating party of its
obligations hereunder or (ii) if any condition to the obligations of the
terminating party is not satisfied (other than by reason of a breach by
that party of its obligations hereunder), and it reasonably appears that
the condition cannot be satisfied prior to the Termination Date;
(d) unilaterally by any of PTR, SCG or Homestead if Atlantic, through the
Atlantic Board or Atlantic Special Committee, either fails to recommend to
Atlantic's shareholders the approval of this Agreement and the transactions
contemplated hereby or withdraws, modifies or amends such recommendation;
and
(e) unilaterally by any of Atlantic, SCG or Homestead if PTR, through the
PTR Board or PTR Special Committee, either fails to recommend to PTR's
shareholders the approval of this Agreement and the transactions
contemplated hereby or withdraws, modifies or amends such recommendation.
SECTION 10.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement, as provided in Section 10.1, this Agreement shall forthwith become
void and there shall be no further obligation on the part of any party hereto
or their respective officers or directors or trustees (except as set forth in
this Section 10.2 and in Sections 8.6 and 8.12 and Article XI, which shall
survive such termination). Nothing in this Section 10.2 shall relieve any
party from liability for any breach of this Agreement. Upon any termination
pursuant to Section 10.1(d), Atlantic shall pay to each of the other parties
all of the documented, out-of-pocket expenses incurred by such parties after
the date hereof in connection with the transactions contemplated by this
Agreement. Upon any termination pursuant to Section 10.1(e), PTR shall pay to
each of the other parties all of the documented, out-of-pocket expenses
incurred by such parties after the date hereof in connection with the
transactions contemplated by this Agreement.
SECTION 10.3 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto and in
compliance with applicable law; provided, however, this Agreement may not be
amended in any material respect following the PTR Shareholders' Approval or
the Atlantic Shareholders' Approval.
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SECTION 10.4 WAIVER. At any time prior to the Merger Closing, the parties
hereto may (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE XI
SURVIVAL AND REMEDY; INDEMNIFICATION
SECTION 11.1 INDEMNIFICATION. Each party hereto agrees to indemnify (each an
"Indemnifying Party") each other party hereto (other than SCG) and each of
their respective affiliates (other than SCG) (each an "Indemnified Party" and
collectively, the "Indemnified Parties") against, and agrees to hold it and
them harmless from, any and all liabilities, losses, costs, damages, penalties
or expenses (including, without limitation, reasonable attorneys' fees and
expenses and costs of investigation and litigation) (collectively, "Losses")
incurred or suffered by an Indemnified Party arising out of or in connection
with any breach of, or inaccuracy in, any of the representations and
warranties or agreements of the Indemnifying Party under this Agreement, as
such representations and warranties may be updated pursuant to Section 8.14.
SECTION 11.2 LIMITATION OF INDEMNIFICATION. An Indemnified Party shall not
be entitled to indemnification under this Article XI until the aggregate of
all Losses with respect to which such Indemnified Party would otherwise be
entitled to indemnification under this Article XI exceed $200,000, in which
event the Indemnified Party shall be entitled to all such Losses including
such $200,000; provided, however, that none of the indemnification obligations
of PTR, Atlantic and SCG hereunder (other than for Losses arising in
connection with a breach of the representations and warranties set forth in
Sections 3.7, 4.7, and 5.7, as applicable) shall exceed the fair market value
of the securities of Homestead received by them pursuant to Section 2.1 of
this Agreement; and provided, further, that the indemnification obligations of
Homestead hereunder shall not exceed in the aggregate the fair market value as
of all Homestead Stock and Homestead Warrants issued in connection herewith or
in connection with any of the Related Agreements. For purposes of this Section
11.2, the fair market value of a share of Homestead Stock and a Homestead
Warrant shall be based upon the first sale price of a share of Homestead Stock
and a Homestead Warrant, respectively, once public trading in such security
commences.
SECTION 11.3 NOTICE OF CLAIMS; ASSUMPTION OF DEFENSE. The Indemnified Party
shall give prompt notice to the Indemnifying Party, in accordance with the
terms of Section 12.1, of the assertion of any claim, or the commencement of
any suit, action or proceeding by any party in respect of which indemnity may
be sought hereunder, specifying with reasonable particularity the basis
therefor and giving the Indemnifying Party such information with respect
thereto as the Indemnifying Party may reasonably request. The Indemnifying
Party may, at its own expense, (a) participate in and, (b) upon notice to the
Indemnified Party and upon the Indemnifying Party's written agreement that the
Indemnified Party is entitled to indemnification pursuant to Section 11.1 for
Losses arising out of such claim, suit, action or proceeding, at any time
during the course of any such claim, suit, action or proceeding, assume the
defense thereof; provided that (x) the Indemnifying Party's counsel is
reasonably satisfactory to the Indemnified Party; and (y) the Indemnifying
Party shall thereafter consult with the Indemnified Party upon its reasonable
request from time to time with respect to such claim, suit, action or
proceeding; provided, however, that the Indemnified Party shall have the right
to retain its own counsel, with the reasonable fees and expenses to be paid by
the Indemnifying Party if the Indemnified Party reasonably believes that
representation of it by the counsel retained by the Indemnifying Party would
be inappropriate due to actual or potential differing interest between the
Indemnified Party and any other party represented by such counsel in such
proceeding. If the Indemnifying Party assumes such defense, the Indemnified
Party shall have the right (but not the duty) to participate in the defense
thereof and to employ counsel, at its own expense, separate from the counsel
employed by the Indemnifying Party. Whether or not the Indemnifying Party
chooses to defend or prosecute any such claim, suit, action or proceeding, all
of the parties hereto shall cooperate in the defense or prosecution thereof.
39
<PAGE>
SECTION 11.4 SETTLEMENT OR COMPROMISE. Any settlement or compromise made or
caused to be made by the Indemnified Party or the Indemnifying Party, as the
case may be, of any claim, suit, action or proceeding of the kind referred to
in Section 11.3 shall also be binding upon the Indemnifying Party or the
Indemnified Party, as the case may be, in the same manner as if a final
judgment or decree had been entered by a court of competent jurisdiction in
the amount of such settlement or compromise. No party shall settle or
compromise any such claim, suit, action or proceeding without the prior
written consent of the other party, which shall not be unreasonably withheld.
SECTION 11.5 FAILURE OF INDEMNIFYING PARTY TO ACT. In the event that the
Indemnifying Party does not elect to assume the defense of any claim, suit,
action or proceeding within a reasonable time of being notified by the
Indemnified Party, then any failure of the Indemnified Party to defend or to
participate in the defense of any such claim, suit, action or proceeding or to
cause the same to be done, shall not relieve the Indemnifying Party of its
obligations hereunder.
SECTION 11.6 SURVIVAL. The indemnification provided by this Article XI shall
be a continuing right to indemnification and shall survive the closing of the
transactions contemplated hereby and the expiration or termination of this
Agreement for a period of two years following the Merger Closing, and the
Indemnified Party shall be entitled to bring an action thereon only if the
Indemnified Party has given the Indemnifying Party written notice within such
two-year period.
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, sent via a
recognized overnight courier with delivery confirmed in writing or sent via
facsimile to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a)If to PTR, to:
Security Capital Pacific Trust
7777 Market Center Avenue
El Paso, Texas 79912
Attention: C. Ronald Blankenship
Fax: (915) 877-3301
with a copy to:
Munger, Tolles & Olson
355 South Grand Avenue, 35th Floor
Los Angeles, California 90071
Attention: R. Gregory Morgan
Fax: (213) 687-3702
(b)If to Atlantic, to:
Security Capital Atlantic Incorporated
Six Piedmont Center, Sixth Floor
Atlanta, Georgia 30305
Attention: James C. Potts
Fax: (404) 233-2379
40
<PAGE>
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Alan J. Prince
Fax: (404) 572-5046
(c)If to SCG, to:
Security Capital Group Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
Fax: (505) 988-8920
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Edward J. Schneidman
Fax: (312) 701-7711
(d)If to Homestead, to:
Homestead Village Properties Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: David C. Dressler, Jr.
Fax: (505) 982-2925
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Edward J. Schneidman
Fax: (312) 701-7711
SECTION 12.2 INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 12.3 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof and thereof; (b) shall not be assigned by operation of law or
otherwise; and (c) shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of Maryland (without
giving effect to the provisions thereof relating to conflicts of law).
SECTION 12.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 12.5 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
41
<PAGE>
SECTION 12.6 LIMITATION OF LIABILITY. Any obligation or liability whatsoever
of PTR which may arise at any time under this Agreement or any obligation or
liability which may be incurred by it pursuant to any other instrument,
transaction or undertaking contemplated hereby shall be satisfied, if at all,
out of PTR's assets only. No such obligation or liability shall be personally
binding upon, nor shall resort for the enforcement thereof be had to, the
property of any of its shareholders, trustees, officers, employees or agents,
regardless of whether such obligation or liability is in the nature of
contract, tort or otherwise.
SECTION 12.7 NO PRESUMPTION AGAINST DRAFTER. Each of the parties hereto have
jointly participated in the negotiation and drafting of this Agreement. In the
event of an ambiguity or a question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by each of the parties
hereto and no presumptions or burdens of proof shall arise favoring any party
by virtue of the authorship of any of the provisions of this Agreement.
* * * * *
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
SECURITY CAPITAL PACIFIC TRUST
/s/ C. Ronald Blankenship
By: ________________________________________
C. Ronald Blankenship
Chairman
SECURITY CAPITAL ATLANTIC INCORPORATED
/s/ James C. Potts
By: ________________________________________
James C. Potts
Co-Chairman
SECURITY CAPITAL GROUP INCORPORATED
/s/ Jeffrey A. Klopf
By: ________________________________________
Jeffrey A. Klopf
Senior Vice President
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
/s/ David C. Dressler, Jr.
By: ________________________________________
David C. Dressler, Jr.
Chairman
43
<PAGE>
ANNEX II
OPINION OF GOLDMAN, SACHS & CO.
PERSONAL AND CONFIDENTIAL
[ ], 1996
Special Committee of the Board of Trustees
Security Capital Pacific Trust
7777 Market Center Avenue
El Paso, TX 79912
Gentlemen:
You have requested our opinion as to the fairness to Security Capital
Pacific Trust ("PTR" or the "Company") of the aggregate consideration (the
"Aggregate Consideration") to be received by the Company for the contribution
of Company Assets (as defined below) pursuant to the Merger Agreement (as
defined below) and the Company's agreement to enter into an agreement (the
"Funding Commitment Agreement") to provide secured financing to Homestead
Village Properties Incorporated ("Homestead") in a transaction involving the
formation of a newly formed, independent company, Homestead, through the
contribution to Homestead of certain assets by the Company, Security Capital
Atlantic Incorporated ("Atlantic") and Security Capital Group Incorporated
("SCG").
Pursuant to the terms of the Merger and Distribution Agreement dated as of
May 21, 1996 by and among the Company, Atlantic, SCG and Homestead (the
"Merger Agreement"), the Company will cause to be contributed and transferred
to Homestead 54 properties or the right to acquire such properties
(collectively, the "Company Assets") in exchange for 9,485,727 shares of
Homestead common stock, par value $.01 per share ("Homestead Common Stock"),
Atlantic will cause to be contributed and transferred to Homestead 26
properties or the right to acquire such properties (collectively, the
"Atlantic Assets") in exchange for 4,201,220 shares of Homestead Common Stock:
SCG will cause to be contributed and transferred to Homestead its anticipated
future cash flows from the management agreements with PTR and Atlantic,
property management agreements relating to the Homestead Village properties
and the Homestead Village trademark and operating system (collectively, the
"SCG Assets") in exchange for 4,062,788 shares of Homestead Common Stock.
Upon consummation of the Merger Agreement, each of the Company and Atlantic
will enter into a Funding Commitment Agreement in exchange for which the
Company will receive 6,363,789 warrants to purchase Homestead shares of Common
Stock ("Homestead Warrants") and up to $144,044,620 in convertible mortgage
notes ("Homestead Notes"); and Atlantic will receive 2,818,517 Homestead
Warrants and up to $98,028,471 in Homestead Notes. SCG will receive 817,694
Homestead Warrants in exchange for providing interim funding and office space
to Homestead.
In consideration for entering into the Merger Agreement and the Funding
Commitment Agreement (together the "Agreements") the Aggregate Consideration
to be received by the Company consists of 9,485,727 shares of Homestead Common
Stock, 6,363,789 Homestead Warrants and up to $144,044,620 in Homestead Notes.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. We are familiar with the Company having acted as its financial
advisor and provided certain investment banking services to the Company from
time to time including participating in and having acted in connection with
the public offering of securities as (i) co-manager of $50 million of 7.15%
Notes due 2010 and $100 million of 7.90% Notes due 2016 in February, 1996,
(ii) lead manager of $105 million
II-1
<PAGE>
of Series B Cumulative Redeemable Preferred Shares of Beneficial Interest in
May, 1995, (iii) co-manager of $100 million of 6 7/8% Notes due 2008 and $100
million of 7 1/2% Notes due 2014 in February, 1994, (iv) lead manager of $200
million of Cumulative Convertible Series A Preferred Shares in November, 1993,
(v) lead manager of $96.2 million of Shares of Beneficial Interest in
February, 1993 and (vi) co-manager of $73.1 million of Shares of Beneficial
Interest in April, 1992. In addition, we anticipate that we will act as lead
underwriter in connection with the initial public offering of Atlantic.
In connection with this opinion, we have reviewed, among other things, the
Merger Agreement; the form of the Funding Commitment Agreement by and between
PTR and Homestead; [the Proxy Statement/Prospectus relating to the special
meeting of shareholders of the Company to be held in connection with the
Merger Agreement]; Annual Reports to Stockholders and Annual Reports on Form
10-K of the Company for the two years ended 1995; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company; and certain
financial analyses and forecasts relating to the Company Assets, the Atlantic
Assets and the SCG Assets prepared by management of the Company, Atlantic and
SCG, respectively, all of which were provided to us by the management of the
Company. We also have held discussions with members of the senior management
of the Company regarding its past and current business operations, financial
condition and future prospects of the Company, with and without the
contribution of the Company Assets, and of Homestead. In addition, we have
reviewed the reported price and trading activity for the Shares of Beneficial
Interest, par value $1.00 per share, of the Company, compared certain
financial and stock market information for the Company with similar
information for certain other companies the securities of which are publicly
traded, reviewed the pro forma financial information for Homestead provided by
management of the Company and compared it with similar information for certain
other companies including those in the extended stay lodging industry
specifically and in other industries generally, and performed such other
studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the financial forecasts related to the Company Assets, the Atlantic
Assets, the SCG Assets and Homestead have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of the Company, Atlantic and SCG and that such forecasts will be
realized at the times contemplated therein. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the
Company, including the Company Assets, Atlantic, including the Atlantic
Assets, or SCG, including the SCG Assets, or any of their subsidiaries and we
have not been furnished with any such evaluation or appraisal.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the
Aggregate Consideration to be received by the Company pursuant to the
Agreements is fair to the Company. We are not expressing any opinion herein as
to the prices at which the Homestead Common Stock, Homestead Warrants and
Homestead Notes may trade if and when issued.
Very truly yours,
Page Two
<PAGE>
ANNEX II
OPINION OF J.P. MORGAN SECURITIES INC.
August , 1996
Special Committee of The Board of Directors
Security Capital Atlantic Incorporated
Six Piedmont Center, Sixth Floor
Atlanta, Georgia 30305
Attention: Mr. Ned S. Holmes
Director
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders (other than Security Capital Group Incorporated
("SCG")) of Security Capital Atlantic Incorporated (the "Company") of the
consideration proposed to be paid to the Company in connection with the
proposed mergers, distributions and other transactions (collectively, the
"Transaction") to be effected pursuant to and as more particularly described
in (i) the Merger and Distribution Agreement, dated as of May 21, 1996 (the
"Agreement"; terms not otherwise defined herein shall have the meanings set
forth in the Agreement), by and among Security Capital Pacific Trust ("PTR"),
the Company, SCG and Homestead Village Properties Incorporated ("Homestead"),
and (ii) the Related Agreements.
In arriving at our opinion, we have reviewed (i) the Agreement and the
Related Agreements; (ii) the Information Statement and Prospectus of the
Company and Homestead relating to the Transaction (the "Information
Statement"); (iii) certain information concerning the businesses of Alabama
Homestead Incorporated and Atlantic Homestead Village Incorporated
(collectively, the "Portfolio") and Homestead and certain publicly available
information concerning certain other companies engaged in businesses
comparable to those of the Portfolio and Homestead; (iv) publicly available
terms of certain transactions involving companies comparable to the Portfolio
and Homestead and the consideration received in connection with such
transactions; (v) the audited financial statements of the Company for the
fiscal year ended December 31, 1995; and (vi) certain internal financial
analyses and forecasts concerning the Portfolio and Homestead prepared by the
management of the Company and Homestead, respectively.
In addition, we have held discussions with certain members of the management
of the Company and Homestead with respect to certain aspects of the
Transaction, and the past and current business operations of the Company and
the Portfolio, the financial condition and future prospects and operations of
the Company, Homestead and the Portfolio, the effects of the Transaction on
the financial condition and future prospects of the Company and certain other
matters we believed necessary or appropriate to our inquiry. We have reviewed
such other financial studies and analyses and considered such other
information as we deemed appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was
publicly available or was furnished to us by the Company and Homestead or
otherwise reviewed by us, and we have not assumed any responsibility or
liability therefor. We have not conducted any valuation or appraisal of any
assets or liabilities, nor have any such valuations or appraisals been
provided to us. In relying on financial analyses and forecasts provided to us,
we have assumed that they have been reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments by management
as to the expected future results of operations and financial condition of the
Company and Homestead to which such analyses or forecasts relate. We have also
assumed that the Transaction
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Page 2
will have the tax consequences described in the Information Statement, and in
discussions with, and materials furnished to us by, representatives of the
Company, and that the other transactions contemplated by the Agreement and the
Related Agreements will be consummated as described in the Agreement, the
Related Agreements and the Information Statement. We have relied as to all
legal matters relevant to rendering our opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date hereof.
It should be understood that subsequent developments may affect this opinion
and that we do not have any obligation to update, revise, or reaffirm this
opinion. We are expressing no opinion herein as to the price at which
Homestead's securities will trade at any future time.
We were not authorized to and did not solicit any expressions of interest
from any other parties with respect to the sale of all or any part of the
Portfolio or any other alternative transaction. We did not participate in
negotiations with respect to the terms of the Transaction and related
transactions. Consequently, we have assumed that such terms are the most
beneficial terms from the Company's perspective that could under the
circumstances be negotiated among the parties to such transactions, and no
opinion is expressed whether any alternative transaction might produce
consideration for the Company in an amount in excess of that contemplated in
the Transaction.
We will receive a fee from the Company for the delivery of this opinion. We
and our affiliates maintain banking, capital markets and other business
relationships with the Company, PTR and SCG and its affiliates, including
Morgan Guaranty Trust Company of New York acting as the agent bank under the
Company's existing commercial bank facility. In the ordinary course of their
businesses, our affiliates may actively trade the debt and equity securities
of the Company, PTR or SCG or its affiliates for their own account or for the
accounts of customers and, accordingly, they may at any time hold long or
short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the consideration to be paid to the Company in the proposed
Transaction is fair, from a financial point of view, to the shareholders of
the Company (other than SCG).
This letter is provided to the Special Committee of the Board of Directors
of the Company in connection with and for the purposes of its evaluation of
the Transaction. This opinion does not constitute a recommendation to any
shareholder of the Company as to how such shareholder should vote with respect
to the Transaction. This option may not be disclosed, referred to, or
communicated (in whole or in part) to any third party for any purpose
whatsoever except with our prior written consent in each instance. This
opinion may be reproduced in full in any proxy or information statement mailed
to shareholders of the Company but may not otherwise be disclosed publicly in
any manner without our prior written approval and must be treated as
confidential.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By:
__________________________________
Name:
Jon H. Zehner
Title:
Managing Director
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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."
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<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.
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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.
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<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 5TH DAY OF AUGUST, 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 July 16,
1996
*By: _____________________
Jeffrey A. Klopf
Attorney-in-fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NO. DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<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 (Included as Annex I to this Registration
Statement)
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>
SEQUENTIAL
EXHIBIT PAGE
NO. DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<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
23.4 Consent of Ernst & Young, LLP West Palm Beach, Florida
+23.5 Consent of Goldman, Sachs & Co.
+23.6 Consent of J.P. Morgan Securities Inc.
*24 Power of Attorney
*27 Financial Data Schedule
99.1 Security Capital Pacific Trust Form of Proxy
</TABLE>
- --------
*Previously filed.
+To be filed by amendment.
<PAGE>
EXHIBIT 2.1
ARTICLES OF MERGER
Merging
PTR HOMESTEAD VILLAGE INCORPORATED
(a corporation of the State of Maryland),
ALABAMA HOMESTEAD INCORPORATED
(a corporation of the State of Alabama),
ATLANTIC HOMESTEAD VILLAGE INCORPORATED
(a corporation of the State of Maryland),
HOMESTEAD VILLAGE MANAGERS INCORPORATED
(a corporation of the State of Maryland),
SCG HOMESTEAD VILLAGE INCORPORATED
(a corporation of the State of Maryland), and
HOMESTEAD REALTY SERVICES INCORPORATED
(a corporation of the State of Maryland)
Into
HOMESTEAD VILLAGE INCORPORATED
(a corporation of the State of Maryland)
PTR Homestead Village Incorporated, a corporation organized and existing
under the laws of the State of Maryland ("PTR Homestead"), Alabama Homestead
Incorporated, a corporation organized and existing under the laws of the State
of Alabama ("Alabama Homestead"), Atlantic Homestead Village Incorporated, a
corporation organized and existing under the laws of the State of Maryland
("Atlantic Homestead"), Homestead Village Managers Incorporated, a corporation
organized and existing under the laws of the State of Maryland ("Homestead
Village"), SCG Homestead Village Incorporated, a corporation organized and
existing under the laws of the State of Maryland ("SCG Homestead"), Homestead
Realty Services Incorporated, a corporation organized and existing under the
laws of the State of Maryland ("Homestead Realty"), and Homestead Village
Incorporated, a corporation organized and existing under the laws of the State
of Maryland ("New Homestead"), agree that each of PTR Homestead, Alabama
Homestead, Atlantic Homestead, Homestead Village, SCG Homestead and Homestead
Realty shall be merged with and into New Homestead, which shall be the surviving
corporation. The terms and conditions of the merger and the mode of carrying the
same into effect are as herein set forth in these Articles of Merger, which for
this purpose shall constitute the Plan of Merger.
<PAGE>
FIRST: The parties to these Articles of Merger are PTR Homestead, Alabama
Homestead, Atlantic Homestead, Homestead Village, SCG Homestead, Homestead
Realty and New Homestead.
SECOND: Each of PTR Homestead, Atlantic Homestead, Homestead Village, SCG
Homestead and Homestead Realty is incorporated under the laws of Maryland and
shall be merged with and into New Homestead in accordance with the Maryland
General Corporation Law (the "Maryland Code"), and New Homestead (sometimes
referred to herein as the "Surviving Corporation") shall survive the merger.
Alabama Homestead is incorporated under general laws of Alabama and shall be
merged with and into New Homestead, in accordance with the Alabama Business
Corporation Act (the "Alabama Code"), and New Homestead shall survive the
merger. At the Effective Time (as hereinafter defined), the separate existence
of each of PTR Homestead, Alabama Homestead, Atlantic Homestead, Homestead
Village, SCG Homestead and Homestead Realty shall cease in accordance with the
provisions of the Maryland Code and, in the case of Alabama Homestead, the
Alabama Code. From and after the Effective Time, except as may be limited by
applicable law, the Surviving Corporation shall succeed to all of the leases,
licenses, property, rights, privileges and powers of whatever nature and
description and shall be subject to all of the debts, liabilities and
obligations of each of PTR Homestead, Alabama Homestead, Atlantic Homestead,
Homestead Village, SCG Homestead and Homestead Realty without further action by
any of the parties hereto, and will continue to be governed by the laws of the
State of Maryland, including the Maryland Code. At the Effective Time, the
charter and bylaws of New Homestead in effect immediately prior to the Effective
Time shall become the charter and bylaws of the Surviving Corporation and the
directors and officers in office of New Homestead immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation,
all of whom shall hold their directorships and offices until the election and
qualification of their respective successors or until their tenure is otherwise
terminated in accordance with the charter and bylaws of the Surviving
Corporation.
THIRD: Alabama Homestead was incorporated on February 9, 1996 under the
Alabama Code. Alabama Homestead is not registered or qualified to do business in
the State of Maryland. The county in which the articles of incorporation of
Alabama Homestead are filed is the County of Montgomery in the State of Alabama.
The principal office of Alabama Homestead is located at 7777 Market Center
Avenue, City of El Paso, State of Texas 79912.
FOURTH: The resident agent and the principal office in the State of
Maryland of each of PTR Homestead, Atlantic Homestead, Homestead Village, SCG
Homestead, Homestead Realty and New Homestead is located at 11 East Chase
Street, Baltimore, State of Maryland 21202. The principal office of each of PTR
Homestead, Atlantic Homestead, Homestead Village, SCG Homestead and Homestead
Realty outside of Maryland is located at 7777 Market Center Avenue, City of El
Paso, State of Texas 79912. The principal office of New Homestead outside of
Maryland is located at 125 Lincoln Avenue, City of Santa Fe, State of New Mexico
87501.
2
<PAGE>
FIFTH: No party to the merger owns any interest in land in any county in
the State of Maryland.
SIXTH: The terms and conditions of the transactions set forth in these
Articles of Merger were advised, authorized and approved by each party to these
Articles of Merger in the manner and by the vote required by its charter and the
laws of the jurisdiction where it is organized, as follows:
(a) PTR Homestead. The Board of Directors of PTR Homestead, by written
consent signed by all the members thereof and filed with the minutes of the
proceedings of the Board, adopted a resolution declaring that the merger of
PTR Homestead into New Homestead (the "PTR Homestead Merger") as set forth
in these Articles of Merger was advisable on substantially the terms and
conditions set forth or referred to in the resolution and directing that
the proposed merger be submitted for consideration at a special meeting of
the sole shareholder of PTR Homestead and the sole shareholder of PTR
Homestead executed a written consent approving the PTR Homestead Merger by
the vote required by its charter and the Maryland Code.
(b) Alabama Homestead. The Board of Directors of Alabama Homestead, by
written consent signed by all the members thereof and filed with the
minutes of the proceedings of the Board, adopted the Plan of Merger
contained herein in a resolution declaring that the merger of Alabama
Homestead into New Homestead (the "Alabama Homestead Merger") as set forth
in these Articles of Merger was advisable on substantially the terms and
conditions set forth or referred to in the resolution and directing that
said Plan of Merger and the proposed merger be submitted for consideration
at a special meeting of the sole shareholder of Alabama Homestead and the
sole shareholder of Alabama Homestead executed a written consent approving
the Plan of Merger set forth herein and the Alabama Homestead Merger by the
vote required by its charter and the Alabama Code.
(c) Atlantic Homestead. The Board of Directors of Atlantic Homestead,
by written consent signed by all the members thereof and filed with the
minutes of the proceedings of the Board, adopted a resolution declaring
that the merger of Atlantic Homestead into New Homestead (the "Atlantic
Homestead Merger") as set forth in these Articles of Merger was advisable
on substantially the terms and conditions set forth or referred to in the
resolution and directing that the proposed merger be submitted for
consideration at a special meeting of the sole shareholder of Atlantic
Homestead and the sole shareholder of Atlantic Homestead executed a written
consent approving the Atlantic Homestead Merger by the vote required by its
charter and the Maryland Code.
(d) Homestead Village. The Board of Directors of Homestead Village, by
written consent signed by all the members thereof and filed with the
proceedings of the Board, adopted a resolution declaring that the merger of
Homestead Village into New
3
<PAGE>
Homestead (the "Homestead Village Merger") as set forth in these Articles
of Merger was advisable on substantially the terms and conditions set forth
or referred to in the resolution and directing that the proposed merger be
submitted for consideration at a special meeting of the sole shareholder of
Homestead Village and the sole shareholder of Homestead Village executed a
written consent approving the Homestead Village Merger by the vote required
by its charter and the Maryland Code.
(e) SCG Homestead. The Board of Directors of SCG Homestead, by written
consent signed by all the members thereof and filed with the proceedings of
the Board, adopted a resolution declaring that the merger of SCG Homestead
into New Homestead (the "SCG Homestead Merger") as set forth in these
Articles of Merger was advisable on substantially the terms and conditions
set forth or referred to in the resolution and directing that the proposed
merger be submitted for consideration at a special meeting of the sole
shareholder of SCG Homestead and the sole shareholder of SCG Homestead
executed a written consent approving the SCG Homestead Merger by the vote
required by its charter and the Maryland Code.
(f) Homestead Realty. The Board of Directors of Homestead Realty, by
written consent signed by all the members thereof and filed with the
proceedings of the Board, adopted a resolution declaring that the merger of
Homestead Realty into New Homestead (the "Homestead Realty Merger") as set
forth in these Articles of Merger was advisable on substantially the terms
and conditions set forth or referred to in the resolution and directing
that the proposed merger be submitted for consideration at a special
meeting of the sole shareholder of Homestead Realty and the sole
shareholder of Homestead Realty executed a written consent approving the
Homestead Realty Merger by the vote required by its charter and the
Maryland Code.
(g) New Homestead. The Board of Directors of New Homestead, by written
consent signed by all the members thereof and filed with the proceedings of
the Board, adopted a resolution declaring that the PTR Homestead Merger,
the Alabama Homestead Merger, the Atlantic Homestead Merger, the Homestead
Village Merger, the SCG Homestead Merger and the Homestead Realty Merger,
all as set forth in these Articles of Merger, were advisable on
substantially the terms and conditions set forth or referred to in the
resolution and directing that the proposed mergers be submitted for
consideration at a special meeting of the sole shareholder of New Homestead
and the sole shareholder of New Homestead executed a written consent
approving all of such mergers by the vote required by its charter and the
Maryland Code.
SEVENTH:
(a) PTR Homestead. At the time these Articles of Merger were approved
by the sole shareholder of PTR Homestead, 1,000 shares of common stock,
$1.00 par value per share, were issued and outstanding and entitled to
vote. 1,000 shares of the common
4
<PAGE>
stock of PTR Homestead were voted in favor of these Articles of Merger and
the Plan of Merger contained herein and no shares of the common stock of
said corporation were voted against these Articles of Merger and the Plan
of Merger contained herein.
(b) Alabama Homestead. At the time these Articles of Merger were
approved by the sole shareholder of Alabama Homestead, 1,000 shares of
common stock, $0.01 par value per share, were issued and outstanding and
entitled to vote. 1,000 shares of the common stock of Alabama Homestead
were voted in favor of these Articles of Merger and the Plan of Merger
contained herein and no shares of the common stock of said corporation were
voted against these Articles of Merger and the Plan of Merger contained
herein.
(c) Atlantic Homestead. At the time these Articles of Merger were
approved by the sole shareholder of Atlantic Homestead, 1,000 shares of
common stock, $1.00 par value per share, were issued and outstanding and
entitled to vote. 1,000 shares of the common stock of Atlantic Homestead
were voted in favor of these Articles of Merger and the Plan of Merger
contained herein and no shares of the common stock of said corporation were
voted against these Articles of Merger and the Plan of Merger contained
herein.
(d) Homestead Village. At the time these Articles of Merger were
approved by the sole shareholder of Homestead Village, 1,000 shares of
common stock, $1.00 par value per share, were issued and outstanding and
entitled to vote. 1,000 shares of the common stock of Homestead Village
were voted in favor of these Articles of Merger and the Plan of Merger
contained herein and no shares of the common stock of said corporation were
voted against these Articles of Merger and the Plan of Merger contained
herein.
(e) SCG Homestead. At the time these Articles of Merger were approved
by the sole shareholder of SCG Homestead, 100 shares of common stock, $0.01
par value per share, were issued and outstanding and entitled to vote. 100
shares of the common stock of SCG Homestead were voted in favor of these
Articles of Merger and the Plan of Merger contained herein and no shares of
the common stock of said corporation were voted against these Articles of
Merger and the Plan of Merger contained herein.
(f) Homestead Realty. At the time these Articles of Merger were
approved by the sole shareholder of Homestead Realty, 1,000 shares of
common stock, $1.00 par value per share, were issued and outstanding and
entitled to vote. 1,000 shares of the common stock of Homestead Realty were
voted in favor of these Articles of Merger and the Plan of Merger contained
herein and no shares of the common stock of said corporation were voted
against these Articles of Merger and the Plan of Merger contained herein.
5
<PAGE>
(g) New Homestead. At the time these Articles of Merger were approved
by the sole shareholder of New Homestead, 1,000 shares of common stock,
$0.01 par value per share, were issued and outstanding and entitled to
vote. 1,000 shares of the common stock of New Homestead were voted in favor
of these Articles of Merger and the Plan of Merger contained herein and no
shares of the common stock of said corporation were voted against these
Articles of Merger and the Plan of Merger contained herein.
EIGHTH:
(a) PTR Homestead. The total number of shares of stock of all classes
which PTR Homestead has authority to issue is one thousand (1,000) shares
of common stock, of the par value of one dollar ($1.00) each, all such
shares having an aggregate par value of one thousand dollars ($1,000.00).
(b) Alabama Homestead. The total number of shares of stock of all
classes which Alabama Homestead has authority to issue is one thousand
(1,000) common shares, of the par value of one cent ($0.01) each, all such
shares having an aggregate par value of ten dollars ($10.00).
(c) Atlantic Homestead. The total number of shares of stock of all
classes which Atlantic Homestead has authority to issue is one thousand
(1,000) shares of common stock, of the par value of one dollar ($1.00)
each, all such shares having an aggregate par value of one thousand dollars
($1,000.00).
(d) Homestead Village. The total number of shares of stock of all
classes which Homestead Village has authority to issue is one thousand
(1,000) shares of common stock, of the par value of one dollar ($1.00)
each, all such shares having an aggregate par value of one thousand dollars
($1,000.00).
(e) SCG Homestead. The total number of shares of stock of all classes
which SCG Homestead has authority to issue is one thousand (1,000) shares
of common stock, of the par value of one cent ($0.01) each, all such shares
having an aggregate par value of ten dollars ($10.00).
(f) Homestead Realty. The total number of shares of stock of all
classes which Homestead Realty has authority to issue is one thousand
(1,000) shares of common stock, of the par value of one dollar ($1.00)
each, all such shares having an aggregate par value of one thousand dollars
($1,000.00).
(g) New Homestead. The total number of shares of stock of all classes
which New Homestead has authority to issue is two hundred fifty million
(250,000,000) shares of common stock, of the par value of one cent ($0.01)
each, all such shares having an aggregate par value of two million five
hundred thousand dollars ($2,500,000).
6
<PAGE>
NINTH:
(a) PTR Homestead. At the Effective Time, each issued share of common
stock of PTR Homestead shall automatically and without further action by
any of the parties hereto be converted into 9,485.727 shares of common
stock of New Homestead. At the Effective Time, each right, option or
warrant to acquire a share of common stock of PTR Homestead shall
automatically be converted into a right, option or warrant to acquire a
share of common stock of New Homestead.
(b) Alabama Homestead. At the Effective Time, each issued common share
of Alabama Homestead shall automatically and without further action by any
of the parties hereto be converted into 0.001 shares of common stock of New
Homestead. At the Effective Time, each right, option or warrant to acquire
a common share of Alabama Homestead shall automatically be converted into a
right, option or warrant to acquire a share of common stock of New
Homestead.
(c) Atlantic Homestead. At the Effective Time, each issued share of
common stock of Atlantic Homestead shall automatically and without further
action by any of the parties hereto be converted into 4,201.219 shares of
common stock of New Homestead. At the Effective Time, each right, option or
warrant to acquire a share of common stock of Atlantic Homestead shall
automatically be converted into a right, option or warrant to acquire a
share of common stock of New Homestead.
(d) Homestead Village. At the Effective Time, each issued share of
common stock of Homestead Village shall automatically and without further
action by any of the parties hereto be converted into 2,205.374 shares of
common stock of New Homestead. At the Effective Time, each right, option or
warrant to acquire a share of common stock of Homestead Village shall
automatically be converted into a right, option or warrant to acquire a
share of common stock of New Homestead.
(e) SCG Homestead. At the Effective Time, each issued share of common
stock of SCG Homestead shall automatically and without further action by
any of the parties hereto be converted into 0.01 shares of common stock of
New Homestead. At the Effective Time, each right, option or warrant to
acquire a share of common stock of SCG Homestead shall automatically be
converted into a right, option or warrant to acquire a share of common
stock of New Homestead.
(f) Homestead Realty. At the Effective Time, each issued share of
common stock of Homestead Realty shall automatically and without further
action by any of the parties hereto be converted into 1,857.413 shares of
common stock of New Homestead. At the Effective Time, each right, option or
warrant to acquire a share of common stock of Homestead Realty shall
automatically be converted into a right, option or warrant to acquire a
share of common stock of New Homestead.
7
<PAGE>
(g) New Homestead. At the Effective Time, each issued share of stock
of New Homestead outstanding immediately prior to the Effective Time shall
be automatically and without further action by any of the parties hereto
cancelled and such shares shall thereafter be returned to the authorized
but unissued shares of capital stock of New Homestead.
TENTH: These Articles of Merger shall become effective (the "Effective
Time") at the later to occur of the time that these Articles of Merger are
accepted for filing by the State Department of Assessments and Taxation of
Maryland and the time that these Articles of Merger are accepted for filing by
the Secretary of State of the State of Alabama.
ELEVENTH: The undersigned officer acknowledges the Articles of Merger to
be the corporate act of the respective corporate party on whose behalf he or she
has signed, and further, as to all matters or facts required to be verified
under oath, each such officer acknowledges that to the best of his or her
knowledge, information and belief, these matters and facts relating to the
corporation on whose behalf he or she has signed are true in all material
respects and that this statement is made under the penalties for perjury.
8
<PAGE>
IN WITNESS WHEREOF, these Articles of Merger have been duly executed by the
parties hereto by their respective officers thereunto duly authorized as of this
____ day of ________, 1996.
PTR HOMESTEAD VILLAGE INCORPORATED
By:
------------------------
Jeffrey A. Klopf
Senior Vice President
ATTEST:
- --------------------
Leanne L. Gallagher
Assistant Secretary
ALABAMA HOMESTEAD INCORPORATED
By:
------------------------
Jeffrey A. Klopf
Senior Vice President
ATTEST:
- --------------------
Leanne L. Gallagher
Assistant Secretary
ATLANTIC HOMESTEAD VILLAGE INCORPORATED
By:
------------------------
Jeffrey A. Klopf
Senior Vice President
ATTEST:
- --------------------
Leanne L. Gallagher
Assistant Secretary
HOMESTEAD VILLAGE MANAGERS INCORPORATED
By:
------------------------
Jeffrey A. Klopf
Senior Vice President
ATTEST:
- --------------------
Leanne L. Gallagher
Assistant Secretary
9
<PAGE>
SCG HOMESTEAD VILLAGE INCORPORATED
By:
------------------------
David C. Dressler, Jr.
Chairman
ATTEST:
- --------------------
Ariel Amir
Secretary
HOMESTEAD REALTY SERVICES INCORPORATED
By:
------------------------
David C. Dressler, Jr.
Chairman
ATTEST:
- --------------------
Jeffrey A. Klopf
Secretary
HOMESTEAD VILLAGE INCORPORATED
By:
------------------------
David C. Dressler, Jr.
Chairman and President
ATTEST:
- --------------------
Jeffrey A. Klopf
Secretary
This instrument prepared by:
Michael T. Blair
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
10
<PAGE>
EXHIBIT 3.1
HOMESTEAD VILLAGE INCORPORATED
RESTATED CHARTER
FIRST: The name of the corporation (the "Corporation") is:
Homestead Village Incorporated
SECOND: The purposes for which the Corporation is formed are to engage in
any lawful act or activity for which corporations may be formed under the
general laws of the State of Maryland.
THIRD: The current address of the principal office of the Corporation is
125 Lincoln Avenue, Santa Fe, New Mexico 87501. The post office address of the
principal office of the Corporation in the State of Maryland is c/o The
Prentice-Hall Corporation System, Maryland, 11 East Chase Street, Baltimore,
Maryland 21202. The name and address of the resident agent of the Corporation
in the State of Maryland is The Prentice-Hall Corporation System, Maryland, 11
East Chase Street, Baltimore, Maryland 21202. The resident agent is a
corporation located in the State of Maryland.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 250,000,000 shares of Common Stock, one cent ($0.01)
par value per share. The aggregate par value of all authorized shares of stock
having par value is $2,500,000. The Board of Directors may authorize the
issuance from time to time of shares of its stock of any class, whether now or
hereafter authorized, or securities convertible into shares of its stock of any
class, whether now or hereafter authorized, for such consideration as the Board
of Directors may deem advisable. The Board of Directors of the Corporation may,
by articles supplementary, 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 stock.
<PAGE>
FIFTH: The Corporation shall have perpetual existence.
SIXTH: The number of directors of the Corporation shall initially be
three, which number may be increased or decreased by the Board of Directors from
time to time in accordance with the Bylaws of the Corporation, but such number
shall never be less than the minimum number required by the Maryland General
Corporation Law. Any such increase or decrease shall not affect the term of any
director then serving.
The directors shall be divided into three classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as may be possible,
of one-third of the total number of directors constituting the entire Board of
Directors. At the 1997 annual meeting of stockholders, Class I directors shall
be elected for a one-year term, Class II directors for a two-year term and Class
III directors for a three-year term. At each succeeding annual meeting of
stockholders, beginning in 1998, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
authorized number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible but in no case will a decrease in the number
of directors shorten the term of any incumbent director. A director shall serve
until the annual meeting for the year in which his or her term expires and until
his or her successor shall be elected and shall qualify, subject, however, to
prior death, resignation or removal. Any vacancy on the Board of Directors
shall be filled by a majority of the directors then serving, even if less than a
quorum, or by a sole remaining director. Any director elected by the remaining
directors to fill a vacancy shall serve until the next annual meeting of
stockholders and until his or her successor shall be elected and shall qualify,
subject, however, to prior death, resignation or removal. The name and class of
each director who is currently serving are:
Name Class
---- -----
David C. Dressler, Jr. I
C. Ronald Blankenship II
John P. Frazee, Jr. III
Immediately following the date on which the Corporation has a class of
securities registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, the Board of Directors shall include a
majority of directors ("Independent Directors") each of whom is not an employee
or officer of the Corporation, any person or entity primarily controlling the
Corporation or their respective affiliates and performs no other services for
the Corporation, any person or entity primarily controlling the Corporation or
their respective affiliates, except as a director or trustee. In the event that
a majority of the
-2-
<PAGE>
Board of Directors is not comprised of Independent Directors by reason of the
death, resignation or removal of one or more Independent Directors, the
remaining members of the Board of Directors shall promptly appoint that number
of Independent Directors necessary to cause the Board of Directors to include a
majority of Independent Directors.
SEVENTH: 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 to which such person
may become subject or 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 the 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.
EIGHTH: The Corporation reserves the right from time to time to make
any amendment to its charter, now or hereafter authorized by law, including any
amendment altering the contract rights, as expressly set forth in this charter,
of any outstanding shares of stock. All rights and powers conferred by the
charter of the Corporation on stockholders, directors and officers are granted
subject to this reservation. The Board of Directors reserves the power to
adopt, alter and repeal the Bylaws of the Corporation after the organizational
meeting of the Board of Directors.
NINTH: Notwithstanding any provision of law permitting or requiring
any action to be taken or authorized by the affirmative vote of the holders of
shares entitled to cast a greater number of votes, any such action shall be
effective and valid if taken or approved by the affirmative vote of holders of
shares entitled to cast a majority of all votes entitled to be cast on the
matter.
TENTH: The provisions of Title 3, Subtitle 6 of the Corporations and
Associations Article of the Annotated Code of Maryland entitled "Special Voting
Requirements" (Section 3-601 through and including Section 3-604), shall not
apply to any business combination between or among the Corporation and SCG and
its affiliates and successors.
ELEVENTH: 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
-3-
<PAGE>
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.
-4-
<PAGE>
EXHIBIT 4.3
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 (A) 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, multiplied by (B) 1.113 (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
10
<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
11
<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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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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<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 4.4
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 (A) 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, multiplied by (B) 1.113 (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
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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 January 1, 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
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<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
9
<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 4.5
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 (A) 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,
multiplied by (B) .882 (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.
2
<PAGE>
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 January 1, 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
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<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.
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<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).
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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
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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
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<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:
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(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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(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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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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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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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 (A) 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,
multiplied by (B) .882 (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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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 January 1, 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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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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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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<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 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.
18
<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:
---------------------------
21
<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 (A) 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, multiplied by (B) .882 (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
2
<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
3
<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
4
<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
5
<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:
6
<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
7
<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.
8
<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.
9
<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
10
<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.
11
<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
12
<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
13
<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
14
<PAGE>
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
15
<PAGE>
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
16
<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.
17
<PAGE>
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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<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.
(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 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
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 4.8
[FRONT OF CERTIFICATE]
FORMED UNDER THE LAWS SHARE OF COMMON STOCK
OF THE STATE OF MARYLAND
NUMBER _________ ____________SHARES
[LOGO]
THIS CERTIFICATE IS Par Value $0.01
TRANSFERABLE IN BOSTON,
MASS. AND NEW YORK, N.Y. CUSIP 437851 10 8
SEE REVERSE FOR CERTAIN
RESTRICTIONS AND IMPORTANT
INFORMATION
HOMESTEAD VILLAGE INCORPORATED
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE PER
SHARE, OF
Homestead Village Incorporated, a corporation formed under the laws of the State
of Maryland (the "Corporation"), transferable on the books of the Corporation by
the holder hereof in person or by its duly authorized Attorney upon the
surrender of this Certificate properly endorsed.
The Shares represented by this Certificate are subject to the Corporation's
Charter and Bylaws as amended from time to time. This Certificate is not valid
unless countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signature
of its duly authorized officer.
DATED:
PRESIDENT
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT AND REGISTRAR
BY:
-------------------------
SECRETARY
AUTHORIZED SIGNATURE
<PAGE>
[BACK OF CERTIFICATE]
IMPORTANT NOTICE
----------------
HOMESTEAD VILLAGE INCORPORATED
THE CHARTER ON FILE IN THE OFFICE OF THE STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION OF MARYLAND SETS FORTH A FULL STATEMENT OF (A) ALL OF
THE DESIGNATIONS, PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS,
RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER DISTRIBUTIONS,
QUALIFICATIONS, AND TERMS AND CONDITIONS OF REDEMPTION, AND OTHER RELATIVE
RIGHTS OF THE SHARES OF EACH CLASS OF STOCK AUTHORIZED TO BE ISSUED AND (B) THE
AUTHORITY OF THE BOARD OF DIRECTORS TO ISSUE ANY PREFERRED OR SPECIAL CLASS IN
SERIES, THE DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE
SHARES OF EACH SERIES TO THE EXTENT THEY HAVE BEEN SET AND THE AUTHORITY OF THE
BOARD OF DIRECTORS TO SET THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT
SERIES OF PREFERRED STOCK. THE CORPORATION WILL FURNISH A COPY OF SUCH STATEMENT
TO ANY HOLDER OF STOCK WITHOUT CHARGE ON REQUEST TO THE SECRETARY OF THE
CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in UNIF GIFT MIN ACT - ----------------------
common (Cust) (Minor)
TEN ENT - as tenants by under Uniform Gifts
the entireties to Minors Act
JT TEN - as joint tenants ----------------------
with the right (State)
of survivorship UNIF TRF MIN ACT - ----------------------
and not as (Cust) (Minor)
tenants in (until age ___) under
common Uniform Transfers to
Minors Act
----------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEEE)
- --------------------------------------------------------------------------shares
represented by this Certificate, and do hereby irrevocably constitute
and appoint ----------------------------------------------------------Attorney
- --------------------------------------------------------------------------------
to transfer the shares on the books of the Corporation with full power of
substitution in the premises.
Dated -----------------------------
------------------------------------------
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of this certificate in every
particular, without alteration or
enlargement or any change whatever.
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN PREFERRED SHARE PURCHASE RIGHTS (THE "RIGHTS"), AS SET FORTH IN A RIGHTS
AGREEMENT (THE "RIGHTS AGREEMENT"), DATED AS OF MAY 16, 1996, BETWEEN HOMESTEAD
VILLAGE INCORPORATED AND THE FIRST NATIONAL OF BOSTON, AS RIGHTS AGENT, THE
TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH
IS ON THE FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF HOMESTEAD VILLAGE
INCORPORATED. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT,
SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE
EVIDENCED BY THIS CERTIFICATE. HOMESTEAD VILLAGE INCORPORATED WILL MAIL TO THE
HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER
RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES DESCRIBED IN
THE RIGHTS AGREEMENT, RIGHTS ISSUED TO OR HELD BY ANY PERSON WHO IS, WAS, OR
BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS
ARE DEFINED IN THE RIGHT AGREEMENT), WHETHER HELD BY OR ON BEHALF OF SUCH PERSON
OR ANY SUBSEQUENT HOLDER, SHALL BECOME NULL AND VOID.
<PAGE>
[LETTERHEAD OF MAYER, BROWN & PLATT]
EXHIBIT 5.1
August 5, 1996
Homestead Village Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Re: Common Stock, $0.01 par value per share, and Warrants to
acquire Common Stock
--------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Homestead Village Incorporated, a Maryland
corporation ("Homestead"), in connection with the public distribution of shares
of Homestead's common stock, $0.01 par value per share (the "Common Stock"), and
warrants to acquire Common Stock (the "Warrants"), in connection with a proposed
merger of certain subsidiaries of each of Security Capital Pacific Trust, a
Maryland real estate investment trust ("PTR"), Security Capital Atlantic
Incorporated, a Maryland corporation ("Atlantic"), and Security Capital Group
Incorporated, a Maryland corporation ("SCG") into Homestead. The Warrants will
be issued under a warrant agreement (the "Warrant Agreement") between Homestead
and The First National Bank of Boston, as warrant agent (the "Warrant Agent").
Each of PTR and Atlantic will distribute, pro rata, all of the Common Stock and
Warrants owned by them to their respective shareholders.
We have also participated in the preparation and filing with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, of a
registration statement on Form S-4 (the "Registration Statement") relating to
the Common Stock and Warrants. In this connection, we have examined such
corporate and other records, instruments, certificates and documents as we
considered necessary to enable us to express this opinion.
Based on the foregoing, it is our opinion that (i) the Common Stock and
Warrants were duly authorized for issuance and, upon issuance and delivery to
PTR, the PTR shareholders, Atlantic, the Atlantic shareholders, and SCG, will be
fully paid and non-assessable, (ii) the
<PAGE>
August 5, 1996
Page 2
shares of Common Stock issuable upon exercise of the Warrants, when issued
pursuant to the terms of the Warrant Agreement and the related Warrants, will be
fully paid and non-assessable and (iii) the Warrants will be binding obligations
of Homestead enforceable against Homestead in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditor's rights generally and subject
to general principles of equity.
To the extent that the obligations of Homestead under the Warrant Agreement
may be dependent upon such matters, we assume for purposes of this opinion that
the Warrant Agent will be duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization; that the Warrant Agent will
be duly qualified to engage in the activities contemplated by the Warrant
Agreement; that the Warrant Agreement will be duly authorized, executed and
delivered by the Warrant Agent and will constitute the legal, valid and binding
obligation of the Warrant Agent enforceable against the Warrant Agent in
accordance with its terms; that the Warrant Agent will be in compliance,
generally with respect to acting as a Warrant Agent under the Warrant Agreement,
with all applicable laws and regulations; and that the Warrant Agent will have
the requisite organizational and legal power and authority to perform its
obligations under the Warrant Agreement.
Insofar as the foregoing opinion involves matters governed by Maryland law,
we have relied, with your approval, upon the opinion of the law firm of Ballard
Spahr Andrews & Ingersoll, a copy of which is attached as Exhibit A.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under each of the captions "Legal Matters."
We are admitted to practice law in the State of Illinois and we express no
opinions as to matters under or involving any laws other than the laws of the
State of Illinois and the federal laws of the United States of America.
Very truly yours,
MAYER, BROWN & PLATT
<PAGE>
[Letterhead of Law Offices of Ballard Spahr Andrews & Ingersoll]
FILE NUMBER
801756
August 5, 1996
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, IL 60603
Re: Homestead Village Incorporated
Registration Statement on Form S-4
Registration No. 333-4455
----------------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to Homestead Village Incorporated,
a Maryland corporation (the "Company"), in connection with certain matters of
Maryland law arising out of the registration of 17,749,735 shares (the "Shares")
of Common Stock, $.01 par value per share, of the Company (the "Common Stock"),
10,000,000 warrants (the "Warrants") to purchase one share of Common Stock each,
to be issued to Security Capital Pacific Trust, a Maryland real estate
investment trust ("PTR"), Security Capital Atlantic Incorporated, a Maryland
corporation ("SCG"), and 10,000,000 shares of Common Stock to be issued upon
exercise of the Warrants (the "Warrant Shares"), as described in the
above-referenced Registration Statement, and all amendments thereto (the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"1933 Act"). Capitalized terms used but not defined herein shall have the
meanings given to them in the Registration Statement.
In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The Registration Statement in the form in which it was
transmitted to the Securities and Exchange Commission (the
<PAGE>
Mayer, Brown & Platt
August 5, 1996
Page 2
"Commission") under the 1933 Act on May 24, 1996 and Amendment Number 1 thereto,
filed with the Commission on July 17, 1996;
2. The charter of the Company, certified as of a recent date by the
State Department of Assessments and Taxation of Maryland (the "SDAT");
3. The Bylaws of the Company, certified as of a recent date by its
Secretary;
4. Resolutions adopted by the Board of Directors and stockholders of
the Company relating to the authorization, sale, issuance and registration of
the Shares and the Warrants certified as of a recent date by the Secretary of
the Company;
5. The form of Warrant Agreement (the "Warrant Agreement") between
the Company and First National Bank of Boston, as Warrant Agent (the "Warrant
Agent"), and the form of Certificate representing a Warrant attached thereto as
Exhibit A (the "Warrant Certificate"), both certified by the Secretary of the
Company as of the date hereof;
6. The form of certificate representing a share Common Stock;
7. A certificate of the SDAT as to the good standing of the Company,
dated August 5, 1996;
8. A certificate executed by Jeffrey A. Klopf, Secretary of the
Company, dated August 5, 1996;
9. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far
as is known to us there are no facts inconsistent with, the following:
1. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding and are enforceable in accordance with all stated
terms except as limited (a) by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other laws
<PAGE>
Mayer, Brown & Platt
August 5, 1996
Page 3
relating to or affecting the enforcement of creditors' rights and (b) by general
equitable principles.
2. Each individual executing any of the Documents on behalf of a
party (other than the Company) is duly authorized to do so.
3. Each individual executing any of the Documents, whether on behalf
of such individual or another person, is legally competent to do so.
4. All Documents submitted to us as originals are authentic. All
Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all such Documents are genuine. All
public records reviewed or relied upon by us or on our behalf are true and
complete. All statements and information contained in the Documents are true
and complete. There are no oral or written modifications or amendments to the
Documents, by action or conduct of the parties or otherwise.
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations
and qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under
and by virtue of the laws of the State of Maryland and is in good standing with
the SDAT.
2. The Shares have been duly and validly authorized and, when and if
sold and delivered against payment therefor and otherwise in accordance with the
resolutions of the Board of Directors of the Company authorizing their issuance,
will be duly and validly issued, full paid and nonassessable.
3. The issuance of the Warrants by the Company has been duly
authorized by the Board of Directors of the Company and, when and if the Warrant
Certificates are duly executed and delivered by the Company to the Warrant Agent
and countersigned by the Warrant Agent and delivered by the Warrant Agent to and
paid for by PTR, Atlantic and SCG in accordance with the resolutions of the
Board of Directors of the Company authorizing the issuance of the Warrants and
with the Warrant Agreement, the
<PAGE>
Mayer, Brown & Platt
August 5, 1996
Page 4
Warrants will be legally issued, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as
limited (a) by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other laws relating to or affecting the enforcement of creditors'
rights, (b) by general equitable principles, or (c) the doctrine of commercial
reasonableness.
4. The Warrant Shares have been duly authorized and, when and if sold
and delivered against payment therefor and otherwise in the manner described in
the Registration Statement, will be (assuming that any shares of Common Stock
issued between the date hereof and the date on which the Warrant Shares are
actually issued (not including any Warrant Shares), when aggregated with all
shares of Common Stock issued as of the date hereof and the Warrant Shares,
will not exceed the total number of shares of Common Stock that the Company is
authorized to issue) validly issued, fully paid and nonassessable under the laws
of the State of Maryland.
The foregoing opinion is limited to the substantive laws of the State
of Maryland and we do not express any opinion herein concerning any other law.
We express no opinion as to compliance with the securities (or "blue sky") laws
of the State of Maryland.
We assume no obligation to supplement this opinion if any applicable
law changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you solely for your benefit in
connection with delivering your opinion attached as Exhibit 5.1 to the
Registration Statement and, accordingly, may not be relied upon by, quoted in
any manner to, or delivered to any other person or entity without, in each
instance, our prior written consent.
We hereby consent to the use of the name of our firm in the section
entitled Legal Matters in the Registration Statement. In giving this consent, we
do not admit that we are within the category of persons whose consent is
required by Section 7 of the 1933 Act.
Very truly yours,
/s/ Ballard Spahn Andrews Ingersoll
-----------------------------------
Ballard Spahn Andrews Ingersoll
<PAGE>
[LETTERHEAD OF MAYER, BROWN & PLATT]
August 5, 1996
Exhibit 8
Board of Directors
Homestead Village Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Re: Homestead Village Incorporated
Registration Statement on Form S-4 (No. 333-4455)
Gentlemen:
In connection with the issuance of Common Stock and Warrants/1/ in
Homestead Village Incorporated, a Maryland corporation ("Homestead"), pursuant
to the S-4 Registration Statement filed with the Securities Exchange Commission
on May 24, 1996, as amended (the "Registration Statement"), you have requested
our opinion concerning the information in (i) the proxy statement of Security
Capital Pacific Trust (the "PTR Proxy") under the headings "SUMMARY --THE
TRANSACTION -- Federal Income Tax Consequences" and "THE TRANSACTION (Proposal
1) -- Federal Income Tax Consequences," and (ii) the information statement of
Security Capital Atlantic Incorporated (the "ATLANTIC Information Statement")
under the headings "SUMMARY -- THE TRANSACTION -- Federal Income Tax
Consequences," "THE TRANSACTION (Proposal 1) -- Federal Income Tax
Consequences," and "FEDERAL INCOME TAX CONSIDERATIONS."
In formulating our opinion, we have reviewed and relied upon the
Registration Statement (including the Prospectus of Homestead, the PTR Proxy
Statement and the ATLANTIC Information Statement), such other documents and
information provided by you, and such applicable provisions of law as we have
considered necessary or desirable for purposes of the opinion expressed herein.
______________________
1/ Unless otherwise specifically defined herein, all capitalized terms have
the meaning assigned to them in the Registration Statement.
<PAGE>
Homestead Village Incorporated
August 5, 1996
Page 2
In addition, we have relied upon certain representations made by Homestead,
PTR and ATLANTIC relating to the organization and actual and proposed operation
of each company and any relevant subsidiaries of each. For purposes of our
opinions, we have not made an independent investigation of the facts set forth
in such documents, the Registration Statement, or the representations from
Homestead, PTR or ATLANTIC. We have, consequently, relied upon your
representations that the information presented in such documents, or otherwise
furnished to us, accurately and completely describes all material facts.
In rendering this opinion, we have assumed that the transactions
contemplated by the foregoing documents will be consummated in accordance with
the operative documents, and that such documents accurately reflect the material
facts of such transactions. Our opinion expressed herein is based on the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder, and the interpretations of the Code and such regulations
by the courts and the Internal Revenue Service, all as they are in effect and
exist at the date of this letter. It should be noted that statutes,
regulations, judicial decisions, and administrative interpretations are subject
to change at any time and, in some circumstances, with retroactive effect. A
material change that is made after the date hereof in any of the foregoing bases
for our opinion, could adversely affect our conclusions.
Based upon and subject to the foregoing, it is our opinion that the
information (i) in the PTR Proxy under the headings "SUMMARY -- THE TRANSACTION
- -- Federal Income Tax Consequences" and "THE TRANSACTION (Proposal 1) -- Federal
Income Tax Consequences," and (ii) in the ATLANTIC Information Statement under
the headings "SUMMARY -- THE TRANSACTION -- Federal Income Tax Consequences,"
"THE TRANSACTION (Proposal 1) -- Federal Income Tax Consequences," and "FEDERAL
INCOME TAX CONSIDERATIONS," to the extent that it constitutes matters of law or
legal conclusions, has been reviewed by us and is correct in all material
respects.
Other than as expressly stated above, we express no opinion on any issue
relating to Homestead, PTR or ATLANTIC or to any investment therein.
<PAGE>
Homestead Village Incorporated
August 5, 1996
Page
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein and under
the headings in the Registration Statement as described above.
Very truly yours,
MAYER, BROWN & PLATT
TCS/WAL
<PAGE>
EXHIBIT 10.3
- --------------------------------------------------------------------------------
FUNDING COMMITMENT AGREEMENT
By and Between
SECURITY CAPITAL PACIFIC TRUST
"PTR"
AND
HOMESTEAD VILLAGE INCORPORATED
"Homestead"
PTR HOMESTEAD VILLAGE LIMITED PARTNERSHIP
"Partnership Borrower"
Dated: , 1996
--------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1.
DEFINITIONS................................ 2
Section 1.1. Certain Defined Terms..................................... 2
Section 1.2. Other Definitional Provisions............................. 10
ARTICLE 2.
THE LOANS................................. 11
Section 2.1. The Homestead Loan........................................ 11
Section 2.2. The Partnership Loan...................................... 11
Section 2.3. Future Projects........................................... 11
Section 2.4. Subsidiary Loans.......................................... 12
Section 2.5. Duration of Funding Commitment............................ 13
Section 2.6. Project Specific Funding Commitment....................... 13
Section 2.7. Replacement Projects...................................... 13
Section 2.8. Release of Security Documents............................. 14
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES....................... 15
Section 3.1. Existence and Power....................................... 15
Section 3.2. Authorization and Binding Obligations..................... 15
Section 3.3. No Legal Bar or Resultant Lien............................ 15
Section 3.4. No Consent................................................ 16
Section 3.5. Compliance with Laws...................................... 16
Section 3.6. Litigation................................................ 16
Section 3.7. Defaults.................................................. 16
Section 3.8. Status of Property........................................ 17
Section 3.9. Use of Proceeds........................................... 17
Section 3.10. Real Property Environmental Matters....................... 17
Section 3.11. Financial Condition....................................... 17
Section 3.12. No Condemnation........................................... 18
Section 3.13. No Actions................................................ 18
Section 3.14. No Adverse Conditions..................................... 18
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 4.
COVENANTS................................. 18
Section 4.1. Construction of Improvements.............................. 18
Section 4.2. Plans; Project Budgets; Project Schedules and Material
Changes................................................. 18
Section 4.3. Inspection and Examination................................ 19
Section 4.4. Permits and Approvals..................................... 19
Section 4.5. Governmental Requirements................................. 19
Section 4.6. Books and Records......................................... 19
Section 4.7. Title to Property and Improvements........................ 20
Section 4.8. Costs and Expenses........................................ 20
Section 4.9. Use of Advances........................................... 20
Section 4.10. Insurance................................................. 20
Section 4.11. Environmental Matters..................................... 20
Section 4.12. Selection of Architects; Contractors; Inspecting A/E's.... 21
Section 4.13. Further Assurances........................................ 21
Section 4.14. Quarterly Statements...................................... 21
Section 4.15. Continued Existence....................................... 21
Section 4.16. Defaults Under Other Loans................................ 21
ARTICLE 5.
ADVANCE CONDITIONS............................. 22
Section 5.1. Conditions Precedent to First Advance under this Agreement 22
Section 5.2. Conditions Precedent to First Advance for New Project..... 24
Section 5.3. Initial Improvement Advance Conditions.................... 25
Section 5.4. Additional Improvement Advance Conditions................. 26
Section 5.5. Final-Advance Conditions.................................. 26
ARTICLE 6.
PROCEDURE FOR ADVANCES; RESERVES...................... 27
Section 6.1 General................................................... 27
Section 6.2. Payments to PTR........................................... 28
Section 6.3. Retainage and Contractor's Fee Holdback................... 28
Section 6.4. Interest Reserve.......................................... 28
Section 6.5. Owner's Contingency....................................... 29
Section 6.6. Cost Overruns and Savings; Change Order Reserve........... 29
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 7.
EVENTS OF DEFAULT............................. 30
Section 7.1. Failure to Pay............................................ 30
Section 7.2. Other Loan Document Defaults.............................. 30
Section 7.3. Judgment or Attachment.................................... 30
Section 7.4. Violation of Governmental Requirements.................... 31
Section 7.5. Insolvency, etc........................................... 31
Section 7.6. Unapproved Transfer....................................... 31
ARTICLE 8.
REMEDIES.................................. 32
Section 8.1. General................................................... 32
Section 8.2. Remedies Cumulative....................................... 34
ARTICLE 9.
MISCELLANEOUS............................... 34
Section 9.1. Survival of Representations, Warranties and Covenants..... 34
Section 9.2. Successors and Assigns.................................... 34
Section 9.3. Notices................................................... 34
Section 9.4. Waiver.................................................... 35
Section 9.5. Amendment................................................. 35
Section 9.6. Severability.............................................. 35
Section 9.7. Entire Agreement.......................................... 35
Section 9.8. Expenses.................................................. 35
Section 9.9. Captions.................................................. 36
Section 9.10. Governing Law............................................. 36
Section 9.11. No Joint Venture or Partnership........................... 36
Section 9.12. No Third Party Beneficiary Rights Created................. 36
Section 9.13. Incorporation by Reference................................ 36
Section 9.14. Counterparts.............................................. 36
Section 9.15. Scope of Review of Plans.................................. 36
Section 9.16. Governmental Regulation................................... 37
Section 9.17. Subordination............................................. 37
Section 9.18. Indemnity................................................. 37
Section 9.19. Limitation of Liability................................... 37
</TABLE>
iii
<PAGE>
FUNDING COMMITMENT AGREEMENT
THIS FUNDING COMMITMENT AGREEMENT (this "Agreement"), is entered
into as of __________, 1996, among HOMESTEAD VILLAGE INCORPORATED, a Maryland
corporation ("Homestead"), PTR HOMESTEAD VILLAGE LIMITED PARTNERSHIP, a Delaware
limited partnership (the "Partnership Borrower") and SECURITY CAPITAL PACIFIC
TRUST, a Maryland real estate investment trust ("PTR").
RECITALS
A. Pursuant to that certain promissory note (the "Corporate Note")
dated January 24, 1996 as amended and restated on May 28, 1996, from PTR
Homestead Village Incorporated (the "Prior Corporate Borrower") to PTR, in the
original principal amount of $_________________ (the "Corporate Loan Amount")
and those certain deeds of trust and mortgages listed in Part I of Exhibit A
hereto (the "Existing Corporate Security Documents"), delivered by the Prior
Corporate Borrower to PTR to secure payment of the Corporate Note and the
Partnership Note (as defined below), prior to the date hereof, PTR has advanced
$________ to fund, among other matters, acquisition and construction costs and
expenses incurred by the Prior Corporate Borrower in connection with acquiring
and developing as Homestead Village extended-stay lodging facilities the real
properties described in Part I of Exhibit B hereto (the "Existing Corporate
Projects"). (The Corporate Note, the Existing Corporate Security Documents and
all other instruments heretofore delivered by the Prior Corporate Borrower in
connection therewith to secure the Corporate Note and the Partnership Note are
herein called the "Existing Corporate Loan Documents".)
B. Pursuant to that certain promissory note (the "Partnership Note")
dated January 24, 1996 as amended and restated on May 28, 1996, from the
Partnership Borrower to PTR, in the original principal amount of
$_____________________ (the "Partnership Loan Amount") and those certain deeds
of trust and mortgages listed in Part II of Exhibit A hereto (the "Existing
Partnership Security Documents"), delivered by the Partnership Borrower to PTR
to secure payment of the Partnership Note and the Corporate Note, prior to the
date hereof, PTR has advanced $______ to fund, among other matters, acquisition
and construction costs and expenses incurred by the Partnership Borrower in
connection with acquiring and developing as Homestead Village extended-stay
lodging facilities the real properties described in Exhibit B hereto (the
"Existing Partnership Projects"). (The Partnership Note, the Existing
Partnership Security Documents and all other instruments heretofore delivered
by the Partnership Borrower in connection therewith to secure the Partnership
Note and Corporate Note are herein called the "Existing Partnership Loan
Documents"; the Existing Corporate Projects and the Existing Partnership
Projects are collectively referred to herein as the "Existing Projects"; and
the Existing Corporate Loan Documents and Existing Partnership Loan Documents
are collectively referred to herein as the "Existing Loan Documents".)
1
<PAGE>
C. On the date hereof, the parties are entering into a series of
transactions as described in that certain Merger and Distribution Agreement,
dated as of May ___, 1996, among Security Capital Atlantic Incorporated
("Atlantic"), PTR, Security Capital Group Incorporated ("SCG") and Homestead
(the "Merger Agreement"), pursuant to which, among other things, Homestead is,
contemporaneously herewith, acquiring all of the stock of PTR's subsidiaries
which own, operate or develop PTR's extended-stay lodging facilities. As a
consequence of the mergers contemplated under the Merger Agreement, the Prior
Corporate Borrower has been merged into Homestead and in connection therewith
Homestead has succeeded to and assumed all of the Prior Corporate Borrower's
obligations and liabilities, including those under the Existing Corporate Loan
Documents.
D. Upon and subject to the provisions of this Agreement, Homestead,
the Partnership Borrower and PTR desire to continue the funding provided for
under the Existing Loan Documents with respect to the Existing Projects, and in
consideration of the issuance, pursuant to that certain Warrant Purchase
Agreement, dated as of ____________ , 1996 among Atlantic, PTR, SCG and
Homestead, to PTR by Homestead of warrants to purchase shares of common stock,
$0.01 par value per share, of Homestead ("Homestead Common Stock"), PTR is
willing to provide funds to Homestead and the Partnership Borrower for the costs
incurred in connection with performing due diligence investigations, securing
required development approvals and otherwise completing the acquisition and
development of the proposed future Homestead Village projects listed in Parts
III and IV of Exhibit A (which projects, and any replacement projects approved
by PTR pursuant to the provisions of this Agreement, are herein called the
"Future Projects").
E. The execution of this Agreement is a condition to the consummation
of the transactions contemplated by the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
Section 1.1. CERTAIN DEFINED TERMS. As used herein, the following
terms shall have the following meanings:
"Agreement" shall mean this Funding Commitment Agreement.
"Acquisition Notice" has the meaning set forth in Section 2.3 of this
Agreement.
2
<PAGE>
"Architect" means the architect retained by a Borrower to provide
architectural services for a Project.
"Architect's Agreement" means the agreement for architectural services
executed by a Borrower and an Architect in connection with the design of a
Project, and all exhibits, attachments, riders and addenda thereto.
"Architect's Certificate" means a Certificate from the Architect for a
Project, in form and substance reasonably acceptable to PTR, wherein the
Architect acknowledges the collateral assignment of the Architect's Agreement
and the Plans prepared by such Architect from Borrower to PTR pursuant to this
Agreement and agrees to perform all of its obligations under the Architect's
Agreement in the event PTR takes possession of the subject Project in connection
with the exercise of its remedies hereunder or under the Security Documents
after an Event of Default.
"Atlantic" has the meaning set forth in the Preamble to this
Agreement.
"Borrower" means Homestead, in its capacity as maker under the
Homestead Note, the Partnership Borrower or any Subsidiary, whichever entity is
the owner of the subject Project.
"Business Day" means any day other than Saturday, Sunday, or any other
day on which commercial banks in _______ are not required to be open for
business.
"Change Order" means a written order executed by a Borrower
authorizing a Contractor to proceed with a change in the work as provided for in
the original Plans for a Project, which change has been made in accordance with
the applicable provisions of this Agreement.
"Completion and Payment Guaranty" means that certain Guaranty of
Completion and Payment of even date herewith from Homestead to PTR in the form
attached as Exhibit C.
"Construction Contract" means the contract for construction executed
by a Borrower and the Contractor in connection with the construction of a
Project, and all exhibits, attachments, riders and addenda thereto.
"Consultant" means any civil engineer or other material consultant,
other than the Architect, retained directly by a Borrower to provide design or
engineering services for a Project.
"Consultant's Agreement" means the agreement for engineering or other
consultant services executed by a Borrower and a Consultant in connection with a
Project, and all exhibits, attachments, riders and addenda thereto.
3
<PAGE>
"Consultant's Certificate" means a Certificate from a Consultant for a
Project, in form and substance reasonably acceptable to PTR, wherein the
Consultant acknowledges the collateral assignment of the Consultant's Agreement
and the Plans prepared by such Consultant from Borrower to PTR pursuant to this
Agreement and agrees to perform all of its obligations under the Consultant's
Agreement in the event PTR takes possession of the subject Project in connection
with the exercise of its remedies hereunder or under the Security Documents
after an Event of Default.
"Contractor" means the general contractor retained by a Borrower to
provide construction services for a Project.
"Contractor's Certificate" means a Certificate from the Contractor for
a Project, in form and substance reasonably acceptable to PTR, wherein the
Contractor acknowledges the collateral assignment of the Construction Contract
from Borrower to PTR pursuant to this Agreement and agrees to perform all of its
obligations under the Construction Contract in the event PTR takes possession of
the subject Project in connection with the exercise of its remedies hereunder or
under the Security Documents after an Event of Default.
"Corporate Loan Amount" has the meaning set forth in Recital A to this
Agreement.
"Corporate Loan Documents" has the meaning set forth in Recital A to
this Agreement.
"Corporate Note" has the meaning set forth in Recital A to this
Agreement.
"Default" means any condition or event that constitutes an Event of
Default or that with the giving of notice or lapse of time or both would, unless
cured or waived, become an Event of Default.
"Development Budget" has the meaning set forth in Section 2.3 of this
Agreement.
"Development Schedule" has the meaning set forth in Section 2.3 of
this Agreement.
"Environmental Laws" means any and all laws, statutes, ordinances,
rules, regulations, orders, or determinations of any governmental authority
pertaining to health or the environment applicable to a Borrower, or a Property
owned by such Borrower, in effect in the jurisdiction in which such Property is
located, or where any hazardous substances generated by or disposed of by a
Borrower in connection with such Property are located, including but not limited
to the Clean Air Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended by the Superfund Amendments
and Reauthorization Act of 1986, as amended ("CERCLA"), the Federal Water
Pollution Control Act, as amended, the Resource Conservation and Recovery Act of
1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal
Act Amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984, as
amended ("RCRA"), the Safe Drinking Water Act, as amended,
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the Toxic Substances Control Act, as amended, the Hazardous Materials
Transportation Act, as amended any analogous state law of the state in which the
Property is located and other environmental conservation or protection laws.
The terms "hazardous substance," "release," and "threatened release" shall have
the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or
"disposed") shall have the meanings specified in RCRA; provided, however, that
(i) in the event either CERCLA or RCRA is amended so as to broaden the meaning
of any term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and (ii) to the extent the laws of the state in
which the Property is located establish a meaning for "hazardous substance,"
"release," "threatened release," "solid waste," or "disposal" which is broader
than that specified in either CERCLA or RCRA, such broader meaning shall apply.
"Event of Default" means the occurrence of any of the events specified
in Article 7 hereof.
"Existing Corporate Projects" has the meaning set forth in Recital A
to this Agreement.
"Existing Corporate Security Documents" has the meaning set forth in
Recital A to this Agreement.
"Existing Loan Documents" has the meaning set forth in Recital B to
this Agreement.
"Existing Partnership Loan Documents" has the meaning set forth in
Recital B to this Agreement.
"Existing Partnership Projects" has the meaning set forth in Recital B
to this Agreement.
"Existing Partnership Security Documents" has the meaning set forth in
Recital B to this Agreement.
"Existing Projects" has the meaning set forth in Recital B to this
Agreement.
"Expiration Date" has the meaning set forth in Section 2.5 of this
Agreement.
"Final Advance" means the final advance of Loan proceeds to a Borrower
for construction of a Project in accordance with the applicable provisions of
this Agreement.
"Final Completion" means that the requirements of Section 5.5 have
been fully satisfied for a Project.
"Final CO" means a final unconditional certificate of occupancy for a
Project issued by the applicable Governmental Authority.
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"Force Majeure" means, with respect to any Project, an event entitling
a Contractor to an extension of time in constructing the Improvements as
established in the Construction Contract and any act of God, war, riots,
unusually severe weather, shortages of labor or materials (but not a shortage of
funds), strikes, lock-outs, explosions, the order of any court or governmental
authority or unavailability of or delay in issuance of any Permits despite a
Borrower's reasonable diligence in securing same, which results in any delay in
whole or in part in the design, engineering or construction of a Project, or the
duration of any inspection, testing, or remediation related to any environmental
condition or aspect of a Project.
"Funding Notice" has the meaning set forth in Section 2.3 of this
Agreement.
"Future Project" has the meaning set forth in Recital D to this
Agreement.
"Geographic Area" means the States of Arizona, California, Colorado,
Idaho, Kansas, Missouri, Nevada, New Mexico, Oklahoma, Oregon, Texas, Utah and
Washington.
"Governmental Authority" means any Federal, state, county, municipal
or other governmental or quasi-governmental department, commission, board,
court, agency or other instrumentality having jurisdiction over a Borrower and
any Project.
"Governmental Requirement" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization or other direction or requirement
(including, without limitation, any of the foregoing that relate to
environmental standards or controls, energy regulations and occupational safety
and health standards or controls) of any Governmental Authority.
"Homestead" has the meaning set forth in the Preamble to this
Agreement.
"Homestead Common Stock" has the meaning set forth in Recital D to
this Agreement.
"Homestead Affiliate" means (a) an entity that directly or indirectly
controls, is controlled by or is under common control with Homestead or (b) an
entity at least a majority of whose economic interest is owned by Homestead; and
the term "control" means the power to direct the management of such entity
through voting rights, ownership or contractual obligations; provided, however,
in no event shall PTR, Atlantic, SCG or any wholly-owned subsidiary of any of
the foregoing be deemed a Homestead affiliate.
"Homestead Loan" means the loan evidenced by the Homestead Note.
"Homestead Loan Amount" has the meaning set forth in Recital D to this
Agreement.
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"Homestead Note" means that certain Amended and Restated Promissory
Note, in the form set forth as Exhibit D hereto, dated of even date herewith,
from Homestead to PTR in the original principal amount of ___________ and No/100
Dollars ($____________).
"Homestead Security Documents" means the deeds of trust, deeds to
secured debt and/or mortgage instruments, substantially in the forms attached as
Exhibit E hereto, to be delivered to PTR by Homestead in connection with the
funding of any Project acquired by Homestead after the date of this Agreement,
as security for the Homestead Note, the Partnership Note and any Subsidiary Note
executed and delivered after the date hereof, and any other security instruments
delivered by Homestead from time to time as security for the Homestead Note, the
Partnership Note and any such Subsidiary Note.
"Improvements" means the buildings, structures, and other improvements
to be constructed on the Land as described on the Plans for the subject Project.
"Inspecting A/E" means the inspecting architect or engineer retained
by a Borrower to inspect, monitor and administer the progress of construction of
a Project.
"Land" means the parcel or parcels of land on which a Project is or is
to be located, together with all easements, rights of way and other
appurtenances thereto.
"Lien Waivers" means a waiver of all liens relating to a Project
executed by any and all contractors, subcontractors and/or suppliers of a
Borrower who have provided any goods or services relating to Improvements.
"Loan" means the Homestead Loan, the Partnership Loan, or any
Subsidiary Loan made after the date hereof, as the context may require; and
"Loans" means the Homestead Loan, the Partnership Loan, and any Subsidiary Loans
made after the date hereof, collectively.
"Loan Amount" means the aggregate of the Homestead Loan Amount and the
Partnership Loan Amount.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Completion and Payment Guaranty and any and all other agreements
or instruments now or hereafter executed and delivered by a Borrower, Homestead
or any other person in connection with, or as security for, the payment or
performance of the Notes.
"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 Homestead and its Subsidiaries, taken as a
whole.
"Material Change" means any change to the Plans or to a Project which
would result in a material increase or decrease in the number of lodging units
in such Project from the number
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contained in a Prototypical Project, a material increase or decrease in the
overall cost of completing a Project above the costs contemplated in the
Prototypical Project Budget, or would otherwise result in such Project
materially deviating from the product and/or investment concept of a
Prototypical Project as set forth in the Prototypical Plans.
"Note" means the Homestead Note, the Partnership Note, or any
Subsidiary Note executed and delivered after the date hereof, as the context may
require, and "Notes" means the Homestead Note, the Partnership Note, and any
Subsidiary Notes executed and delivered after the date hereof, collectively.
"Partnership Borrower" has the meaning set forth in the Preamble to
this Agreement.
"Partnership Loan" means the loan evidenced by the Partnership Note.
"Partnership Loan Amount" has the meaning set forth in Recital B to
this Agreement.
"Partnership Note" has the meaning set forth in Recital B to this
Agreement.
"Partnership Security Documents" means the deeds of trust, deeds to
secure debt and/or mortgage instruments, substantially in the forms attached as
Exhibit F hereto, to be delivered to PTR by the Partnership Borrower in
connection with the funding of any Project acquired by the Partnership after the
date of this Agreement, as security for the Partnership Note, the Homestead Note
and any Subsidiary Note executed and delivered after the date hereof, and any
other security instruments delivered by the Partnership Borrower from time to
time as security for the Homestead Note, the Partnership Note and any such
Subsidiary Note.
"Permits" shall mean all permits, licenses, registrations,
certificates, authorizations and approvals now or hereafter issued or required
to be issued by any governmental or quasi-Governmental Authority for the lawful
ownership, construction, use and operation of a Project.
"Personalty" means all items of tangible or intangible personal
property owned by a Borrower, or in which a Borrower has any interest, to the
extent of such interest, that now are or hereafter may be purchased, prepared,
constructed or placed for, upon or in a Project owned by such Borrower.
"Plans" means the final plans and specifications for the construction
of the Improvements comprising a Project, together with any modifications or
additions to the same subsequently permitted under the terms of this Agreement
or, to the extent required hereunder, approved by PTR in accordance with the
provisions of this Agreement.
"Project" means each Existing Project and each Future Project for
which an Acquisition Notice has been delivered to PTR prior to the Expiration
Date.
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"Project Budget" means the budget for a Project delivered by a
Borrower to PTR.
"Project Schedule" means the schedule for the design and construction
of the Improvements encompassed within a Project delivered by a Borrower to PTR.
"Property" means any property from time to time subject to any of the
Security Documents, including the Land and all Improvements now or hereafter
located thereon and all Personalty associated therewith.
"Proposed Substitute Future Project" has the meaning set forth in
Section 2.7 of this Agreement.
"Prototypical Project Budget" means the due diligence, development
approval, land acquisition, design and construction budget for a Prototypical
Project heretofore delivered to, and approved by, PTR.
"Prototypical Project Schedule" means the due diligence, development
approval, design and construction schedule for a Prototypical Project heretofore
delivered to, and approved by, PTR.
"Prototypical Plans" means the standard plans and specifications for a
Homestead Village extended-stay lodging facility heretofore delivered to, and
approved by, PTR.
"Prototypical Project" means a Homestead Village extended-stay lodging
facility designed and constructed in substantial accordance with the
Prototypical Plans.
"PTR" has the meaning set forth in the Preamble to this Agreement.
"Pursuit Costs" has the meaning set forth in Section 2.3 of this
Agreement.
"Quarterly Statement" has the meaning set forth in Section 4.14 of
this Agreement.
"Rejected Project" has the meaning set forth in Section 2.7 of this
Agreement.
"Security Documents" means the Homestead Security Documents, the
Existing Corporate Security Documents, the Partnership Security Documents, the
Partnership Security Documents, and any Subsidiary Security Documents,
collectively.
"Subcontractor" means all persons performing labor or services, or
providing materials, equipment or furnishings in connection with the
construction of Improvements, other than Contractor.
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"Subsidiary" means any entity now or hereafter in existence, all of
the outstanding equity securities of which are owned by Homestead.
"Subsidiary Loan" means any portion of the Homestead Loan or
Partnership Loan which Homestead may direct PTR to advance to a Subsidiary
instead of to Homestead or the Partnership Borrower in accordance with the
provisions of this Agreement.
"Subsidiary Note" means any promissory note, substantially in the form
of the Homestead Note, which a Subsidiary executes and delivers to PTR after the
date hereof to evidence a Subsidiary Loan made by PTR to such Subsidiary.
"Subsidiary Security Documents" means the deed of trust or mortgage
instrument to be delivered to PTR by a Subsidiary, substantially in the form of
the Homestead Security Documents, in connection with the funding of any Future
Project owned by Subsidiary as security for the Homestead Note, the Partnership
Note and any Subsidiary Note executed and delivered after the date hereof, and
any other security instruments delivered by such Subsidiary from time to time as
security for the Homestead Note, the Partnership Note and any such Subsidiary
Note.
"Title Insurer" means Chicago Title Insurance Company or any other
nationally recognized title insurance company issuing a Title Policy.
"Title Policy" means the lender's policy of title insurance for a
Property issued by the Title Insurer for the benefit of PTR and all endorsements
thereto, which insures the lien priority of the Security Documents applicable to
such Property.
"UCC" means the Uniform Commercial Code as in force in the state in
which a Project is located.
Section 1.2. OTHER DEFINITIONAL PROVISIONS.
(a) Except as otherwise specified herein, all references herein (i) to
any person or entity shall be deemed to include such person's or entity's heirs,
legal representatives, successors and assigns, as appropriate, (ii) to any
Governmental Requirement defined or referred to herein shall be deemed
references to such Governmental Requirement as the same may have been or may be
amended or supplemented from time to time and (iii) to any Loan Document or
other agreement defined or referred to herein shall be deemed references to such
Loan Document or agreement (and, in the case of the Notes or other instruments,
any instrument issued in substitution therefor) as the terms thereof may have
been or may be amended, supplemented, waived or otherwise modified from time to
time in writing.
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(b) Whenever the context so requires, the neuter gender includes the
masculine or feminine, the masculine gender includes the feminine, and the
singular number includes the plural, and vice versa.
ARTICLE 2.
THE LOANS
Section 2.1. THE HOMESTEAD LOAN. Subject to the limitations set
forth in Sections 2.5, 2.6 and 2.7 below, PTR hereby agrees, upon the terms and
conditions set forth herein and in the other applicable Loan Documents, to
advance to Homestead up to the maximum amount of the Homestead Loan Amount for
the purpose of paying the costs and expenses incurred by Homestead in completing
the design and construction of the Existing Projects owned by Homestead and in
performing its due diligence review, obtaining all Permits required for
development of and otherwise acquiring the Land for, and completing the design
and construction of, such of the Future Projects hereafter pursued by Homestead
as may be funded under the provisions of this Agreement. Principal and accrued
interest on the Homestead Note shall be due and payable in accordance with the
terms and conditions set forth therein and herein.
Section 2.2. THE PARTNERSHIP LOAN. Subject to the limitations set
forth in Sections 2.5, 2.6 and 2.7 below, PTR hereby agrees, upon the terms and
conditions set forth herein and in the other applicable Loan Documents, to
advance to the Partnership Borrower up to the maximum amount of the Partnership
Loan Amount for the purpose of paying the costs and expenses incurred by the
Partnership Borrower in completing the design and construction of the Existing
Projects owned by the Partnership Borrower and in performing its due diligence
review, obtaining all Permits required for development of and otherwise
acquiring the Land for, and completing the design and construction of the Future
Projects hereafter pursued by the Partnership Borrower as may be funded under
the provisions of this Agreement. Principal and accrued interest on the
Partnership Note shall be due and payable in accordance with the terms and
conditions set forth therein and herein.
Section 2.3. FUTURE PROJECTS. The parties acknowledge and agree that
the Future Projects identified in Exhibit I hereto are in differing stages of
consideration by Homestead and that, at any point in the process of its due
diligence review, the negotiation of definitive acquisition and related
documents and its efforts to obtain all Permits required for development of any
such Future Project, Homestead may determine, in its sole and absolute
discretion, either to proceed with the acquisition of the land for, and
development of, any such Future Project or to discontinue its efforts in respect
of any such Future Project. Requests for advances of Loan proceeds hereunder
may include amounts required to reimburse Homestead for the costs and expenses
incurred by Homestead in its due diligence review of any such Future Project, as
well as all costs incurred in connection with its efforts to secure the Permits
required for development
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of any such Future Project. Whenever such pursuit costs ("Pursuit Costs") are
to be funded with Loan proceeds, prior to the first advance in respect of a
Future Project, Homestead will provided PTR with a notice (a "Funding Notice")
identifying the Future Project, together with a development budget (a
"Development Budget") indicating the anticipated costs that are likely to be
incurred prior to the acquisition of such Future Project by Homestead or a
Subsidiary, the amount of such costs to be funded by Loan proceeds, which amount
shall in no event exceed $100,000 per Future Project, and a schedule setting
forth the anticipated time-frames for completing the due diligence review and
obtaining required Permits (a "Development Schedule").
If Homestead elects to proceed with a Future Project, then Homestead
shall provide PTR at least 10 Business Days' prior written notice (an
"Acquisition Notice") of the anticipated closing date for the acquisition of
the subject Land, the identity of the Borrower for such transaction, and the
estimated amount of Loan proceeds that will need to be advanced at such closing.
From and after delivery of an Acquisition Notice to PTR, the subject project
shall, for all purposes under this Agreement, be deemed a "Project".
Notwithstanding anything to the contrary in the foregoing, funding of the first
advance of Loan proceeds in respect of any such Project shall require the
recordation of Security Documents adding such Project as security for the Loan
and the satisfaction of the other conditions set forth in Section 5.2 as to such
Project.
In the event, however, that Homestead determines from time to time
that any Future Project is unacceptable to it and that Homestead will not expend
further efforts with respect to such Future Project, Homestead shall provide
written notice to PTR identifying any such Future Project. In such event, any
Pursuit Costs theretofore funded with Loan proceeds, together with accrued and
unpaid interest thereon due under the terms of the Homestead Note, shall be
repaid by Homestead to PTR within 30 days after delivery of such notice to PTR.
Section 2.4. SUBSIDIARY LOANS. With respect to any Future Project
for which an Acquisition Notice is delivered to PTR in accordance with Section
2.3 above, Homestead shall have the right to determine, in its sole and absolute
discretion, that a Subsidiary acquire the subject Project, in which event, the
subject Subsidiary shall, at such time as it acquires the subject Future
Project, execute and deliver to PTR Subsidiary Security Documents in connection
therewith together with an agreement in form and substance satisfactory to PTR
pursuant to which such Subsidiary agrees to be bound by the terms of this
Agreement as to such Project. In addition, at the election of Homestead, the
subject Subsidiary shall execute a Subsidiary Note in the amount of the Loan
determined by Homestead to be allocable to such Project and the Homestead Loan
Amount and/or the Partnership Loan Amount (as Homestead may elect) shall be
decreased by the amount of any such Subsidiary Note. Alternatively, Homestead
may elect to have funds advanced with respect to such Project under the
Homestead Loan and either loan or contribute the funds so advanced to the
subject Subsidiary. In the event any Subsidiary executes a Subsidiary Note
and/or any Subsidiary Security Documents as contemplated under this Section 2.4,
the parties shall, contemporaneously therewith, execute, deliver, and, if
appropriate, record, such amendments to the Loan Documents as may reasonably be
necessary
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or appropriate to properly document any resulting changes in the Homestead Loan
Amount and/or the Partnership Loan Amount.
Section 2.5. DURATION OF FUNDING COMMITMENT. The obligation of PTR
to advance Loan proceeds in respect of Future Projects for which an Acquisition
Notice has not yet been delivered to PTR shall expire on March 31, 1998 (the
"Expiration Date"). Notwithstanding anything to the contrary in the foregoing,
PTR shall continue to be obligated, subject to and upon the terms and conditions
set forth herein and in the other Loan Documents, to continue to make advances
of Loan proceeds after such date for each Project for which an Acquisition
Notice has theretofore been delivered to PTR under the terms of this Agreement,
but shall not have any obligation to make further advances in respect of Pursuit
Costs for any Future Project for which only a Funding Notice has been delivered
to PTR. On or before April 30, 1998, Homestead shall repay, or cause to be
repaid, to PTR any advances of Loan proceeds in respect of Pursuit Costs
(together with accrued and unpaid interest thereon) that have not been repaid
pursuant to Section 2.3 hereof as of the Expiration Date.
SECTION 2.6. PROJECT SPECIFIC FUNDING COMMITMENT. PTR's obligation
under this Agreement to make advances of Loan proceeds in respect of a
designated Project shall not exceed the lesser of (i) the actual aggregate hard
and soft costs incurred by the applicable Borrower in connection with the
acquisition, development, design and construction of such Project, or (ii),
except as provided in Section 6.6, the amount allocated to such Project in
Exhibit I hereto, and all costs in respect of a Project in excess of the Loan
amount allocated to such Project shall, except as provided in such Section 6.6,
be funded by Homestead as and when needed. In addition, PTR's obligation to
make advances in respect of a designated Project shall expire on the second
anniversary of the date on which the subject Land was acquired by Homestead or
the applicable Subsidiary. In the event Final Completion of such Project has
not been achieved by such date, PTR shall have no obligation to make any further
advances of Loan proceeds in connection with such Project and all costs required
to complete such Project shall be funded by Homestead as and when required in
order to assure that such Project is completed and placed in operation as soon
as is reasonably practicable. If, however, Final Completion of such Project has
not been achieved by the date which is 30 months after the date of acquisition
of the subject Land, then, at the election of PTR, exercised by delivering
written notice to Homestead, Homestead shall repay, or cause the applicable
Subsidiary to repay, within 30 days after receipt of such notice the amount of
Loan proceeds advanced in respect of such Project (together with accrued and
unpaid interest on such amount), and upon receipt of such payment, this
Agreement, solely as it relates to such Project, shall terminate and PTR shall
cause to be released the Security Documents recorded or filed against such
Project.
Section 2.7. REPLACEMENT PROJECTS. Homestead agrees that for each
Future Project rejected by Homestead pursuant to Section 2.3 (a "Rejected
Project"), Homestead will propose to PTR in writing a proposed substitute future
project (a "Proposed Substitute Future Project")
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to take the place of such Rejected Project. Any such Proposed Substitute Future
Project shall be located within the Geographic Area and, except as specifically
noted in writing by Homestead, shall conform, to Homestead's then current
knowledge, to the Prototypical Project requirements. Homestead may select a
Proposed Substitute Future Project from its then contemplated Homestead Village
projects which Homestead is considering pursuing or, if all such contemplated
projects are then already included within the list of Future Projects under this
Agreement, then Homestead may delay in identifying a Proposed Substitute Future
Project until, in the ordinary course of its business, a new site for a
contemplated Homestead Village project is identified within the Geographic Area.
Homestead shall not, however, be obligated to identify a new potential Homestead
Village site solely for the purposes of presenting to PTR a Proposed Substitute
Future Project.
PTR shall have a period of 20 Business Days after receipt of any such
Proposed Substitute Project to approve or reject, in its sole and absolute
discretion, any such proposal, and failure of PTR to provide Homestead with
written notice within such 20-Business Day period shall be deemed a rejection by
PTR of the subject Proposed Substitute Future Project. If PTR timely approves a
Proposed Substitute Future Project, then such project shall be substituted in
the place and stead of the Rejected Project in Exhibit I hereto, and shall for
all purposes under this Agreement thereafter be deemed a Future Project. The
maximum amount of Loan proceeds that will be available to fund such Future
Project (if Homestead thereafter delivers an Acquisition Notice for such
Project) shall be equal to the Loan amount originally allocated to the
applicable Rejected Project in Exhibit I.
In the event that any Proposed Substitute Future Project is rejected
or deemed rejected by PTR, Homestead shall be free to pursue the Proposed
Substitute Future Project on its own. For each Rejected Project, Homestead
shall be required (subject to the limitations set forth above) to propose to PTR
up to a maximum of three (3) Proposed Substitute Future Projects. If PTR
rejects all three (3) Proposed Substitute Future Projects submitted by Homestead
in respect of a particular Rejected Project, then the Loan Amount, and PTR's
funding commitment hereunder, shall be reduced by the amount allocated to the
Rejected Project in Exhibit I hereto. The obligation of Homestead to propose to
PTR Proposed Substitute Future Projects shall in any event terminate on the
Expiration Date.
Section 2.8. RELEASE OF SECURITY DOCUMENTS. The parties acknowledge
and agree that the Notes are convertible, in whole or in part, into shares of
Homestead Common Stock up to the maximum amount of the unpaid principal amount
of such Notes outstanding from time to time and otherwise pursuant and subject
to the terms and conditions of such Notes. Any such conversion shall reduce the
amount of the debt evidenced by the Notes and secured by the Security Documents
by the amount determined in accordance with the conversion provisions of the
Notes. In connection with any partial conversion of the Notes, Homestead may
request that, in lieu of or in addition to reducing the amount secured by the
Security Documents, PTR release
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any one or more of the Projects then subject to the Security Documents and
having a value equivalent to or less than the amount of the debt reduction
resulting from such conversion. The release of any Projects from the lien of
the Security Documents shall, however, be subject to the approval of PTR, which
approval shall not to be unreasonably withheld or delayed.
At such time as all amounts owing to PTR under or in respect of any of
the Loan Documents have been paid in accordance with the provisions of the Loan
Documents or if not paid then, to the extent permitted under the Notes,
converted into Homestead Common Stock, and when PTR has no further obligation to
make any advance, disbursement or payment of any kind or to extend credit under
or with respect to any of the Loan Documents, then this Agreement shall
terminate and upon receipt of demand therefor from Homestead, PTR shall execute
and deliver to Homestead appropriate instruments of release or reconveyance of
any Security Documents then in effect.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
To induce PTR to enter into this Agreement, Homestead and each
Borrower represents and warrants to PTR (each representation and warranty herein
being given as of the date of this Agreement and deemed repeated and reaffirmed
on the date of each advance of funds by PTR) as follows:
Section 3.1. EXISTENCE AND POWER. Homestead and each Borrower is
duly organized, validly existing and in good standing under the laws of the
State of its organization and to the extent required is qualified to do business
in and is in good standing in each jurisdiction in which it owns property; has
full power and authority to own its assets, to conduct the activities in which
it is engaged, and to own and develop each Project which it owns.
Section 3.2. AUTHORIZATION AND BINDING OBLIGATIONS. The borrowing
evidenced by the Notes and the execution, delivery and performance of this
Agreement and all other Loan Documents by Homestead and each Borrower (i) are
within the power of the subject entity and (ii) have been duly authorized. Each
of the Loan Documents executed by Homestead and/or any Borrower, when executed
and delivered, will constitute the legal, valid and binding obligations of such
entity and are enforceable against such entity in accordance with its respective
terms, subject to bankruptcy and insolvency laws, equitable principles, and laws
affecting creditors rights generally.
Section 3.3. NO LEGAL BAR OR RESULTANT LIEN. None of the (i)
execution and delivery of, (ii) fulfillment of the terms and conditions of,
or (iii) the consummation of the transactions
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contemplated by the Loan Documents to which Homestead and/or any Borrower is a
party (a) violate any provisions of the articles or certificate of
incorporation, bylaws or partnership agreement of such entity, (b) violate or
constitute a default under any contract, agreement or instrument, or any law,
ordinance, rule or regulation of any Governmental Authority, to which such
entity is subject, (c) to such entity's knowledge, violate or constitute a
default under any Governmental Requirement so as to create a Material Adverse
Effect or (d) to such entity's knowledge, result in the creation or imposition
of any lien upon any property of such entity, other than those permitted by this
Agreement.
Section 3.4. NO CONSENT. The execution, delivery and performance of
the Loan Documents to which Homestead and/or each Borrower is a party does not
require the consent or approval of any other person, including, without
limitation, any financial institution or other creditor of such entity, any
trustee, conservator, receiver or administrator, or any regulatory authority or
governmental body of the United States of America or any state thereof or any
Governmental Authority.
Section 3.5. COMPLIANCE WITH LAWS. All Plans, Projects, Properties,
Improvements and their intended use presently comply, and throughout the term of
this Agreement will continue to comply, in all material respects with all
Governmental Requirements and all public and private restrictions or other
agreements affecting each such Property, including, without limitation, building
codes, special use permits, zoning codes, Environmental Laws, applicable
requirements of fire underwriters, restrictive covenants, easements and other
agreements affecting the Property. All Permits currently required by
Governmental Requirements to be obtained for the Projects now subject to this
Agreement have been obtained, and neither Homestead nor any Borrower has any
reason to believe that any Permits that subsequently may be required to enable
it to construct, occupy, operate, use or sell any of the Property will not be
obtained in due course.
Section 3.6. LITIGATION. Except as disclosed to PTR in writing, at
the date of this Agreement there is no litigation, legal, administrative, or
arbitral proceeding, investigation or other action of any nature pending or, to
the knowledge of Homestead or any Borrower, threatened against or affecting any
Borrower or Homestead that involves the possibility of any judgment or liability
(not fully covered by insurance) that would have a Material Adverse Effect.
Section 3.7. DEFAULTS. To the knowledge of Homestead and each
Borrower, neither Homestead nor any Borrower is in default, and no event or
circumstance has occurred that, but for the passage of time or the giving of
notice, or both, would constitute a default, in any respect under any agreement
of instrument that may have a Material Adverse Effect. No Event Default has
occurred hereunder.
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Section 3.8. STATUS OF PROPERTY. The Borrower delivering any
Security Documents to PTR is the fee simple owner of the subject Property free
and clear of all restrictions, covenants, easements, liens and encumbrances,
including, without limitation, mechanics', materialmen's and suppliers' liens
(except liens securing PTR and matters reflected in the Title Policy). To
Homestead and each Borrower's knowledge: each Property is a legal lot under
applicable laws, statutes, ordinances and regulations of the governing
jurisdiction; each Property is carried, or is in the process of being changed so
as to be carried, on the tax rolls of the governing jurisdiction as a separate,
subdivided parcel; each Property has, or will have upon completion of
construction, full access to the public highways and to the services of all
utilities, including water, storm sewer, sanitary sewer, electricity and
telephone, required to serve the intended use of the Property; each Property
under construction or completed is zoned under applicable zoning laws and
ordinances so as to permit the construction and development of the Project
planned for such Property and the use and occupancy of the Property as
contemplated under this Agreement; and each Property under construction or
completed currently complies in all material respects with such laws and
ordinances and with all private restrictions applicable thereto and any special
use permit, variance, exception, or other special zoning authorization
applicable thereto; each Property currently complies in all material respects
with all Governmental Requirements applicable thereto. To Borrower's knowledge,
the liens of the Security Documents executed by it are valid liens covering the
subject Properties.
Section 3.9. USE OF PROCEEDS. None of the proceeds of the Loans has
been or shall be used to purchase or carry, or to reduce or retire or refinance
any credit incurred to purchase or carry, any margin stock (within the meaning
of Regulations G and U of the Board of Governors of the Federal Reserve System)
or to extend credit to others for the purpose of purchasing or carrying any
margin stock.
Section 3.10. REAL PROPERTY ENVIRONMENTAL MATTERS. To the actual
knowledge of Homestead and each Borrower, except as disclosed in the
environmental audits prepared for Homestead and/or any such Borrower and
delivered to PTR, no hazardous substances or solid waste are located at or on or
have been disposed of or otherwise released on or to any of the Properties in
violation of any Environmental Laws.
Section 3.11. FINANCIAL CONDITION. All financial statements
delivered to PTR concerning Homestead and each Borrower fairly and accurately
present the financial condition of such entities as of the date of such
statements and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, and there are no contingent
liabilities not disclosed thereby which would have a Material Adverse Effect.
Since the close of the period covered by the latest financial statements
delivered to PTR with respect to Homestead's and each Borrower's assets,
liabilities, or financial condition, no event has occurred (including, without
limitation, any litigation or administrative proceedings) and no change in such
entities' financial condition exists or, to the knowledge of Homestead or any
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Borrower, is threatened, which (i) materially adversely affects a Borrower's
ability to perform its obligations under the Loan Documents, (ii) constitutes or
which after notice or lapse of time, or both, would constitute a Default
hereunder, or (iii) materially adversely affects the validity or priority of the
lien of the Security Documents on any Borrower's Property or the financial
condition of Homestead or any Borrower.
Section 3.12. NO CONDEMNATION. No taking of any Property or any
material part thereof, through eminent domain, conveyance in lieu thereof,
condemnation or similar proceeding is pending or, to the best of Homestead's and
each Borrower's knowledge, threatened by any governmental agency.
Section 3.13. NO ACTIONS. There is no action, proceeding or
investigation pending or, to the best of Homestead's and each Borrower's
knowledge, threatened (or any basis therefor) which questions, directly or
indirectly, the validity of this Agreement, the Notes, the Security Documents,
or any other Loan Document or any action taken or to be taken pursuant hereto or
thereto.
Section 3.14. NO ADVERSE CONDITIONS. To the best of Homestead's and
each Borrower's knowledge, there are no existing, pending or threatened events
which could materially adversely affect any of the Properties or the operation
thereof.
ARTICLE 4.
COVENANTS
Each Borrower will, at all times, comply with the covenants contained
in this Article 4 from the date hereof and for so long as any part of the Loans
is outstanding.
Section 4.1. CONSTRUCTION OF IMPROVEMENTS. Each Borrower will
proceed with the design, engineering and construction of its Improvements with
reasonable diligence and continuity and will endeavor in good faith to complete
the design, engineering and construction of its Improvements substantially in
accordance with the applicable Project Schedule, subject to Force Majeure, and
substantially in accordance with the Plans for such Improvement and applicable
Governmental Requirements.
Section 4.2. PLANS; PROJECT BUDGETS; PROJECT SCHEDULES AND MATERIAL
CHANGES. Prior to the date hereof, Homestead has delivered to PTR and PTR has
approved Homestead's Prototypical Plans, Prototypical Project Budget and
Prototypical Project Schedule. So long as the Plans and Project Budget
(including the Development Budget which is a part of the overall Project Budget)
for a given Project do not contain any Material Change and the Project Schedule
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does not deviate in any material respect from the Prototypical Schedule, no
further approval by PTR of the Plans, Project Schedule or Project Budget for a
Project shall be required. Borrower shall not, however, make any Material Change
in the Plans for any of its Projects or construct any Improvements which are not
substantially in accordance with the Prototypical Plans or make any change to
any Plans or install any material or equipment which would constitute a Material
Change, without Homestead's obtaining in each instance PTR's prior written
consent, which consent shall not be unreasonably withheld or delayed. Homestead
shall promptly notify PTR in writing of any Material Change desired by a
Borrower, which notice shall be accompanied by such plans or other information
as may reasonably be necessary for PTR to evaluate the proposed Material Change.
PTR shall deliver written notice to Homestead within 10 Business Days after
receipt of the requested Material Change stating whether such Material Change
has been approved or disapproved by PTR.
Section 4.3. INSPECTION AND EXAMINATION. Borrower will permit
representatives and agents of PTR to enter each Property owned by such Borrower
at all reasonable times to inspect the progress of the construction of the
subject Improvements and all materials to be used therein and to examine all
detailed plans and shop drawings which are or may be kept at the construction
site, and such Borrower will use reasonable efforts to cause the Contractor and
all Subcontractors to cooperate with PTR or its representatives in such
inspections or examinations. Homestead and each other Borrower shall also permit
representatives and agents of PTR to examine their respective books, records and
accounting data applicable to the Loans and the subject Projects (and to make
extracts therefrom or copies thereof) and, to the extent Homestead or such
Borrower has such right, all Contractor's and Subcontractors' books, records and
accounting data applicable to the subject Project.
Section 4.4. PERMITS AND APPROVALS. Borrower will comply in all
material respects with, and keep in full force and effect, all Permits necessary
for ownership, development and operation of the Projects owned or operated by
it.
Section 4.5. GOVERNMENTAL REQUIREMENTS. Borrower will cause all
Governmental Requirements and all restrictive covenants affecting its Projects
to be complied with in all material respects (except matters contested in good
faith by appropriate proceedings).
Section 4.6. BOOKS AND RECORDS. Borrower will implement and maintain
payment and accounting systems which will assure accurate and complete records
of all amounts owed and paid in connection with the completion of each Project.
Borrower shall require each Contractor and each Subcontractor having a
subcontract in excess of $100,000 to deliver lien waivers or releases as a
condition to receiving payments. Contractor lien waivers shall cover the amount
paid to the Contractor under its application for payment for the month or other
payment period just ending; Subcontractor lien waivers shall cover the amount
paid to such Subcontractor
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pursuant to the Contractor's application for payment for the immediately
preceding month or other payment period.
Section 4.7. TITLE TO PROPERTY AND IMPROVEMENTS. Neither the legal
or beneficial title and ownership of a Borrower in the Property(ies) and
Improvements or any portion thereof owned by it will be conveyed, pledged or
encumbered in any way other than to Homestead or a Homestead Affiliate without
the consent of PTR, which may be granted or denied in PTR's sole and absolute
discretion. Borrower will promptly pay and discharge prior to the date when any
interest or penalties shall accrue thereon, all taxes, levies, charges,
impositions, water and sewer rents, and assessments of every kind or nature,
whether foreseen or unforeseen and whether general or special, which are now or
shall hereafter be charged or assessed against the Property(ies) or the
Improvements owned by it, or any part thereof, or which may become a lien
thereon (except matters contested in good faith by appropriate proceedings and
for which adequate reserves have been provided).
Section 4.8. COSTS AND EXPENSES. Borrower shall pay any out-of-
pocket expenses reasonably incurred by PTR in the enforcement or collection of
the Loans, including without limitation, attorneys' fees and expenses, records
searches, documentary stamps, transfer taxes and recording taxes and court
costs.
Section 4.9. USE OF ADVANCES. Borrower shall not apply any advances
of Loan proceeds to costs other than those incurred in connection with the
subject Future Project or Project for which the advance has been made. Borrower
shall not apply such advances to the cost of acquiring any additional real
property other than a Project. Borrower shall not receive or apply advances of
Loan proceeds except to the purposes for which such proceeds have been advanced
by PTR, and in accordance with the provisions of the Loan Documents generally.
Section 4.10. INSURANCE. Borrower shall keep in full force and
effect at all times the policies of insurance applicable to the Property owned
by it and required by the Security Documents, and Borrower shall provide PTR
with evidence of such insurance upon receipt or request therefor.
Section 4.11. ENVIRONMENTAL MATTERS. Borrower shall not, by any act
or omission, cause or permit any hazardous substances, solid wastes or other
pollutants to exist on or about any Project in violation of Environmental Laws.
In the event of a breach of the foregoing provision, Homestead and the subject
Borrower shall remove the same (or if removal is prohibited by law, take
whatever action is required by law) promptly upon discovery at Homestead's and
such Borrower's sole expense. Homestead will promptly notify PTR in writing of
any existing, pending or threatened action, investigation or inquiry by any
Governmental Authority of which it has knowledge relating to any Property in
connection with any Environmental Laws.
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Section 4.12. SELECTION OF ARCHITECTS; CONTRACTORS; INSPECTING A/E'S.
Prior to the date hereof, Homestead has delivered to PTR and PTR has approved, a
list of potential Contractors, Architects, Consultants and Inspecting A/E's that
Homestead, or any of its Subsidiaries, has or may retain in connection with any
Project funded, or to be funded, under this Agreement. Homestead may, from time
to time, subject to the prior written approval of PTR, add Contractor,
Architect, Consultant and Inspecting A/E names to such list. So long as any
Contractor, Architect, Consultant and Inspecting A/E retained by Homestead or a
Subsidiary in connection with a Project is on such pre-approved list, no further
approval of such hiring by PTR shall be required. If Homestead or any Subsidiary
desires to retain a Contractor, Architect, Consultant or Inspecting A/E not on
the current pre-approved list, then prior to retaining such individual or
entity, Homestead shall be required to obtain the prior written approval of PTR,
such approval not to be unreasonably withheld or delayed, and such approval
shall be deemed given if PTR does not deliver written notice of objection to
Homestead within 10 Business Days after receipt by PTR of a request for approval
from Homestead.
Section 4.13. FURTHER ASSURANCES. Homestead and each Borrower shall
execute such further documents, agreements and instruments, and take all other
actions, as may reasonably be necessary to carry out the purposes of the Loan
Documents or to protect and enforce the validity and priority of the Security
Documents.
Section 4.14. QUARTERLY STATEMENTS. Within 20 Business Days after
the expiration of each calendar quarter, Homestead shall deliver to PTR a
written summary (each, a "Quarterly Statement") containing a status report for
each Future Project or Project then being funded pursuant to this Agreement,
indicating whether and to what extent each such Future Project or Project is
proceeding substantially on schedule and on budget or, if not, the amount of any
overrun and/or schedule slippage and setting forth in reasonable detail any
efforts being undertaken to remedy any noted material problems. Each Quarterly
Statement shall also include any pertinent information in respect of Future
Projects and the anticipated timing of when any such Future Projects may be
acquired and construction commenced and such other information as Homestead may
deem appropriate, or PTR may reasonably request, to keep PTR reasonably apprised
of the status of the Future Projects.
Section 4.15. CONTINUED EXISTENCE. Homestead and each Borrower shall
at all times preserve and keep in full force and effect its existence and rights
and franchises material to its business and rights and franchises material to
its business and properties.
Section 4.16. DEFAULTS UNDER OTHER LOANS. Borrower shall notify PTR
in writing within fifteen (15) days following Borrower's receipt of notice of a
default under any document or instrument governing, evidencing, securing, or
otherwise relating to any loan (other than the Loan) made to Borrower.
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ARTICLE 5.
ADVANCE CONDITIONS
Section 5.1. CONDITIONS PRECEDENT TO FIRST ADVANCE UNDER THIS
AGREEMENT. PTR shall not be obligated to advance funds pursuant to this
Agreement until each of the following conditions is fulfilled:
(a) Receipt by PTR of each of the following:
(i) a fully executed copy of this Agreement;
(ii) duly executed copies of each of the Homestead Note, Notes
from any Subsidiaries owning Projects for which a Funding
Notice or Acquisition Notice has been delivered to PTR and
Security Documents for any Land then owned or to be acquired
with such initial funding by Homestead or any Subsidiary for
which the subject Project is to be financed with Loan
proceeds, the Completion and Payment Guaranty and all other
Loan Documents PTR may reasonably require to be executed and
delivered in connection with the first advance hereunder;
(iii) Title Policies for all Properties then subject to Security
Documents or to be made subject to Security Documents
contemporaneously with the first advance of Loan proceeds
(or an irrevocable commitment to issue each such Title
Policy), effective as of the date of the Notes, in form and
substance satisfactory to PTR in its reasonable judgment,
confirming the first priority status and validity of the
lien of the Security Documents on the Property to secure the
obligations under the Notes, the Security Documents and the
other Loan Documents;
(iv) for each Project then subject to this Agreement, a survey of
the subject Land, and a geotechnical report and
environmental audit, satisfactory to PTR, in its reasonable
judgment;
(v) opinions of counsel reasonably satisfactory to PTR
addressing the following matters:
(A) each Borrower then executing and delivering any Loan
Documents is duly organized and validly existing, and
in good standing and authorized to do business in each
state in which it owns a Project, with power and
authority to own its Projects and to perform its
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obligations under the Loan Documents to which it is a
party and to carry on its business as it is now being
conducted;
(B) the execution, delivery and performance of the Loan
Documents delivered by each such Borrower have been
duly and validly authorized by all necessary action of
such Borrower; and
(C) the Loan Documents executed by each such Borrower
constitute valid and binding obligations of such
Borrower, enforceable against such Borrower in
accordance with their respective terms, except as such
enforcement may be limited by applicable bankruptcy
laws and other customary exceptions;
(vi) for each Project then under construction or completed,
certificates of insurance confirming the existence of all
insurance required by Section 4.9 hereof;
(vii) Copies of the Plans, Project Budget and Project Schedule
for each Project then under construction or then being
added to this Agreement; and
(viii) Certification from Homestead that any Property(ies) then
being added to this Agreement either contain no Material
Changes or any Material Changes have previously been
approved by PTR.
(b) The Title Insurer shall have been paid all title insurance
premiums, filing fees, recording fees and taxes required for proper recording of
the Security Documents to be recorded at such time and any other Loan Document
to be filed or recorded at such time.
(c) There shall not have occurred and be continuing any Default.
(d) There shall be no actual or threatened condemnation of all or any
portion of the Land comprising any Property then subject to any of the Security
Documents.
(e) Neither Homestead nor any Borrower shall be the subject of any
bankruptcy or similar proceeding.
(f) There shall not have occurred and be continuing beyond any
applicable cure or grace period any default under any of the Prior Loan
Documents.
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(g) The representations and warranties set forth in Article 3 hereof
shall be true and correct in all material respects with respect to each Project
then subject to the Security Documents.
Section 5.2. CONDITIONS PRECEDENT TO FIRST ADVANCE FOR NEW PROJECT.
PTR shall not be obligated to advance funds in respect of a new Future Project
for which Pursuit Costs are to be funded or for any Project to be acquired by
Homestead or any Subsidiary until each of the following conditions is fulfilled:
(a) The conditions precedent set forth in Section 5.1 shall remain
satisfied.
(b) Receipt by PTR of each of the following for each Future Project
for which Pursuit Costs are to be funded:
(i) a Funding Notice for the subject Future Project;
(ii) if applicable, a fully executed copy of any agreement to be
delivered by a Subsidiary in connection with such Future
Project whereby such Subsidiary agrees to be bound by the
terms of this Agreement with respect to the subject Future
Project; and
(iii) a Development Budget and Development Schedule for the
subject Future Project.
(c) Receipt by PTR of each of the following for each Project:
(i) an Acquisition Notice for the subject Project;
(ii) if applicable, a fully executed copy of any agreement to be
delivered by a Subsidiary in connection with such Project
whereby such Subsidiary agrees to be bound by the terms of
this Agreement with respect to the subject Project;
(iii) duly executed copies of any Homestead Security Documents,
Partnership Security Documents or Subsidiary Security
Documents, any Subsidiary Note, and any other Loan Documents
which PTR may reasonably require to be executed and
delivered in connection with such Project;
(iv) an opinion of counsel addressing, as to the subject Borrower
and the Loan Documents then being executed by such Borrower,
the matters set forth in Section 5.1(a)(viii) above;
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(v) the Title Policy for the subject Property (or irrevocable
commitment to issue such Title Policy), effective as of the
date of the first advance in respect of such Project, in
form and substance satisfactory to PTR in its reasonable
judgment, confirming the first priority status and validity
of the lien of the Security Documents on the Property to
secure the obligations under the Notes, the Security
Documents and the other Loan Documents;
(vi) a survey of the subject Land, and a soils report,
geotechnical report and environmental audit of the Land,
satisfactory to PTR, in its reasonable judgment; and
(vii) Copies of the Plans, Project Budget and Project Schedule for
the subject Project.
(d) With respect to each Project, the Title Insurer shall have been
paid all title insurance premiums, filing fees, recording fees and taxes
required for proper recording of the Security Documents to be recorded at such
time and any other Loan Document to be filed or recorded at such time.
(e) There shall not have occurred and be continuing any Default.
(f) There shall be no actual or threatened condemnation of all or any
portion of the Land comprising the Property.
(g) The Completion and Payment Guaranty shall be in full force and
effect.
Section 5.3. INITIAL IMPROVEMENT ADVANCE CONDITIONS. PTR's initial
obligation to advance any of the Loan proceeds to a Borrower for construction of
Improvements is conditioned upon the conditions precedent set forth in Sections
5.1 and 5.2 remaining satisfied and, if requested by PTR, receipt of the
following:
(a) Evidence of the issuance of all Permits required by any
Governmental Authority as a condition to the commencement of construction of the
subject Improvements.
(b) A copy of the Construction Contract, Architect's Agreement and any
Consultants' Agreements for the subject Project.
(c) Certificates of insurance and other certificates or information in
form and substance reasonably satisfactory to PTR confirming the existence of
all insurance required by Section 4.9 hereof.
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(d) An executed Contractor's Certificate, Architect's Certificate and
Consultants' Certificates from the Contractor, Architect and Consultants
performing services to the subject Project.
(e) Such further financing statements and security agreements,
executed and acknowledged by the subject Borrower, relating to construction
materials for the subject Project as PTR may reasonably require.
(f) Evidence of the availability of utilities and access to and from
the subject Project sufficient for its intended use.
Section 5.4. ADDITIONAL IMPROVEMENT ADVANCE CONDITIONS. After the
initial advance, additional advances made for the purpose of constructing any
subject Improvements shall be subject to the following conditions:
(a) The conditions precedent set forth in Sections 5.1, 5.2 and 5.3
shall remain satisfied.
(b) All Permits required under Governmental Requirements for
construction of the subject Improvements shall be legally valid and in force and
effect.
(c) The subject Property and Improvements shall not have suffered any
damage or deterioration without provision for arrangements satisfactory to PTR
for the restoration and replacement of the damage or deterioration to such
Property or Improvements.
Section 5.5. FINAL-ADVANCE CONDITIONS. PTR's obligation to advance
any of the Loan proceeds to a Borrower for the Final Advance for the
Improvements comprising a Project is conditioned upon the following and, if
requested by PTR, receipt by PTR of evidence reasonably satisfactory to PTR that
such conditions have been satisfied:
(a) The completion of all Improvements in substantial accordance with
the Plans.
(b) Receipt by the Borrower of all Final CO's issued by the
appropriate Governmental Authorities for the Improvements and all other Permits
necessary for use of the subject Improvements and Property.
(c) The Inspecting A/E for the Project shall have executed a
certificate of final completion with respect to all of the Improvements required
under the applicable Construction Contract.
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(d) The Contractor, all Subcontractors and other parties (including
Architects and Consultants, if applicable) who performed work for the subject
Project have been paid (or with the application of the final advance of Loan
proceeds for such Project, will have been paid) in full, except for amounts
which the Borrower in good faith disputes and/or amounts which Homestead and/or
the subject Borrower intends to pay with its own funds provided any liens filed
against the Project have been released or bonded over.
(e) Receipt by Borrower of an as-built survey showing the location of
all Improvements, including parking areas, streets and the location of all
utilities and other easements, encroachments and building set back lines, if
any, together with delivery to PTR of an endorsement to the Title Policy
removing any exception for matters of survey.
(f) All remaining punchlist items have been completed by the
Contractor and approved by the Borrower.
(g) All conditions precedent to the "Final Payment" required under the
Construction Contract shall have been satisfied.
(h) The Project is otherwise ready for immediate occupancy by guests.
ARTICLE 6.
PROCEDURE FOR ADVANCES; RESERVES
Section 6.1. GENERAL. PTR will disburse the proceeds of the Loans on a
monthly basis for the cost categories set forth in the applicable Development
Budgets and Project Budgets. Homestead shall submit a written request for
advance in a form approved by PTR by the __th day of each month and, provided
PTR determines that all conditions precedent to the advance have been satisfied,
disbursements will be made by the ___th day of each month. Each request for
advance shall set forth, on a Project-by-Project basis, Homestead's reasonable
estimate of the hard and soft costs and expenses incurred during the month just
ending and for which reimbursement is being sought. With each request for
advance after the first, Homestead shall also provide a reconciliation
indicating the amount by which the immediately preceding advance made by PTR
exceeded the actual hard and soft costs for the period covered by such advance
and the amount by which the request for advance for the month just ending has
been adjusted on account of any over- or underpayment by PTR for the preceding
month. With respect to the final advance of Loan proceeds in respect of a
Project, if the final reconciliation submitted in the month following such
advance reflects that Loan proceeds in excess of actual costs were advanced,
such overpayment (together with accrued and unpaid interest thereon) shall be
repaid by Borrower to PTR within 15 days after such reconciliation is delivered
to PTR. Any
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additional Loan proceeds owing to Borrower on the basis of such final
reconciliation shall be advanced by PTR with the balance of the monthly advance
made by PTR under this Section 6.1.
All disbursements with respect to any request for an advance submitted
other than on the ___th day of a month will be made within ten (10) business
days after the later of (i) receipt by PTR of a written request for an advance
from Homestead in a form approved by PTR and (ii) PTR's determination that all
conditions precedent to the advance have been satisfied.
All disbursements shall be made in accordance with any instructions
contained in the Homestead request for advance.
Section 6.2. PAYMENTS TO PTR. Notwithstanding any other provisions of
this Agreement, PTR may, at it's option and without notice or authorization by
Homestead or any Borrower, use any Loan proceeds to pay, as and when due, any
interest on the Loans. The parties acknowledge that the Loans provide for
interest reserves in amounts sufficient to pay all interest due and payable in
respect of each Project through completion of same, and Homestead and each
Borrower specifically authorizes PTR to advance portions of such interest
reserves to pay interest on the Loans as and when the same comes due.
Section 6.3. RETAINAGE AND CONTRACTOR'S FEE HOLDBACK. The parties
acknowledge that PTR shall retain, and Homestead shall not request disbursement,
of any retainages provided for under any Construction Contract, which amounts
shall be retained by PTR to secure full and complete performance of all
construction obligations hereunder (hereinafter, the "Retainage Holdback").
Provided no Default exists hereunder, PTR shall disburse the Retainage Holdback
in accordance with the provisions of the applicable Construction Contract as
requested by Homestead in its requests for advances. Upon the occurrence of a
Default hereunder, PTR shall have no obligation to make further disbursements
from the Retainage Holdback, and no Borrower shall be entitled to any such
disbursements, until such Default is cured. Upon the occurrence of an Event of
Default hereunder, PTR may apply the Retainage Holdback against any of the
obligations secured by the Security Documents as PTR sees fit or, in PTR's
discretion, to the completion of any incomplete Improvements. Subject to the
foregoing terms and provisions, to the extent not theretofore disbursed, PTR
will disburse the amounts in the Retainage Holdback in respect of a Project
concurrently with the Final Advance for such Project.
Section 6.4. INTEREST RESERVE. PTR shall, on the date hereof,
withhold from the proceeds of the Loans available for distribution the amount of
_________________________ Dollars ($_______________) (the "Interest Reserve").
Provided no Default exists hereunder, the Interest Reserve shall be disbursed
for the payment of interest on the Loans as such interest becomes due and
payable. Upon the occurrence of a Default hereunder, PTR shall have no
obligation to make further disbursements from the Interest Reserve, and no
Borrower shall be entitled to any such disbursements, until such Default is
cured. Should interest payable on the
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Loans exceed the amount of the Interest Reserve, the Borrowers shall promptly
pay such amounts. Upon the occurrence of an Event of Default, PTR may apply any
undisbursed portion of the foregoing reserve against any of the obligations
secured by the Security Documents as it sees fit or, at PTR's discretion, to the
completion of and incomplete Improvements.
Section 6.5. OWNER'S CONTINGENCY. The parties acknowledge that each
Project Budget shall contain an owner's contingency (an "Owner's Contingency")
equal to no less than 2% of Project hard and soft costs contained within the
Project Budget. Provided no Default exists hereunder, the Owner's Contingency
for a Project shall be disbursed by PTR to the subject Borrower to cover
unanticipated Project costs, costs associated with change orders and hard and
soft cost overruns (before such Borrower or Homestead, as guarantor under the
Completion and Payment Guaranty, shall be required to cover such additional
costs pursuant to the provisions of Section 6.6 hereinbelow or the Completion
and Payment Guaranty) as and when such payments are due and payable. Requests
for disbursement of portions of the Owner's Contingency shall be made with
Homestead's monthly requests for advance of Loan proceeds. Upon the occurrence
of a Default hereunder, PTR shall have no obligation to advance any portion of
the Owner's Contingency until such Default is cured. Upon the occurrence of an
Event of Default, PTR may apply the Owner's Contingency against any of the
obligations secured by the Security Documents as PTR sees fit, or at PTR's
option, to the completion of any incomplete Improvements.
Section 6.6. COST OVERRUNS AND SAVINGS; CHANGE ORDER RESERVE. In the
event that the costs to acquire and complete any Project in its entirety,
including, without limitation, the furnishing thereof, exceed the amount of Loan
proceeds available for the subject Project (including the applicable Owner's
Contingency), then the subject Borrower shall with its own funds pay all costs
and expenses which may be required to complete the subject Project as and when
such costs and expenses become due and payable. In the event the costs to
acquire and complete any Project are less than the amount of Loan proceeds
allocated to the subject Project, then the unapplied portion of the Loan
proceeds (including any unexpended portion of the applicable Owner's Contingency
and amounts required to be refunded by Borrower under Section 6.1 for any
overpayments of Loan proceeds made in the final advance for a Project) shall be
retained by PTR as a reserve for Change Orders on other Projects which are made
in accordance with the requirements of this Agreement (the "Change Order
Reserve"). Provided no Default exists hereunder, the Change Order Reserve shall
be disbursed by PTR to any Borrower from time to time to cover the costs of
Change Orders to the extent any such Change Order results in Project costs
exceeding the Project Budget, including the Owner's Contingency, for such
Project (before such Borrower or Homestead, as guarantor under the Completion
and Payment Guaranty, shall be required to cover such additional costs pursuant
to the provisions of this Section 6.6 or the Completion and Payment Guaranty).
Requests for disbursement of portions of the Change Order Reserve shall be made
with Homestead's monthly requests for advance of Loan proceeds. Upon the
occurrence of a Default hereunder, PTR shall have no
29
<PAGE>
obligation to advance any portion of the Change Order Reserve until such Default
is cured. Upon the occurrence of an Event of Default, PTR may apply the Change
Order Reserve against any of the obligations secured by the Security Documents
as PTR sees fit or, at PTR's option, to the completion of any incomplete
Improvements.
ARTICLE 7.
EVENTS OF DEFAULT
The occurrence of any one or more of the following shall constitute an
Event of Default under this Agreement:
Section 7.1. FAILURE TO PAY. The failure by a Borrower to pay when due
any sums required to be paid under the Notes, the Security Documents, this
Agreement or any other Loan Documents, and such failure is not cured within 10
days after receipt of written notice from PTR.
Section 7.2. OTHER LOAN DOCUMENT DEFAULTS. To the extent any such
failure, breach or inaccuracy has, or would have, a Material Adverse Effect, the
failure by a Borrower or Homestead to perform or observe, as and when required,
any covenant, agreement, obligation or condition required to be performed or
observed under this Agreement or under any of the other Loan Documents other
than as set forth elsewhere in this Article 7 (for which no additional grace or
cure period is given by this Section 7.2, or the existence of any breach or
inaccuracy in any of the representations, covenants or warranties set forth in
this Agreement or in any of the other Loan Documents, provided, however, that
(i) no Event of Default shall exist hereunder on account of a breach of any
representation, warranty or covenant set forth in any of the other Loan
Documents (other than this Agreement) until Homestead or such Borrower, as
applicable, shall have failed to cure such breach within any applicable notice
and cure period therein provided; and (ii) no Event of Default shall exist
hereunder on account of a breach of any representation, warranty or covenant
contained herein unless and until PTR shall provide written notice of such
breach to Homestead or such Borrower and such entity 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 an Event of Default hereunder so long as Homestead or such Borrower,
as applicable, 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.
Section 7.3. JUDGMENT OR ATTACHMENT. The entry by any court of a final
judgment in excess of $500,000 against Homestead or a Borrower that is not
satisfactorily stayed or discharged within 30 days from the date thereof, or any
attachment of any of the Properties or
30
<PAGE>
any of the proceeds of the Loans that shall not be released, stayed or otherwise
provided for to PTR's satisfaction within 30 days after the occurrence thereof;
provided that in the case of a stay, Homestead or the subject Borrower, as
applicable, shall have reserved for the full amount thereof.
Section 7.4. VIOLATION OF GOVERNMENTAL REQUIREMENTS. The institution
of any judicial or administrative proceeding alleging that any of the
Improvements violate any Governmental Requirements if such violation gives rise
to a Material Adverse Effect and the failure to have such proceeding dismissed
or such violation corrected within 30 days after the institution thereof, except
that Homestead or the applicable Borrower shall have the right to contest any
such proceeding beyond such 30 day period, provided that PTR is satisfied that
the prosecution of such proceeding will neither have any Material Adverse Effect
nor materially impair PTR's security.
Section 7.5. INSOLVENCY, ETC. The occurrence of any of the
following:
(a) Homestead or any Borrower shall generally not pay its debts as
they become due or shall admit in writing its inability to pay its debts, or
shall make a general assignment for the benefit of creditors;
(b) Homestead or any Borrower shall commence any case, proceeding or
other action seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its property;
(c) Homestead or any Borrower shall take any corporate action to
authorize any of the actions set forth above in paragraphs (a) or (b); or
(d) Any case, proceeding or other action against Homestead or any
Borrower shall be commenced seeking to have an order for relief entered against
it as debtor, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its property, and such case, proceeding or
other action (i) results in the entry of an order for relief against it which is
not fully stayed within 15 Business Days after the entry thereof or (ii) remains
undismissed for a period of 60 days.
Section 7.6. UNAPPROVED TRANSFER. Any sale, conveyance, transfer,
disposition, alienation, hypothecation, leasing (except in the ordinary course
of business) or further encumbrancing of a Project, or any portion thereof or
any interest therein, by any Borrower,
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<PAGE>
other than any conveyance of a portion of the unimproved land associated with
such Project which is in excess of what is needed for such Project, or a sale,
conveyance, transfer, disposition, alienation, hypothecation or encumbrancing of
any legal or equitable interest in a Borrower or Homestead in violation of the
Loan Documents shall be an Event of Default as of the date of such transfer,
without any right to cure.
ARTICLE 8.
REMEDIES
Section 8.1. GENERAL. Upon the occurrence of any Event of Default an
defined in Article 7 of this Agreement, PTR, at its option, shall have the
following rights and remedies:
(a) PTR may declare any one or more of the Notes to be immediately due
and payable, whereupon the Notes shall become forthwith due and payable without
presentment, demand, protest or further notice of any kind.
(b) PTR may bring a foreclosure action with respect to the Security
Documents, take possession of any one or more of the Properties or exercise any
other remedy provided for in the Security Documents.
(c) PTR shall be entitled to proceed simultaneously, or selectively
and successively, to enforce its rights and remedies under the Notes, the
Security Documents, the Completion and Payment Guaranty or this Agreement, and
to exercise any or all other rights and remedies available to PTR at law or in
equity.
(d) In the event PTR shall elect to enforce its rights selectively
under any one or more of the Loan Documents, such action shall not be deemed a
waiver or discharge of any lien or encumbrance securing payment of the Notes
until such time as PTR shall have been paid in full all sums due under the Notes
or secured by the Security Documents, including any sums advanced or disbursed
pursuant to this Agreement. The foreclosure of any lien provided pursuant to
this Agreement or the Security Documents, without the simultaneous foreclosure
of all such liens, shall not merge the liens granted which are not foreclosed
with any interest which PTR might obtain as a result of such selective and
successive foreclosure.
(e) PTR shall have the right, but not the obligation, to take
possession of any one or more of the Properties and proceed to complete the
Improvements thereto according to the applicable Plans. For this purpose, each
Borrower hereby conditionally assigns to PTR as additional security for the
repayment of the Loans all of each such Borrower's rights to the Plans for the
Projects owned by it, any contracts pertaining to the Project owned by such
Borrower,
32
<PAGE>
whether for construction, sale or otherwise, and any Permits pertaining to the
subject Property(ies); provided, PTR shall, upon occurrence of an Event of
Default, have the option to exercise this assignment, but shall not be obligated
to accept this assignment or to assume any liability of any Borrower under any
such Plans, contracts or Permits. Furthermore, each Borrower hereby constitutes
and appoints PTR as its true and lawful attorney-in-fact with full power of
substitution to complete, or cause to be completed, the Improvements owned by
such Borrower in the name of such Borrower and hereby empowers said attorney or
attorneys as follows: (i) to use any funds of Borrower, including any balance
that may be held in escrow and any funds which may remain unadvanced hereunder,
for the purpose of completing the Improvements being built by such Borrower;
(ii) to make such additional changes and corrections in the Plans for such
Improvements as may reasonably be necessary or desirable to complete such
Improvements in substantially the manner contemplated by the Plans for such
Improvements and in a good and workmanlike manner; (iii) to employ such
contractors, subcontractors, agents, architects and inspectors as shall be
required for said purposes; (iv) to pay, settle or compromise all existing bills
and claims that are or may become liens against the subject Property(ies) or any
part thereof or may be necessary or desirable for the completion of the subject
Improvements or the clearance of title; (v) to execute all applications and
certificates in the name of Borrower which may be required by law or by any
contract relating to the subject Improvements; and (vi) to do any and every act
with respect to the applicable Property(ies) which such Borrower may do in its
own behalf. It is understood and agreed that this power of attorney shall be
deemed to be a power coupled with an interest which cannot be revoked. PTR, as
attorney-in-fact, shall also have the power to defend, to the extent PTR
reasonably deems necessary, at such Borrower's cost, all actions or proceedings
in connection with the subject Improvements and Property(ies). At the time PTR
takes possession of a Property(ies), or any part thereof, all materials on such
Property owned by Borrower shall become the property of PTR for the purpose of
completing the subject Improvements. In addition, any materials or equipment
paid for with the proceeds of the Notes but stored at a location other than the
subject Property(ies) shall become the property of PTR when it takes possession
of the subject Property(ies). Such Borrower shall pay PTR the cost of
completion. Each Borrower hereby authorizes PTR to add such costs to the
indebtedness of the Borrowers to PTR, which costs shall be secured by the
Security Documents. Any of the foregoing actions by PTR shall not relieve the
Borrowers of their responsibility to repay the Notes. The foregoing provision
shall not be construed as creating any third party beneficiary contract and
nothing in the foregoing shall be construed as giving or conferring any rights
or benefits whatsoever to or upon any other person or entities other than the
parties to this Agreement. Homestead shall indemnify, defend and hold harmless
PTR from and against any and all claims, liabilities, loss, damages, suits,
actions, expenses (including reasonable attorneys' fees) and costs arising from
any actions taken by PTR in accordance with the power of attorney herein granted
except to the extent attributable to the gross negligence or willful misconduct
of PTR.
33
<PAGE>
(f) PTR shall not have any obligation to make any advances under the
Notes pursuant to this Agreement after the occurrence and during the continuance
of an Event of Default and at any time during such period, may unilaterally
elect to terminate any obligation of PTR to make any future advances under the
Notes pursuant to this Agreement.
Section 8.2. REMEDIES CUMULATIVE. No failure or delay by PTR in the
exercise of any rights or remedies available to it under the Loan Documents or
at law or in equity shall operate as a waiver thereof, nor shall any single or
partial exercise by PTR of any such right or remedy preclude any further
exercise thereof or of any other right or remedy. The remedies provided in the
Loan Documents or available at law or in equity are cumulative and not
alternative.
ARTICLE 9.
MISCELLANEOUS
Section 9.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
All representations, warranties and covenants contained herein shall survive the
execution of this Agreement, the making of the Loans and the delivery of the
Notes and other Loan Documents and the release of any portion of the liens of
the Security Documents, and shall remain in full force and effect until the
termination of this Agreement in accordance with Section 2.8 hereof.
Section 9.2. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors, assigns and affiliates, but shall
not be assignable by any party hereto without the prior written consent of the
other party hereto; provided that Homestead and/or the Partnership Borrower may
assign its rights hereunder in whole or in part to a Homestead Affiliate or
Subsidiary. Other than to a Homestead Affiliate or Subsidiary, no Borrower
shall, without the prior written consent of PTR, which consent PTR may withhold
in its sole discretion, directly or indirectly assign, transfer or convey (i)
this Agreement or any of the other Loan Documents, (ii) any of Borrower's rights
or obligations under any of the Loan Documents, (iii) any portion of the
proceeds of the Notes, (iv) any legal or equitable interest in the Property or
(v) any legal or equitable interest in such Borrower.
Section 9.3. NOTICES. Any notice or other communication provided for
herein or given hereunder to a party hereto shall be in writing and shall be
given by delivery, by telex, telecopier or by mail (registered or certified
mail, postage prepaid, return receipt requested) to the respective parties as
follows:
34
<PAGE>
If to Homestead:
Homestead Village Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: David C. Dressler, Jr.
Facsimile: (505) 982-2925
If to PTR:
Security Capital Pacific Trust
7777 Market Center Avenue
El Paso, Texas 79912
Attention: C. Ronald Blankenship
Facsimile: (915) 877-3301
or to such other address with respect to a party as such party shall notify the
other in writing.
Section 9.4. WAIVER. No party may waive any of the terms or
conditions of this Agreement, except by a duly executed writing referring to the
specific provision to be waived.
Section 9.5. AMENDMENT. This Agreement may be amended only by a
writing duly executed by both Homestead and PTR.
Section 9.6. SEVERABILITY. Insofar as is possible, each provision of
this Agreement shall be interpreted so as to render it valid and enforceable
under applicable law and severable from the remainder of this Agreement. A
finding that any such provision is invalid or unenforceable in any jurisdiction
shall not affect the validity or enforceability of any other provision or the
validity or enforceability of such provision under the laws of any other
jurisdiction.
Section 9.7. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement, and supersedes all other prior agreements and understandings, both
written and oral, among the parties hereto and their affiliates, with respect to
the subject matter hereof. The provisions of this Agreement supersede any
provisions set forth in the Existing Loan Documents relating to the disbursement
of Loan proceeds for the Projects.
Section 9.8. EXPENSES. Except as otherwise expressly contemplated
herein to the contrary, regardless of whether the transactions contemplated
hereby are consummated, each party hereto shall pay its own expenses incident to
preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby.
35
<PAGE>
Section 9.9. CAPTIONS. The Article, Section and Paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
Section 9.10. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of ___________.
Section 9.11. NO JOINT VENTURE OR PARTNERSHIP. Nothing contained in
this Agreement or in any of the other Loan Documents and no other aspect of the
relationship between Homestead or any Borrower and PTR shall be construed as
creating a partnership, joint venture, or other relationship of or between
Homestead or any Borrower and PTR other than the lending relationship of lender
and borrower. All rights and obligations granted to or undertaken by either of
the parties hereto shall be construed as incidents of such lending relationship.
Section 9.12. NO THIRD PARTY BENEFICIARY RIGHTS CREATED. The parties
hereto expressly declare that it is their joint and mutual intention that this
Agreement and the transactions contemplated hereby shall not be construed as
creating a third party beneficiary contract, and neither this Agreement nor any
of the other Loan Documents shall be construed as giving or conferring any
rights or benefits whatsoever to or upon any other persons or entities other
than Homestead, any Borrower and PTR.
Section 9.13. INCORPORATION BY REFERENCE. This Agreement, the Notes
and the Security Documents are intended to be construed as part of the same
transaction, and all of the covenants, agreements, conditions, terms and
provisions contained in any one of the Loan Documents shall be deemed to be
included in each of the other Loan Documents with the same force and effect as
though set forth in full therein. In the event any of the provisions of this
Agreement are in conflict with or inconsistent with the provisions of the
Security Documents, this Agreement shall govern and control.
Section 9.14. COUNTERPARTS. This Agreement may be executed in
counterpart copies, each of which shall constitute an original, and all of which
together shall constitute one and the same document.
Section 9.15. SCOPE OF REVIEW OF PLANS. Neither the approval of the
Plans nor any subsequent inspections or approvals of the Improvements during
construction shall constitute a warranty or representation by PTR or any of its
agents, representatives or designees as to the technical or legal sufficiency,
adequacy or safety of the structures or any of their component parts, including
without limitation fixtures, equipment or furnishings, nor shall such approvals
or inspections constitute such a warranty or representation as to the subsoil
conditions involved in the Property or any other physical condition or feature
pertaining to the Property. All acts, including any failure to act, relating to
the Property by any agents, representatives or designees
36
<PAGE>
of PTR are performed solely for the benefit of PTR to assure repayment of the
Loans and are not for the benefit of Borrower or any other person, including
without limitation purchasers, guests or other occupants.
Section 9.16. GOVERNMENTAL REGULATION. Anything contained in this
Agreement to the contrary notwithstanding, PTR shall not be obligated to extend
credit to Borrower in an amount in violation of any limitation or prohibition
provided by any applicable governmental statute or regulation.
Section 9.17. SUBORDINATION. Each Borrower hereby subordinates all
rights, liens and claims for any of the proceeds and advances under the Notes to
the liens, operation and effect of the Security Documents.
Section 9.18. INDEMNITY. Homestead and each Borrower agree to
indemnify, defend and hold PTR harmless from and against any and all claims,
injuries, damages and liabilities that may be asserted or claimed against PTR by
any person as a result or by reason of, or that may be incurred or suffered by
PTR as a result or by reason of, the construction contemplated herein or the
operation of the ownership or Encumbered Property or any part thereof.
SECTION 9.19. LIMITATION OF LIABILITY. ANY OBLIGATION OR LIABILITY
WHATSOEVER OF PTR WHICH MAY ARISE AT ANY TIME UNDER THIS FUNDING COMMITMENT
AGREEMENT OR ANY OBLIGATION OR LIABILITY WHICH MAY BE INCURRED BY IT PURSUANT TO
ANY OTHER INSTRUMENT, TRANSACTION OR UNDERTAKING CONTEMPLATED HEREBY SHALL BE
SATISFIED, IF AT ALL, OUT OF PTR'S ASSETS ONLY. NO SUCH OBLIGATION OR LIABILITY
SHALL BE PERSONALLY BINDING UPON, NOR SHALL RESORT FOR THE ENFORCEMENT THEREOF
BE HAD TO, THE PROPERTY OF ANY OF ITS SHAREHOLDERS, TRUSTEES, OFFICERS,
EMPLOYEES OR AGENTS, REGARDLESS OF WHETHER SUCH OBLIGATION OR LIABILITY IS IN
THE NATURE OF CONTRACT, TORT OR OTHERWISE.
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IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement, or caused this Agreement to be duly executed on its behalf, as of the
date first set forth above.
HOMESTEAD VILLAGE INCORPORATED
By:
--------------------------
David C. Dressler, Jr.
Chairman
SECURITY CAPITAL PACIFIC TRUST
By:
--------------------------
C. Ronald Blankenship
Chairman
38
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
Exhibit A - Prior Security Documents
Exhibit B - Existing Projects
Exhibit C - Form of Completion and Payment Guaranty
Exhibit D - Form of Homestead Note
Exhibit E - Form of Homestead Security Documents
Exhibit F - Form of Partnership Security Documents
Exhibit G - Future Projects and Allocated Loan Amount
</TABLE>
39
<PAGE>
EXHIBIT 10.4
- --------------------------------------------------------------------------------
FUNDING COMMITMENT AGREEMENT
By and Between
SECURITY CAPITAL ATLANTIC INCORPORATED
"ATLANTIC"
AND
HOMESTEAD VILLAGE INCORPORATED
"Homestead"
ATLANTIC HOMESTEAD VILLAGE LIMITED PARTNERSHIP
"Partnership Borrower"
Dated: , 1996
--------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1.
DEFINITIONS................................ 2
Section 1.1. Certain Defined Terms..................................... 2
Section 1.2. Other Definitional Provisions............................. 10
ARTICLE 2.
THE LOANS................................. 11
Section 2.1. The Homestead Loan........................................ 11
Section 2.2. The Partnership Loan...................................... 11
Section 2.3. Future Projects........................................... 11
Section 2.4. Subsidiary Loans.......................................... 12
Section 2.5. Duration of Funding Commitment............................ 13
Section 2.6. Project Specific Funding Commitment....................... 13
Section 2.7. Replacement Projects...................................... 13
Section 2.8. Release of Security Documents............................. 14
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES....................... 15
Section 3.1. Existence and Power....................................... 15
Section 3.2. Authorization and Binding Obligations..................... 15
Section 3.3. No Legal Bar or Resultant Lien............................ 16
Section 3.4. No Consent................................................ 16
Section 3.5. Compliance with Laws...................................... 16
Section 3.6. Litigation................................................ 16
Section 3.7. Defaults.................................................. 16
Section 3.8. Status of Property........................................ 17
Section 3.9. Use of Proceeds........................................... 17
Section 3.10. Real Property Environmental Matters....................... 17
Section 3.11. Financial Condition....................................... 17
Section 3.12. No Condemnation........................................... 18
Section 3.13. No Actions................................................ 18
Section 3.14. No Adverse Conditions..................................... 18
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 4.
COVENANTS................................. 18
Section 4.1. Construction of Improvements.............................. 18
Section 4.2. Plans; Project Budgets; Project Schedules and Material
Changes................................................. 18
Section 4.3. Inspection and Examination................................ 19
Section 4.4. Permits and Approvals..................................... 19
Section 4.5. Governmental Requirements................................. 19
Section 4.6. Books and Records......................................... 19
Section 4.7. Title to Property and Improvements........................ 20
Section 4.8. Costs and Expenses........................................ 20
Section 4.9. Use of Advances........................................... 20
Section 4.10. Insurance................................................. 20
Section 4.11. Environmental Matters..................................... 20
Section 4.12. Selection of Architects; Contractors; Inspecting A/E's.... 21
Section 4.13. Further Assurances........................................ 21
Section 4.14. Quarterly Statements...................................... 21
Section 4.15. Continued Existence....................................... 21
Section 4.16. Defaults Under Other Loans................................ 21
ARTICLE 5.
ADVANCE CONDITIONS............................. 22
Section 5.1. Conditions Precedent to First Advance under this Agreement 22
Section 5.2. Conditions Precedent to First Advance for New Project..... 24
Section 5.3. Initial Improvement Advance Conditions.................... 25
Section 5.4. Additional Improvement Advance Conditions................. 26
Section 5.5. Final-Advance Conditions.................................. 26
ARTICLE 6.
PROCEDURE FOR ADVANCES; RESERVES...................... 27
Section 6.1. General................................................... 27
Section 6.2. Payments to Atlantic...................................... 28
Section 6.3. Retainage and Contractor's Fee Holdback................... 28
Section 6.4. Interest Reserve.......................................... 29
Section 6.5. Owner's Contingency....................................... 29
Section 6.6. Cost Overruns and Savings; Change Order Reserve........... 29
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 7.
EVENTS OF DEFAULT............................. 30
Section 7.1. Failure to Pay............................................ 30
Section 7.2. Other Loan Document Defaults.............................. 30
Section 7.3. Judgment or Attachment.................................... 31
Section 7.4. Violation of Governmental Requirements.................... 31
Section 7.5. Insolvency, etc........................................... 31
Section 7.6. Unapproved Transfer....................................... 32
ARTICLE 8.
REMEDIES.................................. 32
Section 8.1. General................................................... 32
Section 8.2. Remedies Cumulative....................................... 34
ARTICLE 9.
MISCELLANEOUS............................... 34
Section 9.1. Survival of Representations, Warranties and Covenants..... 34
Section 9.2. Successors and Assigns.................................... 34
Section 9.3. Notices................................................... 35
Section 9.4. Waiver.................................................... 35
Section 9.5. Amendment................................................. 35
Section 9.6. Severability.............................................. 35
Section 9.7. Entire Agreement.......................................... 36
Section 9.8. Expenses.................................................. 36
Section 9.9. Captions.................................................. 36
Section 9.10. Governing Law............................................. 36
Section 9.11. No Joint Venture or Partnership........................... 36
Section 9.12. No Third Party Beneficiary Rights Created................. 36
Section 9.13. Incorporation by Reference................................ 36
Section 9.14. Counterparts.............................................. 37
Section 9.15. Scope of Review of Plans.................................. 37
Section 9.16. Governmental Regulation................................... 37
Section 9.17. Subordination............................................. 37
Section 9.18. Indemnity................................................. 37
</TABLE>
iii
<PAGE>
FUNDING COMMITMENT AGREEMENT
THIS FUNDING COMMITMENT AGREEMENT (this "Agreement"), is entered into
as of __________, 1996, among HOMESTEAD VILLAGE INCORPORATED, a Maryland
corporation ("Homestead"), ATLANTIC HOMESTEAD VILLAGE LIMITED PARTNERSHIP, a
Delaware limited partnership (the "Partnership Borrower") and SECURITY CAPITAL
ATLANTIC INCORPORATED, a Maryland corporation ("Atlantic").
RECITALS
A. Pursuant to that certain promissory note (the "Corporate Note")
dated January 24, 1996 as amended and restated on May 28, 1996, from Atlantic
Homestead Village Incorporated (the "Prior Corporate Borrower") to Atlantic, in
the original principal amount of $________________ (the "Corporate Loan Amount")
and those certain, deeds to secure debt, deeds of trust and mortgages listed in
Part I of Exhibit A hereto (the "Existing Corporate Security Documents"),
delivered by the Prior Corporate Borrower to Atlantic to secure payment of the
Prior Corporate Note and the Prior Partnership Note (as defined below), prior to
the date hereof, Atlantic has advanced $________ to fund, among other matters,
acquisition and construction costs and expenses incurred by the Prior Corporate
Borrower in connection with the acquiring and developing as Homestead Village
extended-stay lodging facilities the real properties described in Part I of
Exhibit B hereto (the "Existing Corporate Projects"). (The Corporate Note, the
Existing Corporate Security Documents and all other instruments heretofore
delivered by the Prior Corporate Borrower in connection therewith to secure the
Corporate Note and Partnership Note are herein called the "Existing Corporate
Loan Documents".)
B. Pursuant to that certain promissory note (the "Partnership Note")
dated January 24, 1996 as amended and restated on May 28, 1996, from the
Partnership Borrower to Atlantic, in the original principal amount of
$_________________ (the "Partnership Loan Amount") and those certain deeds to
secure debt, deeds of trust and mortgages listed in Part II of Exhibit A hereto
(the "Existing Partnership Security Documents"), delivered by the Partnership
Borrower to Atlantic to secure payment of the Partnership Note and the Corporate
Note, prior to the date hereof, Atlantic has advanced $___________ to fund,
among other matters, acquisition and construction costs and expenses incurred by
the Partnership Borrower in connection with the acquiring and developing as
Homestead Village extended-stay lodging facilities the real properties described
in Exhibit B hereto (the "Existing Partnership Projects"). (The Partnership
Note, the Partnership Security Documents and all other instruments heretofore
delivered by the Partnership Borrower in connection therewith to secure the
Partnership Note and Corporate Note are herein called the "Existing Partnership
Loan Documents"; the Existing Corporate Projects and the Existing Partnership
Projects are collectively referred to herein as the "Existing Projects"; and the
Existing Corporate Loan Documents and Existing Partnership Loan Documents are
collectively referred to herein as the "Existing Loan Documents".)
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C. On the date hereof, the parties are entering into a series of
transactions as described in that certain Merger and Distribution Agreement,
dated as of May ___, 1996, among Atlantic, Security Capital Pacific Trust
("PTR"), Security Capital Group Incorporated ("SCG") and Homestead (the "Merger
Agreement"), pursuant to which, among other things, Homestead is,
contemporaneously herewith, acquiring all of the stock of Atlantic's
subsidiaries which own, operate or develop Atlantic's extended-stay lodging
facilities. As a consequence of the mergers contemplated under the Merger
Agreement, the Prior Corporate Borrower has been merged into Homestead and in
connection therewith Homestead has succeeded to and assumed all of the Prior
Corporate Borrower's obligations and liabilities, including those under the
Existing Corporate Loan Documents.
D. Upon and subject to the provisions of this Agreement, Homestead,
the Partnership Borrower and Atlantic desire to continue the funding provided
for under the Existing Loan Documents with respect to the Existing Projects, and
in consideration of the issuance, pursuant to that certain Warrant Purchase
Agreement, dated as of ____________, 1996 among Atlantic, PTR, SCG and
Homestead, to Atlantic by Homestead of warrants to purchase shares of common
stock, $0.01 par value per share, of Homestead ("Homestead Common Stock"),
Atlantic is willing to provide funds to Homestead and the Partnership Borrower
for the costs incurred in connection with performing due diligence
investigations, securing required development approvals and otherwise completing
the acquisition and development of the proposed future Homestead Village
projects listed in Parts III and IV of Exhibit A (which projects, and any
replacement projects approved by Atlantic pursuant to the provisions of this
Agreement, are herein called the "Future Projects").
E. The execution of this Agreement is a condition to the consummation
of the transactions contemplated by the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
Section 1.1. CERTAIN DEFINED TERMS. As used herein, the following
terms shall have the following meanings:
"Agreement" shall mean this Funding Commitment Agreement.
"Acquisition Notice" has the meaning set forth in Section 2.3 of this
Agreement.
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"Architect" means the architect retained by a Borrower to provide
architectural services for a Project.
"Architect's Agreement" means the agreement for architectural services
executed by a Borrower and an Architect in connection with the design of a
Project, and all exhibits, attachments, riders and addenda thereto.
"Architect's Certificate" means a Certificate from the Architect for a
Project, in form and substance reasonably acceptable to Atlantic, wherein the
Architect acknowledges the collateral assignment of the Architect's Agreement
and the Plans prepared by such Architect from Borrower to Atlantic pursuant to
this Agreement and agrees to perform all of its obligations under the
Architect's Agreement in the event Atlantic takes possession of the subject
Project in connection with the exercise of its remedies hereunder or under the
Security Documents after an Event of Default.
"Atlantic" has the meaning set forth in the Preamble to this
Agreement.
"Borrower" means Homestead, in its capacity as maker under the
Homestead Note, the Partnership Borrower or any Subsidiary, whichever entity is
the owner of the subject Project.
"Business Day" means any day other than Saturday, Sunday, or any other
day on which commercial banks in _______ are not required to be open for
business.
"Change Order" means a written order executed by a Borrower
authorizing a Contractor to proceed with a change in the work as provided for in
the original Plans for a Project, which change has been made in accordance with
the applicable provisions of this Agreement.
"Completion and Payment Guaranty" means that certain Guaranty of
Completion and Payment of even date herewith from Homestead to Atlantic in the
form attached as Exhibit C.
"Construction Contract" means the contract for construction executed
by a Borrower and the Contractor in connection with the construction of a
Project, and all exhibits, attachments, riders and addenda thereto.
"Consultant" means any civil engineer or other material consultant,
other than the Architect, retained directly by a Borrower to provide design or
engineering services for a Project.
"Consultant's Agreement" means the agreement for engineering or other
consultant services executed by a Borrower and a Consultant in connection with a
Project, and all exhibits, attachments, riders and addenda thereto.
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"Consultant's Certificate" means a Certificate from a Consultant for a
Project, in form and substance reasonably acceptable to Atlantic, wherein the
Consultant acknowledges the collateral assignment of the Consultant's Agreement
and the Plans prepared by such Consultant from Borrower to Atlantic pursuant to
this Agreement and agrees to perform all of its obligations under the
Consultant's Agreement in the event Atlantic takes possession of the subject
Project in connection with the exercise of its remedies hereunder or under the
Security Documents after an Event of Default.
"Contractor" means the general contractor retained by a Borrower to
provide construction services for a Project.
"Contractor's Certificate" means a Certificate from the Contractor for
a Project, in form and substance reasonably acceptable to Atlantic, wherein the
Contractor acknowledges the collateral assignment of the Construction Contract
from Borrower to Atlantic pursuant to this Agreement and agrees to perform all
of its obligations under the Construction Contract in the event Atlantic takes
possession of the subject Project in connection with the exercise of its
remedies hereunder or under the Security Documents after an Event of Default.
"Corporate Loan Amount" has the meaning set forth in Recital A to this
Agreement.
"Corporate Loan Documents" has the meaning set forth in Recital A to
this Agreement.
"Corporate Note" has the meaning set forth in Recital A to this
Agreement.
"Default" means any condition or event that constitutes an Event of
Default or that with the giving of notice or lapse of time or both would, unless
cured or waived, become an Event of Default.
"Development Budget" has the meaning set forth in Section 2.3 of this
Agreement.
"Development Schedule" has the meaning set forth in Section 2.3 of
this Agreement.
"Environmental Laws" means any and all laws, statutes, ordinances,
rules, regulations, orders, or determinations of any governmental authority
pertaining to health or the environment applicable to a Borrower, or a Property
owned by such Borrower, in effect in the jurisdiction in which such Property is
located, or where any hazardous substances generated by or disposed of by a
Borrower in connection with such Property are located, including but not limited
to the Clean Air Act, as amended, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended by the Superfund Amendments
and Reauthorization Act of 1986, as amended ("CERCLA"), the Federal Water
Pollution Control Act, as amended, the Resource Conservation and Recovery Act of
1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal
Act Amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984, as
amended ("RCRA"), the Safe Drinking Water Act, as amended,
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the Toxic Substances Control Act, as amended, the Hazardous Materials
Transportation Act, as amended any analogous state law of the state in which the
Property is located and other environmental conservation or protection laws. The
terms "hazardous substance," "release," and "threatened release" shall have the
meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or
"disposed") shall have the meanings specified in RCRA; provided, however, that
(i) in the event either CERCLA or RCRA is amended so as to broaden the meaning
of any term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and (ii) to the extent the laws of the state in
which the Property is located establish a meaning for "hazardous substance,"
"release," "threatened release," "solid waste," or "disposal" which is broader
than that specified in either CERCLA or RCRA, such broader meaning shall apply.
"Event of Default" means the occurrence of any of the events specified
in Article 7 hereof.
"Existing Corporate Projects" has the meaning set forth in Recital A
to this Agreement.
"Existing Corporate Security Documents" has the meaning set forth in
Recital A to this Agreement.
"Existing Loan Documents" has the meaning set forth in Recital B to
this Agreement.
"Existing Partnership Loan Documents" has the meaning set forth in
Recital B to this Agreement.
"Existing Partnership Projects" has the meaning set forth in Recital B
to this Agreement.
"Existing Partnership Security Documents" has the meaning set forth in
Recital B to this Agreement.
"Existing Projects" has the meaning set forth in Recital B to this
Agreement.
"Expiration Date" has the meaning set forth in Section 2.5 of this
Agreement.
"Final Advance" means the final advance of Loan proceeds to a Borrower
for construction of a Project in accordance with the applicable provisions of
this Agreement.
"Final Completion" means that the requirements of Section 5.5 have
been fully satisfied for a Project.
"Final CO" means a final unconditional certificate of occupancy for a
Project issued by the applicable Governmental Authority.
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"Force Majeure" means, with respect to any Project, an event entitling
a Contractor to an extension of time in constructing the Improvements as
established in the Construction Contract and any act of God, war, riots,
unusually severe weather, shortages of labor or materials (but not a shortage of
funds), strikes, lock-outs, explosions, the order of any court or governmental
authority or unavailability of or delay in issuance of any Permits despite a
Borrower's reasonable diligence in securing same, which results in any delay in
whole or in part in the design, engineering or construction of a Project, or the
duration of any inspection, testing, or remediation related to any environmental
condition or aspect of a Project.
"Funding Notice" has the meaning set forth in Section 2.3 of this
Agreement.
"Future Project" has the meaning set forth in Recital D to this
Agreement.
"Geographic Area" means the States of Alabama, Florida, Georgia, North
Carolina, Tennessee, Maryland and Virginia and the District of Columbia.
"Governmental Authority" means any Federal, state, county, municipal
or other governmental or quasi-governmental department, commission, board,
court, agency or other instrumentality having jurisdiction over a Borrower and
any Project.
"Governmental Requirement" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization or other direction or requirement
(including, without limitation, any of the foregoing that relate to
environmental standards or controls, energy regulations and occupational safety
and health standards or controls) of any Governmental Authority.
"Homestead" has the meaning set forth in the Preamble to this
Agreement.
"Homestead Common Stock" has the meaning set forth in Recital D to
this Agreement.
"Homestead Affiliate" means (a) an entity that directly or indirectly
controls, is controlled by or is under common control with Homestead or (b) an
entity at least a majority of whose economic interest is owned by Homestead; and
the term "control" means the power to direct the management of such entity
through voting rights, ownership or contractual obligations; provided, however,
in no event shall PTR, Atlantic, SCG or any wholly-owned subsidiary of any of
the foregoing be deemed a Homestead affiliate.
"Homestead Loan" means the loan evidenced by the Homestead Note.
"Homestead Loan Amount" has the meaning set forth in Recital D to this
Agreement.
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"Homestead Note" means that certain Amended and Restated Promissory
Note, in the form set forth as Exhibit D hereto, dated of even date herewith,
from Homestead to Atlantic in the original principal amount of _____________ and
No/100 Dollars ($____________ ).
"Homestead Security Documents" means the deeds of trust, deeds to
secured debt and/or mortgage instruments, substantially in the forms attached as
Exhibit E hereto, to be delivered to Atlantic by Homestead in connection with
the funding of any Project acquired by Homestead after the date of this
Agreement, as security for the Homestead Note, the Partnership Note and any
Subsidiary Note executed and delivered after the date hereof, and any other
security instruments delivered by Homestead from time to time as security for
the Homestead Note, the Partnership Note and any such Subsidiary Note.
"Improvements" means the buildings, structures, and other improvements
to be constructed on the Land as described on the Plans for the subject Project.
"Inspecting A/E" means the inspecting architect or engineer retained
by a Borrower to inspect, monitor and administer the progress of construction of
a Project.
"Land" means the parcel or parcels of land on which a Project is or is
to be located, together with all easements, rights of way and other
appurtenances thereto.
"Lien Waivers" means a waiver of all liens relating to a Project
executed by any and all contractors, subcontractors and/or suppliers of a
Borrower who have provided any goods or services relating to Improvements.
"Loan" means the Homestead Loan, the Partnership Loan, or any
Subsidiary Loan made after the date hereof, as the context may require; and
"Loans" means the Homestead Loan, the Partnership Loan, and any Subsidiary Loans
made after the date hereof, collectively.
"Loan Amount" means the aggregate of the Homestead Loan Amount and the
Partnership Loan Amount.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Completion and Payment Guaranty and any and all other agreements
or instruments now or hereafter executed and delivered by a Borrower, Homestead
or any other person in connection with, or as security for, the payment or
performance of the Notes.
"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 Homestead and its Subsidiaries, taken as a
whole.
"Material Change" means any change to the Plans or to a Project which
would result in a material increase or decrease in the number of lodging units
in such Project from the number
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contained in a Prototypical Project, a material increase or decrease in the
overall cost of completing a Project above the costs contemplated in the
Prototypical Project Budget, or would otherwise result in such Project
materially deviating from the product and/or investment concept of a
Prototypical Project as set forth in the Prototypical Plans.
"Note" means the Homestead Note, the Partnership Note, or any
Subsidiary Note executed and delivered after the date hereof, as the context may
require, and "Notes" means the Homestead Note, the Partnership Note, and any
Subsidiary Notes executed and delivered after the date hereof, collectively.
"Partnership Borrower" has the meaning set forth in the Preamble to
this Agreement.
"Partnership Loan" means the loan evidenced by the Partnership Note.
"Partnership Loan Amount" has the meaning set forth in Recital B to
this Agreement.
"Partnership Note" has the meaning set forth in Recital B to this
Agreement.
"Partnership Security Documents" means the deeds of trust, deeds to
secure debt and/or mortgage instruments, substantially in the forms attached as
Exhibit F hereto, to be delivered to Atlantic by the Partnership Borrower in
connection with the funding of any Project acquired by the Partnership after the
date of this Agreement, as security for the Partnership Note, the Homestead Note
and any Subsidiary Note executed and delivered after the date hereof, and any
other security instruments delivered by the Partnership Borrower from time to
time as security for the Homestead Note, the Partnership Note and any such
Subsidiary Note.
"Permits" shall mean all permits, licenses, registrations,
certificates, authorizations and approvals now or hereafter issued or required
to be issued by any governmental or quasi-Governmental Authority for the lawful
ownership, construction, use and operation of a Project.
"Personalty" means all items of tangible or intangible personal
property owned by a Borrower, or in which a Borrower has any interest, to the
extent of such interest, that now are or hereafter may be purchased, prepared,
constructed or placed for, upon or in a Project owned by such Borrower.
"Plans" means the final plans and specifications for the construction
of the Improvements comprising a Project, together with any modifications or
additions to the same subsequently permitted under the terms of this Agreement
or, to the extent required hereunder, approved by Atlantic in accordance with
the provisions of this Agreement.
"Project" means each Existing Project and each Future Project for
which an Acquisition Notice has been delivered to Atlantic prior to the
Expiration Date.
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"Project Budget" means the budget for a Project delivered by a
Borrower to Atlantic.
"Project Schedule" means the schedule for the design and construction
of the Improvements encompassed within a Project delivered by a Borrower to
Atlantic.
"Property" means any property from time to time subject to any of the
Security Documents, including the Land and all Improvements now or hereafter
located thereon and all Personalty associated therewith.
"Proposed Substitute Future Project" has the meaning set forth in
Section 2.7 of this Agreement.
"Prototypical Project Budget" means the due diligence, development
approval, land acquisition, design and construction budget for a Prototypical
Project heretofore delivered to, and approved by, Atlantic.
"Prototypical Project Schedule" means the due diligence, development
approval, design and construction schedule for a Prototypical Project heretofore
delivered to, and approved by, Atlantic.
"Prototypical Plans" means the standard plans and specifications for a
Homestead Village extended-stay lodging facility heretofore delivered to, and
approved by, Atlantic.
"Prototypical Project" means a Homestead Village extended-stay lodging
facility designed and constructed in substantial accordance with the
Prototypical Plans.
"PTR" has the meaning set forth in the Preamble to this Agreement.
"Pursuit Costs" has the meaning set forth in Section 2.3 of this
Agreement.
"Quarterly Statement" has the meaning set forth in Section 4.14 of
this Agreement.
"Rejected Project" has the meaning set forth in Section 2.7 of this
Agreement.
"Security Documents" means the Homestead Security Documents, the
Existing Corporate Security Documents, the Partnership Security Documents, the
Partnership Security Documents, and any Subsidiary Security Documents,
collectively.
"Subcontractor" means all persons performing labor or services, or
providing materials, equipment or furnishings in connection with the
construction of Improvements, other than Contractor.
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"Subsidiary" means any entity now or hereafter in existence, all of
the outstanding equity securities of which are owned by Homestead.
"Subsidiary Loan" means any portion of the Homestead Loan or
Partnership Loan which Homestead may direct Atlantic to advance to a Subsidiary
instead of to Homestead or the Partnership Borrower in accordance with the
provisions of this Agreement.
"Subsidiary Note" means any promissory note, substantially in the form
of the Homestead Note, which a Subsidiary executes and delivers to Atlantic
after the date hereof to evidence a Subsidiary Loan made by Atlantic to such
Subsidiary.
"Subsidiary Security Documents" means the deed of trust or mortgage
instrument to be delivered to Atlantic by a Subsidiary, substantially in the
form of the Homestead Security Documents, in connection with the funding of any
Future Project owned by Subsidiary as security for the Homestead Note, the
Partnership Note and any Subsidiary Note executed and delivered after the date
hereof, and any other security instruments delivered by such Subsidiary from
time to time as security for the Homestead Note, the Partnership Note and any
such Subsidiary Note.
"Title Insurer" means Chicago Title Insurance Company or any other
nationally recognized title insurance company issuing a Title Policy.
"Title Policy" means the lender's policy of title insurance for a
Property issued by the Title Insurer for the benefit of Atlantic and all
endorsements thereto, which insures the lien priority of the Security Documents
applicable to such Property.
"UCC" means the Uniform Commercial Code as in force in the state in
which a Project is located.
Section 1.2. OTHER DEFINITIONAL PROVISIONS
(a) Except as otherwise specified herein, all references herein (i) to
any person or entity shall be deemed to include such person's or entity's heirs,
legal representatives, successors and assigns, as appropriate, (ii) to any
Governmental Requirement defined or referred to herein shall be deemed
references to such Governmental Requirement as the same may have been or may be
amended or supplemented from time to time and (iii) to any Loan Document or
other agreement defined or referred to herein shall be deemed references to such
Loan Document or agreement (and, in the case of the Notes or other instruments,
any instrument issued in substitution therefor) as the terms thereof may have
been or may be amended, supplemented, waived or otherwise modified from time to
time in writing.
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(b) Whenever the context so requires, the neuter gender includes the
masculine or feminine, the masculine gender includes the feminine, and the
singular number includes the plural, and vice versa.
ARTICLE 2.
THE LOANS
Section 2.1. THE HOMESTEAD LOAN. Subject to the limitations set forth
in Sections 2.5, 2.6 and 2.7 below, Atlantic hereby agrees, upon the terms and
conditions set forth herein and in the other applicable Loan Documents, to
advance to Homestead up to the maximum amount of the Homestead Loan Amount for
the purpose of paying the costs and expenses incurred by Homestead in completing
the design and construction of the Existing Projects owned by Homestead and in
performing its due diligence review, obtaining all Permits required for
development of and otherwise acquiring the Land for, and completing the design
and construction of, such of the Future Projects hereafter pursued by Homestead
as may be funded under the provisions of this Agreement. Principal and accrued
interest on the Homestead Note shall be due and payable in accordance with the
terms and conditions set forth therein and herein.
Section 2.2. THE PARTNERSHIP LOAN. Subject to the limitations set
forth in Sections 2.5, 2.6 and 2.7 below, Atlantic hereby agrees, upon the terms
and conditions set forth herein and in the other applicable Loan Documents, to
advance to the Partnership Borrower up to the maximum amount of the Partnership
Loan Amount for the purpose of paying the costs and expenses incurred by the
Partnership Borrower in completing the design and construction of the Existing
Projects owned by the Partnership Borrower and in performing its due diligence
review, obtaining all Permits required for development of and otherwise
acquiring the Land for, and completing the design and construction of the Future
Projects hereafter pursued by the Partnership Borrower as may be funded under
the provisions of this Agreement. Principal and accrued interest on the
Partnership Note shall be due and payable in accordance with the terms and
conditions set forth therein and herein.
Section 2.3. FUTURE PROJECTS. The parties acknowledge and agree that
the Future Projects identified in Exhibit I hereto are in differing stages of
consideration by Homestead and that, at any point in the process of its due
diligence review, the negotiation of definitive acquisition and related
documents and its efforts to obtain all Permits required for development of any
such Future Project, Homestead may determine, in its sole and absolute
discretion, either to proceed with the acquisition of the land for, and
development of, any such Future Project or to discontinue its efforts in respect
of any such Future Project. Requests for advances of Loan proceeds hereunder may
include amounts required to reimburse Homestead for the costs and expenses
incurred by Homestead in its due diligence review of any such Future Project, as
well as all costs incurred in connection with its efforts to secure the Permits
required for development
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of any such Future Project. Whenever such pursuit costs ("Pursuit Costs") are to
be funded with Loan proceeds, prior to the first advance in respect of a Future
Project, Homestead will provided Atlantic with a notice (a "Funding Notice")
identifying the Future Project, together with a development budget (a
"Development Budget") indicating the anticipated costs that are likely to be
incurred prior to the acquisition of such Future Project by Homestead or a
Subsidiary, the amount of such costs to be funded by Loan proceeds, which amount
shall in no event exceed $100,000 per Future Project, and a schedule setting
forth the anticipated time-frames for completing the due diligence review and
obtaining required Permits (a "Development Schedule").
If Homestead elects to proceed with a Future Project, then Homestead
shall provide Atlantic at least 10 Business Days' prior written notice (an
"Acquisition Notice") of the anticipated closing date for the acquisition of the
subject Land, the identity of the Borrower for such transaction, and the
estimated amount of Loan proceeds that will need to be advanced at such closing.
From and after delivery of an Acquisition Notice to Atlantic, the subject
project shall, for all purposes under this Agreement, be deemed a "Project".
Notwithstanding anything to the contrary in the foregoing, funding of the first
advance of Loan proceeds in respect of any such Project shall require the
recordation of Security Documents adding such Project as security for the Loan
and the satisfaction of the other conditions set forth in Section 5.2 as to such
Project.
In the event, however, that Homestead determines from time to time
that any Future Project is unacceptable to it and that Homestead will not expend
further efforts with respect to such Future Project, Homestead shall provide
written notice to Atlantic identifying any such Future Project. In such event,
any Pursuit Costs theretofore funded with Loan proceeds, together with accrued
and unpaid interest thereon due under the terms of the Homestead Note, shall be
repaid by Homestead to Atlantic within 30 days after delivery of such notice to
Atlantic.
Section 2.4. SUBSIDIARY LOANS. With respect to any Future Project for
which an Acquisition Notice is delivered to Atlantic in accordance with Section
2.3 above, Homestead shall have the right to determine, in its sole and absolute
discretion, that a Subsidiary acquire the subject Project, in which event, the
subject Subsidiary shall, at such time as it acquires the subject Future
Project, execute and deliver to Atlantic Subsidiary Security Documents in
connection therewith together with an agreement in form and substance
satisfactory to Atlantic pursuant to which such Subsidiary agrees to be bound by
the terms of this Agreement as to such Project. In addition, at the election of
Homestead, the subject Subsidiary shall execute a Subsidiary Note in the amount
of the Loan determined by Homestead to be allocable to such Project and the
Homestead Loan Amount and/or the Partnership Loan Amount (as Homestead may
elect) shall be decreased by the amount of any such Subsidiary Note.
Alternatively, Homestead may elect to have funds advanced with respect to such
Project under the Homestead Loan and either loan or contribute the funds so
advanced to the subject Subsidiary. In the event any Subsidiary executes a
Subsidiary Note and/or any Subsidiary Security Documents as contemplated under
this Section 2.4, the parties shall, contemporaneously therewith, execute,
deliver, and, if appropriate, record, such amendments to the Loan Documents as
may reasonably
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be necessary or appropriate to properly document any resulting changes in the
Homestead Loan Amount and/or the Partnership Loan Amount.
Section 2.5. DURATION OF FUNDING COMMITMENT. The obligation of
Atlantic to advance Loan proceeds in respect of Future Projects for which an
Acquisition Notice has not yet been delivered to Atlantic shall expire on March
31, 1998 (the "Expiration Date"). Notwithstanding anything to the contrary in
the foregoing, Atlantic shall continue to be obligated, subject to and upon the
terms and conditions set forth herein and in the other Loan Documents, to
continue to make advances of Loan proceeds after such date for each Project for
which an Acquisition Notice has theretofore been delivered to Atlantic under the
terms of this Agreement, but shall not have any obligation to make further
advances in respect of Pursuit Costs for any Future Project for which only a
Funding Notice has been delivered to Atlantic. On or before April 30, 1998,
Homestead shall repay, or cause to be repaid, to Atlantic any advances of Loan
proceeds in respect of Pursuit Costs (together with accrued and unpaid interest
thereon) that have not been repaid pursuant to Section 2.3 hereof as of the
Expiration Date.
SECTION 2.6. PROJECT SPECIFIC FUNDING COMMITMENT. Atlantic's
obligation under this Agreement to make advances of Loan proceeds in respect of
a designated Project shall not exceed the lesser of (i) the actual aggregate
hard and soft costs incurred by the applicable Borrower in connection with the
acquisition, development, design and construction of such Project, or (ii),
except as provided in Section 6.6, the amount allocated to such Project in
Exhibit I hereto, and all costs in respect of a Project in excess of the Loan
amount allocated to such Project shall, except as provided in such Section 6.6,
be funded by Homestead as and when needed. In addition, Atlantic's obligation to
make advances in respect of a designated Project shall expire on the second
anniversary of the date on which the subject Land was acquired by Homestead or
the applicable Subsidiary. In the event Final Completion of such Project has not
been achieved by such date, Atlantic shall have no obligation to make any
further advances of Loan proceeds in connection with such Project and all costs
required to complete such Project shall be funded by Homestead as and when
required in order to assure that such Project is completed and placed in
operation as soon as is reasonably practicable. If, however, Final Completion of
such Project has not been achieved by the date which is 30 months after the date
of acquisition of the subject Land, then, at the election of Atlantic, exercised
by delivering written notice to Homestead, Homestead shall repay, or cause the
applicable Subsidiary to repay, within 30 days after receipt of such notice the
amount of Loan proceeds advanced in respect of such Project (together with
accrued and unpaid interest on such amount), and upon receipt of such payment,
this Agreement, solely as it relates to such Project, shall terminate and
Atlantic shall cause to be released the Security Documents recorded or filed
against such Project.
Section 2.7. REPLACEMENT PROJECTS. Homestead agrees that for each
Future Project rejected by Homestead pursuant to Section 2.3 (a "Rejected
Project"), Homestead will propose to Atlantic in writing a proposed substitute
future project (a "Proposed Substitute Future
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Project") to take the place of such Rejected Project. Any such Proposed
Substitute Future Project shall be located within the Geographic Area and,
except as specifically noted in writing by Homestead, shall conform, to
Homestead's then current knowledge, to the Prototypical Project requirements.
Homestead may select a Proposed Substitute Future Project from its then
contemplated Homestead Village projects which Homestead is considering pursuing
or, if all such contemplated projects are then already included within the list
of Future Projects under this Agreement, then Homestead may delay in identifying
a Proposed Substitute Future Project until, in the ordinary course of its
business, a new site for a contemplated Homestead Village project is identified
within the Geographic Area. Homestead shall not, however, be obligated to
identify a new potential Homestead Village site solely for the purposes of
presenting to Atlantic a Proposed Substitute Future Project.
Atlantic shall have a period of 20 Business Days after receipt of any
such Proposed Substitute Project to approve or reject, in its sole and absolute
discretion, any such proposal, and failure of Atlantic to provide Homestead with
written notice within such 20-Business Day period shall be deemed a rejection by
Atlantic of the subject Proposed Substitute Future Project. If Atlantic timely
approves a Proposed Substitute Future Project, then such project shall be
substituted in the place and stead of the Rejected Project in Exhibit I hereto,
and shall for all purposes under this Agreement thereafter be deemed a Future
Project. The maximum amount of Loan proceeds that will be available to fund such
Future Project (if Homestead thereafter delivers an Acquisition Notice for such
Project) shall be equal to the Loan amount originally allocated to the
applicable Rejected Project in Exhibit I.
In the event that any Proposed Substitute Future Project is rejected
or deemed rejected by Atlantic, Homestead shall be free to pursue the Proposed
Substitute Future Project on its own. For each Rejected Project, Homestead shall
be required (subject to the limitations set forth above) to propose to Atlantic
up to a maximum of three (3) Proposed Substitute Future Projects. If Atlantic
rejects all three (3) Proposed Substitute Future Projects submitted by Homestead
in respect of a particular Rejected Project, then the Loan Amount, and
Atlantic's funding commitment hereunder, shall be reduced by the amount
allocated to the Rejected Project in Exhibit I hereto. The obligation of
Homestead to propose to Atlantic Proposed Substitute Future Projects shall in
any event terminate on the Expiration Date.
Section 2.8. RELEASE OF SECURITY DOCUMENTS. The parties acknowledge
and agree that the Notes are convertible, in whole or in part, into shares of
Homestead Common Stock up to the maximum amount of the unpaid principal amount
of such Notes outstanding from time to time and otherwise pursuant and subject
to the terms and conditions of such Notes. Any such conversion shall reduce the
amount of the debt evidenced by the Notes and secured by the Security Documents
by the amount determined in accordance with the conversion provisions of the
Notes. In connection with any partial conversion of the Notes, Homestead may
request that, in lieu of or in addition to reducing the amount secured by the
Security Documents, Atlantic
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release any one or more of the Projects then subject to the Security Documents
and having a value equivalent to or less than the amount of the debt reduction
resulting from such conversion. The release of any Projects from the lien of the
Security Documents shall, however, be subject to the approval of Atlantic, which
approval shall not to be unreasonably withheld or delayed.
At such time as all amounts owing to Atlantic under or in respect of
any of the Loan Documents have been paid in accordance with the provisions of
the Loan Documents or if not paid then, to the extent permitted under the Notes,
converted into Homestead Common Stock, and when Atlantic has no further
obligation to make any advance, disbursement or payment of any kind or to extend
credit under or with respect to any of the Loan Documents, then this Agreement
shall terminate and upon receipt of demand therefor from Homestead, Atlantic
shall execute and deliver to Homestead appropriate instruments of release or
reconveyance of any Security Documents then in effect.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
To induce Atlantic to enter into this Agreement, Homestead and each
Borrower represents and warrants to Atlantic (each representation and warranty
herein being given as of the date of this Agreement and deemed repeated and
reaffirmed on the date of each advance of funds by Atlantic) as follows:
Section 3.1. EXISTENCE AND POWER. Homestead and each Borrower is duly
organized, validly existing and in good standing under the laws of the State of
its organization and to the extent required is qualified to do business in and
is in good standing in each jurisdiction in which it owns property; has full
power and authority to own its assets, to conduct the activities in which it is
engaged, and to own and develop each Project which it owns.
Section 3.2. AUTHORIZATION AND BINDING OBLIGATIONS. The borrowing
evidenced by the Notes and the execution, delivery and performance of this
Agreement and all other Loan Documents by Homestead and each Borrower (i) are
within the power of the subject entity and (ii) have been duly authorized. Each
of the Loan Documents executed by Homestead and/or any Borrower, when executed
and delivered, will constitute the legal, valid and binding obligations of such
entity and are enforceable against such entity in accordance with its respective
terms, subject to bankruptcy and insolvency laws, equitable principles, and laws
affecting creditors rights generally.
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Section 3.3. NO LEGAL BAR OR RESULTANT LIEN. None of the (i) execution
and delivery of, (ii) fulfillment of the terms and conditions of, or (iii) the
consummation of the transactions contemplated by the Loan Documents to which
Homestead and/or any Borrower is a party (a) violate any provisions of the
articles or certificate of incorporation, bylaws or partnership agreement of
such entity, (b) violate or constitute a default under any contract, agreement
or instrument, or any law, ordinance, rule or regulation of any Governmental
Authority, to which such entity is subject, (c) to such entity's knowledge,
violate or constitute a default under any Governmental Requirement so as to
create a Material Adverse Effect or (d) to such entity's knowledge, result in
the creation or imposition of any lien upon any property of such entity, other
than those permitted by this Agreement.
Section 3.4. NO CONSENT. The execution, delivery and performance of
the Loan Documents to which Homestead and/or each Borrower is a party does not
require the consent or approval of any other person, including, without
limitation, any financial institution or other creditor of such entity, any
trustee, conservator, receiver or administrator, or any regulatory authority or
governmental body of the United States of America or any state thereof or any
Governmental Authority.
Section 3.5. COMPLIANCE WITH LAWS. All Plans, Projects, Properties,
Improvements and their intended use presently comply, and throughout the term of
this Agreement will continue to comply, in all material respects with all
Governmental Requirements and all public and private restrictions or other
agreements affecting each such Property, including, without limitation, building
codes, special use permits, zoning codes, Environmental Laws, applicable
requirements of fire underwriters, restrictive covenants, easements and other
agreements affecting the Property. All Permits currently required by
Governmental Requirements to be obtained for the Projects now subject to this
Agreement have been obtained, and neither Homestead nor any Borrower has any
reason to believe that any Permits that subsequently may be required to enable
it to construct, occupy, operate, use or sell any of the Property will not be
obtained in due course.
Section 3.6. LITIGATION. Except as disclosed to Atlantic in writing,
at the date of this Agreement there is no litigation, legal, administrative, or
arbitral proceeding, investigation or other action of any nature pending or, to
the knowledge of Homestead or any Borrower, threatened against or affecting any
Borrower or Homestead that involves the possibility of any judgment or liability
(not fully covered by insurance) that would have a Material Adverse Effect.
Section 3.7. DEFAULTS. To the knowledge of Homestead and each
Borrower, neither Homestead nor any Borrower is in default, and no event or
circumstance has occurred that, but for the passage of time or the giving of
notice, or both, would constitute a default, in any respect under any agreement
of instrument that may have a Material Adverse Effect. No Event Default has
occurred hereunder.
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Section 3.8. STATUS OF PROPERTY. The Borrower delivering any Security
Documents to Atlantic is the fee simple owner of the subject Property free and
clear of all restrictions, covenants, easements, liens and encumbrances,
including, without limitation, mechanics', materialmen's and suppliers' liens
(except liens securing Atlantic and matters reflected in the Title Policy). To
Homestead and each Borrower's knowledge: each Property is a legal lot under
applicable laws, statutes, ordinances and regulations of the governing
jurisdiction; each Property is carried, or is in the process of being changed so
as to be carried, on the tax rolls of the governing jurisdiction as a separate,
subdivided parcel; each Property has, or will have upon completion of
construction, full access to the public highways and to the services of all
utilities, including water, storm sewer, sanitary sewer, electricity and
telephone, required to serve the intended use of the Property; each Property
under construction or completed is zoned under applicable zoning laws and
ordinances so as to permit the construction and development of the Project
planned for such Property and the use and occupancy of the Property as
contemplated under this Agreement; and each Property under construction or
completed currently complies in all material respects with such laws and
ordinances and with all private restrictions applicable thereto and any special
use permit, variance, exception, or other special zoning authorization
applicable thereto; each Property currently complies in all material respects
with all Governmental Requirements applicable thereto. To Borrower's knowledge,
the liens of the Security Documents executed by it are valid liens covering the
subject Properties.
Section 3.9. USE OF PROCEEDS. None of the proceeds of the Loans has
been or shall be used to purchase or carry, or to reduce or retire or refinance
any credit incurred to purchase or carry, any margin stock (within the meaning
of Regulations G and U of the Board of Governors of the Federal Reserve System)
or to extend credit to others for the purpose of purchasing or carrying any
margin stock.
Section 3.10. REAL PROPERTY ENVIRONMENTAL MATTERS. To the actual
knowledge of Homestead and each Borrower, except as disclosed in the
environmental audits prepared for Homestead and/or any such Borrower and
delivered to Atlantic, no hazardous substances or solid waste are located at or
on or have been disposed of or otherwise released on or to any of the Properties
in violation of any Environmental Laws.
Section 3.11. FINANCIAL CONDITION. All financial statements delivered
to Atlantic concerning Homestead and each Borrower fairly and accurately present
the financial condition of such entities as of the date of such statements and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis, and there are no contingent liabilities not
disclosed thereby which would have a Material Adverse Effect. Since the close of
the period covered by the latest financial statements delivered to Atlantic with
respect to Homestead's and each Borrower's assets, liabilities, or financial
condition, no event has occurred (including, without limitation, any litigation
or administrative proceedings) and no change in such entities' financial
condition exists or, to the knowledge of Homestead or any
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Borrower, is threatened, which (i) materially adversely affects a Borrower's
ability to perform its obligations under the Loan Documents, (ii) constitutes or
which after notice or lapse of time, or both, would constitute a Default
hereunder, or (iii) materially adversely affects the validity or priority of the
lien of the Security Documents on any Borrower's Property or the financial
condition of Homestead or any Borrower.
Section 3.12. NO CONDEMNATION. No taking of any Property or any
material part thereof, through eminent domain, conveyance in lieu thereof,
condemnation or similar proceeding is pending or, to the best of Homestead's and
each Borrower's knowledge, threatened by any governmental agency.
Section 3.13. NO ACTIONS. There is no action, proceeding or
investigation pending or, to the best of Homestead's and each Borrower's
knowledge, threatened (or any basis therefor) which questions, directly or
indirectly, the validity of this Agreement, the Notes, the Security Documents,
or any other Loan Document or any action taken or to be taken pursuant hereto or
thereto.
Section 3.14. NO ADVERSE CONDITIONS. To the best of Homestead's and
each Borrower's knowledge, there are no existing, pending or threatened events
which could materially adversely affect any of the Properties or the operation
thereof.
ARTICLE 4.
COVENANTS
Each Borrower will, at all times, comply with the covenants contained
in this Article 4 from the date hereof and for so long as any part of the Loans
is outstanding.
Section 4.1. CONSTRUCTION OF IMPROVEMENTS. Each Borrower will proceed
with the design, engineering and construction of its Improvements with
reasonable diligence and continuity and will endeavor in good faith to complete
the design, engineering and construction of its Improvements substantially in
accordance with the applicable Project Schedule, subject to Force Majeure, and
substantially in accordance with the Plans for such Improvement and applicable
Governmental Requirements.
Section 4.2. PLANS; PROJECT BUDGETS; PROJECT SCHEDULES AND MATERIAL
CHANGES. Prior to the date hereof, Homestead has delivered to Atlantic and
Atlantic has approved Homestead's Prototypical Plans, Prototypical Project
Budget and Prototypical Project Schedule. So long as the Plans and Project
Budget (including the Development Budget which is a part of the overall Project
Budget) for a given Project do not contain any Material Change and the Project
Schedule
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does not deviate in any material respect from the Prototypical Schedule, no
further approval by Atlantic of the Plans, Project Schedule or Project Budget
for a Project shall be required. Borrower shall not, however, make any Material
Change in the Plans for any of its Projects or construct any Improvements which
are not substantially in accordance with the Prototypical Plans or make any
change to any Plans or install any material or equipment which would constitute
a Material Change, without Homestead's obtaining in each instance Atlantic's
prior written consent, which consent shall not be unreasonably withheld or
delayed. Homestead shall promptly notify Atlantic in writing of any Material
Change desired by a Borrower, which notice shall be accompanied by such plans or
other information as may reasonably be necessary for Atlantic to evaluate the
proposed Material Change. Atlantic shall deliver written notice to Homestead
within 10 Business Days after receipt of the requested Material Change stating
whether such Material Change has been approved or disapproved by Atlantic.
Section 4.3. INSPECTION AND EXAMINATION. Borrower will permit
representatives and agents of Atlantic to enter each Property owned by such
Borrower at all reasonable times to inspect the progress of the construction of
the subject Improvements and all materials to be used therein and to examine all
detailed plans and shop drawings which are or may be kept at the construction
site, and such Borrower will use reasonable efforts to cause the Contractor and
all Subcontractors to cooperate with Atlantic or its representatives in such
inspections or examinations. Homestead and each other Borrower shall also
permit representatives and agents of Atlantic to examine their respective books,
records and accounting data applicable to the Loans and the subject Projects
(and to make extracts therefrom or copies thereof) and, to the extent Homestead
or such Borrower has such right, all Contractor's and Subcontractors' books,
records and accounting data applicable to the subject Project.
Section 4.4. PERMITS AND APPROVALS. Borrower will comply in all
material respects with, and keep in full force and effect, all Permits necessary
for ownership, development and operation of the Projects owned or operated by
it.
Section 4.5. GOVERNMENTAL REQUIREMENTS. Borrower will cause all
Governmental Requirements and all restrictive covenants affecting its Projects
to be complied with in all material respects (except matters contested in good
faith by appropriate proceedings).
Section 4.6. BOOKS AND RECORDS. Borrower will implement and maintain
payment and accounting systems which will assure accurate and complete records
of all amounts owed and paid in connection with the completion of each Project.
Borrower shall require each Contractor and each Subcontractor having a
subcontract in excess of $100,000 to deliver lien waivers or releases as a
condition to receiving payments. Contractor lien waivers shall cover the amount
paid to the Contractor under its application for payment for the month or other
payment period just ending; Subcontractor lien waivers shall cover the amount
paid to such Subcontractor
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pursuant to the Contractor's application for payment for the immediately
preceding month or other payment period.
Section 4.7. TITLE TO PROPERTY AND IMPROVEMENTS. Neither the legal or
beneficial title and ownership of a Borrower in the Property(ies) and
Improvements or any portion thereof owned by it will be conveyed, pledged or
encumbered in any way other than to Homestead or a Homestead Affiliate without
the consent of Atlantic, which may be granted or denied in Atlantic's sole and
absolute discretion. Borrower will promptly pay and discharge prior to the date
when any interest or penalties shall accrue thereon, all taxes, levies, charges,
impositions, water and sewer rents, and assessments of every kind or nature,
whether foreseen or unforeseen and whether general or special, which are now or
shall hereafter be charged or assessed against the Property(ies) or the
Improvements owned by it, or any part thereof, or which may become a lien
thereon (except matters contested in good faith by appropriate proceedings and
for which adequate reserves have been provided).
Section 4.8. COSTS AND EXPENSES. Borrower shall pay any out-of-
pocket expenses reasonably incurred by Atlantic in the enforcement or collection
of the Loans, including without limitation, attorneys' fees and expenses,
records searches, documentary stamps, transfer taxes and recording taxes and
court costs.
Section 4.9. USE OF ADVANCES. Borrower shall not apply any advances
of Loan proceeds to costs other than those incurred in connection with the
subject Future Project or Project for which the advance has been made. Borrower
shall not apply such advances to the cost of acquiring any additional real
property other than a Project. Borrower shall not receive or apply advances of
Loan proceeds except to the purposes for which such proceeds have been advanced
by Atlantic, and in accordance with the provisions of the Loan Documents
generally.
Section 4.10. INSURANCE. Borrower shall keep in full force and
effect at all times the policies of insurance applicable to the Property owned
by it and required by the Security Documents, and Borrower shall provide
Atlantic with evidence of such insurance upon receipt or request therefor.
Section 4.11. ENVIRONMENTAL MATTERS. Borrower shall not, by any act or
omission, cause or permit any hazardous substances, solid wastes or other
pollutants to exist on or about any Project in violation of Environmental Laws.
In the event of a breach of the foregoing provision, Homestead and the subject
Borrower shall remove the same (or if removal is prohibited by law, take
whatever action is required by law) promptly upon discovery at Homestead's and
such Borrower's sole expense. Homestead will promptly notify Atlantic in writing
of any existing, pending or threatened action, investigation or inquiry by any
Governmental Authority of which it has knowledge relating to any Property in
connection with any Environmental Laws.
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Section 4.12. SELECTION OF ARCHITECTS; CONTRACTORS; INSPECTING A/E'S.
Prior to the date hereof, Homestead has delivered to Atlantic and Atlantic has
approved, a list of potential Contractors, Architects, Consultants and
Inspecting A/E's that Homestead, or any of its Subsidiaries, has or may retain
in connection with any Project funded, or to be funded, under this Agreement.
Homestead may, from time to time, subject to the prior written approval of
Atlantic, add Contractor, Architect, Consultant and Inspecting A/E names to such
list. So long as any Contractor, Architect, Consultant and Inspecting A/E
retained by Homestead or a Subsidiary in connection with a Project is on such
pre-approved list, no further approval of such hiring by Atlantic shall be
required. If Homestead or any Subsidiary desires to retain a Contractor,
Architect, Consultant or Inspecting A/E not on the current pre-approved list,
then prior to retaining such individual or entity, Homestead shall be required
to obtain the prior written approval of Atlantic, such approval not to be
unreasonably withheld or delayed, and such approval shall be deemed given if
Atlantic does not deliver written notice of objection to Homestead within 10
Business Days after receipt by Atlantic of a request for approval from
Homestead.
Section 4.13. FURTHER ASSURANCES. Homestead and each Borrower shall
execute such further documents, agreements and instruments, and take all other
actions, as may reasonably be necessary to carry out the purposes of the Loan
Documents or to protect and enforce the validity and priority of the Security
Documents.
Section 4.14. QUARTERLY STATEMENTS. Within 20 Business Days after
the expiration of each calendar quarter, Homestead shall deliver to Atlantic a
written summary (each, a "Quarterly Statement") containing a status report for
each Future Project or Project then being funded pursuant to this Agreement,
indicating whether and to what extent each such Future Project or Project is
proceeding substantially on schedule and on budget or, if not, the amount of any
overrun and/or schedule slippage and setting forth in reasonable detail any
efforts being undertaken to remedy any noted material problems. Each Quarterly
Statement shall also include any pertinent information in respect of Future
Projects and the anticipated timing of when any such Future Projects may be
acquired and construction commenced and such other information as Homestead may
deem appropriate, or Atlantic may reasonably request, to keep Atlantic
reasonably apprised of the status of the Future Projects.
Section 4.15. CONTINUED EXISTENCE. Homestead and each Borrower shall
at all times preserve and keep in full force and effect its existence and rights
and franchises material to its business and rights and franchises material to
its business and properties.
Section 4.16. DEFAULTS UNDER OTHER LOANS. Borrower shall notify
Atlantic in writing within fifteen (15) days following Borrower's receipt of
notice of a default under any document or instrument governing, evidencing,
securing, or otherwise relating to any loan (other than the Loan) made to
Borrower.
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ARTICLE 5.
ADVANCE CONDITIONS
Section 5.1. CONDITIONS PRECEDENT TO FIRST ADVANCE UNDER THIS
AGREEMENT. Atlantic shall not be obligated to advance funds pursuant to this
Agreement until each of the following conditions is fulfilled:
(a) Receipt by Atlantic of each of the following:
(i) evidence reasonably satisfactory to Atlantic that
Homestead, either directly or through one or more of its
Subsidiaries, has expended at least $____________ of its
own funds in developing and placing in operation
Homestead Village projects in the Geographic Area (the
"Equity Projects");
(ii) duly executed Security Documents creating first and prior
liens on all of the Equity Projects;
(iii) a fully executed copy of this Agreement;
(iv) duly executed copies of each of the Homestead Note, Notes
from any Subsidiaries owning Projects for which a Funding
Notice or Acquisition Notice has been delivered to
Atlantic and Security Documents for any Land then owned
or to be acquired with such initial funding by Homestead
or any Subsidiary for which the subject Project is to be
financed with Loan proceeds, the Completion and Payment
Guaranty and all other Loan Documents Atlantic may
reasonably require to be executed and delivered in
connection with the first advance hereunder;
(v) Title Policies for all Properties then subject to
Security Documents or to be made subject to Security
Documents contemporaneously with the first advance of
Loan proceeds (or an irrevocable commitment to issue each
such Title Policy), effective as of the date of the
Notes, in form and substance satisfactory to Atlantic in
its reasonable judgment, confirming the first priority
status and validity of the lien of the Security Documents
on the Property to secure the obligations under the
Notes, the Security Documents and the other Loan
Documents;
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(vi) for each Project then subject to this Agreement, a survey
of the subject Land, and a geotechnical report and
environmental audit, satisfactory to Atlantic, in its
reasonable judgment;
(vii) opinions of counsel reasonably satisfactory to Atlantic
addressing the following matters:
(A) each Borrower then executing and delivering any Loan
Documents is duly organized and validly existing,
and in good standing and authorized to do business
in each state in which it owns a Project, with power
and authority to own its Projects and to perform its
obligations under the Loan Documents to which it is
a party and to carry on its business as it is now
being conducted;
(B) the execution, delivery and performance of the Loan
Documents delivered by each such Borrower have been
duly and validly authorized by all necessary action
of such Borrower; and
(C) the Loan Documents executed by each such Borrower
constitute valid and binding obligations of such
Borrower, enforceable against such Borrower in
accordance with their respective terms, except as
such enforcement may be limited by applicable
bankruptcy laws and other customary exceptions;
(viii) for each Project then under construction or completed,
certificates of insurance confirming the existence of all
insurance required by Section 4.9 hereof;
(ix) Copies of the Plans, Project Budget and Project Schedule
for each Project then under construction or then being
added to this Agreement; and
(x) Certification from Homestead that any Property(ies) then
being added to this Agreement either contain no Material
Changes or any Material Changes have previously been
approved by Atlantic.
(b) The Title Insurer shall have been paid all title insurance
premiums, filing fees, recording fees and taxes required for proper recording of
the Security Documents to be recorded at such time and any other Loan Document
to be filed or recorded at such time.
(c) There shall not have occurred and be continuing any Default.
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(d) There shall be no actual or threatened condemnation of all or any
portion of the Land comprising any Property then subject to any of the Security
Documents.
(e) Neither Homestead nor any Borrower shall be the subject of any
bankruptcy or similar proceeding.
(f) There shall not have occurred and be continuing beyond any
applicable cure or grace period any default under any of the Prior Loan
Documents.
(g) The representations and warranties set forth in Article 3 hereof
shall be true and correct in all material respects with respect to each Project
then subject to the Security Documents.
Section 5.2. CONDITIONS PRECEDENT TO FIRST ADVANCE FOR NEW PROJECT.
Atlantic shall not be obligated to advance funds in respect of a new Future
Project for which Pursuit Costs are to be funded or for any Project to be
acquired by Homestead or any Subsidiary until each of the following conditions
is fulfilled:
(a) The conditions precedent set forth in Section 5.1 shall remain
satisfied.
(b) Receipt by Atlantic of each of the following for each Future
Project for which Pursuit Costs are to be funded:
(i) a Funding Notice for the subject Future Project;
(ii) if applicable, a fully executed copy of any agreement to
be delivered by a Subsidiary in connection with such
Future Project whereby such Subsidiary agrees to be bound
by the terms of this Agreement with respect to the
subject Future Project; and
(iii) a Development Budget and Development Schedule for the
subject Future Project.
(c) Receipt by Atlantic of each of the following for each Project:
(i) an Acquisition Notice for the subject Project;
(ii) if applicable, a fully executed copy of any agreement to
be delivered by a Subsidiary in connection with such
Project whereby such Subsidiary agrees to be bound by the
terms of this Agreement with respect to the subject
Project;
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(iii) duly executed copies of any Homestead Security Documents,
Partnership Security Documents or Subsidiary Security Documents, any Subsidiary
Note, and any other Loan Documents which Atlantic may reasonably require to be
executed and delivered in connection with such Project;
(iv) an opinion of counsel addressing, as to the subject Borrower and
the Loan Documents then being executed by such Borrower, the
matters set forth in Section 5.1(a)(viii) above;
(v) the Title Policy for the subject Property (or irrevocable
commitment to issue such Title Policy), effective as of the date
of the first advance in respect of such Project, in form and
substance satisfactory to Atlantic in its reasonable judgment,
confirming the first priority status and validity of the lien of
the Security Documents on the Property to secure the obligations
under the Notes, the Security Documents and the other Loan
Documents;
(vi) a survey of the subject Land, and a soils report, geotechnical
report and environmental audit of the Land, satisfactory to
Atlantic, in its reasonable judgment; and
(vii) Copies of the Plans, Project Budget and Project Schedule for
the subject Project.
(d) With respect to each Project, the Title Insurer shall have been paid
all title insurance premiums, filing fees, recording fees and taxes required for
proper recording of the Security Documents to be recorded at such time and any
other Loan Document to be filed or recorded at such time.
(e) There shall not have occurred and be continuing any Default.
(f) There shall be no actual or threatened condemnation of all or any
portion of the Land comprising the Property.
(g) The Completion and Payment Guaranty shall be in full force and effect.
Section 5.3. INITIAL IMPROVEMENT ADVANCE CONDITIONS. Atlantic's initial
obligation to advance any of the Loan proceeds to a Borrower for construction of
Improvements is conditioned upon the conditions precedent set forth in Sections
5.1 and 5.2 remaining satisfied and, if requested by Atlantic, receipt of the
following:
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(a) Evidence of the issuance of all Permits required by any
Governmental Authority as a condition to the commencement of construction of the
subject Improvements.
(b) A copy of the Construction Contract, Architect's Agreement and any
Consultants' Agreements for the subject Project.
(c) Certificates of insurance and other certificates or information in
form and substance reasonably satisfactory to Atlantic confirming the existence
of all insurance required by Section 4.9 hereof.
(d) An executed Contractor's Certificate, Architect's Certificate and
Consultants' Certificates from the Contractor, Architect and Consultants
performing services to the subject Project.
(e) Such further financing statements and security agreements,
executed and acknowledged by the subject Borrower, relating to construction
materials for the subject Project as Atlantic may reasonably require.
(f) Evidence of the availability of utilities and access to and from
the subject Project sufficient for its intended use.
Section 5.4. ADDITIONAL IMPROVEMENT ADVANCE CONDITIONS. After the
initial advance, additional advances made for the purpose of constructing any
subject Improvements shall be subject to the following conditions:
(a) The conditions precedent set forth in Sections 5.1, 5.2 and 5.3
shall remain satisfied.
(b) All Permits required under Governmental Requirements for
construction of the subject Improvements shall be legally valid and in force and
effect.
(c) The subject Property and Improvements shall not have suffered any
damage or deterioration without provision for arrangements satisfactory to
Atlantic for the restoration and replacement of the damage or deterioration to
such Property or Improvements.
Section 5.5. FINAL-ADVANCE CONDITIONS. Atlantic's obligation to
advance any of the Loan proceeds to a Borrower for the Final Advance for the
Improvements comprising a Project is conditioned upon the following and, if
requested by Atlantic, receipt by Atlantic of evidence reasonably satisfactory
to Atlantic that such conditions have been satisfied:
(a) The completion of all Improvements in substantial accordance with
the Plans.
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(b) Receipt by the Borrower of all Final CO's issued by the appropriate
Governmental Authorities for the Improvements and all other Permits necessary
for use of the subject Improvements and Property.
(c) The Inspecting A/E for the Project shall have executed a certificate
of final completion with respect to all of the Improvements required under the
applicable Construction Contract.
(d) The Contractor, all Subcontractors and other parties (including
Architects and Consultants, if applicable) who performed work for the subject
Project have been paid (or with the application of the final advance of Loan
proceeds for such Project, will have been paid) in full, except for amounts
which the Borrower in good faith disputes and/or amounts which Homestead and/or
the subject Borrower intends to pay with its own funds provided any liens filed
against the Project have been released or bonded over.
(e) Receipt by Borrower of an as-built survey showing the location of all
Improvements, including parking areas, streets and the location of all utilities
and other easements, encroachments and building set back lines, if any, together
with delivery to Atlantic of an endorsement to the Title Policy removing any
exception for matters of survey.
(f) All remaining punchlist items have been completed by the Contractor
and approved by the Borrower.
(g) All conditions precedent to the "Final Payment" required under the
Construction Contract shall have been satisfied.
(h) The Project is otherwise ready for immediate occupancy by guests.
ARTICLE 6.
PROCEDURE FOR ADVANCES; RESERVES
Section 6.1. GENERAL. Atlantic will disburse the proceeds of the Loans on
a monthly basis for the cost categories set forth in the applicable Development
Budgets and Project Budgets. Homestead shall submit a written request for
advance in a form approved by Atlantic by the __th day of each month and,
provided Atlantic determines that all conditions precedent to the advance have
been satisfied, disbursements will be made by the ___th day of each month. Each
request for advance shall set forth, on a Project-by-Project basis, Homestead's
reasonable estimate of the hard and soft costs and expenses incurred during the
month just ending and for which reimbursement is being sought. With each
request for advance after the first, Homestead
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shall also provide a reconciliation indicating the amount by which the
immediately preceding advance made by Atlantic exceeded the actual hard and soft
costs for the period covered by such advance and the amount by which the request
for advance for the month just ending has been adjusted on account of any over-
or underpayment by Atlantic for the preceding month. With respect to the final
advance of Loan proceeds in respect of a Project, if the final reconciliation
submitted in the month following such advance reflects that Loan proceeds in
excess of actual costs were advanced, such overpayment (together with accrued
and unpaid interest thereon) shall be repaid by Borrower to Atlantic within 15
days after such reconciliation is delivered to Atlantic. Any additional Loan
proceeds owing to Borrower on the basis of such final reconciliation shall be
advanced by Atlantic with the balance of the monthly advance made by Atlantic
under this Section 6.1.
All disbursements with respect to any request for an advance submitted
other than on the ___th day of a month will be made within ten (10) business
days after the later of (i) receipt by Atlantic of a written request for an
advance from Homestead in a form approved by Atlantic and (ii) Atlantic's
determination that all conditions precedent to the advance have been satisfied.
All disbursements shall be made in accordance with any instructions
contained in the Homestead request for advance.
Section 6.2. PAYMENTS TO ATLANTIC. Notwithstanding any other provisions
of this Agreement, Atlantic may, at it's option and without notice or
authorization by Homestead or any Borrower, use any Loan proceeds to pay, as and
when due, any interest on the Loans. The parties acknowledge that the Loans
provide for interest reserves in amounts sufficient to pay all interest due and
payable in respect of each Project through completion of same, and Homestead and
each Borrower specifically authorizes Atlantic to advance portions of such
interest reserves to pay interest on the Loans as and when the same comes due.
Section 6.3. RETAINAGE AND CONTRACTOR'S FEE HOLDBACK. The parties
acknowledge that Atlantic shall retain, and Homestead shall not request
disbursement, of any retainages provided for under any Construction Contract,
which amounts shall be retained by Atlantic to secure full and complete
performance of all construction obligations hereunder (hereinafter, the
"Retainage Holdback"). Provided no Default exists hereunder, Atlantic shall
disburse the Retainage Holdback in accordance with the provisions of the
applicable Construction Contract as requested by Homestead in its requests for
advances. Upon the occurrence of a Default hereunder, Atlantic shall have no
obligation to make further disbursements from the Retainage Holdback, and no
Borrower shall be entitled to any such disbursements, until such Default is
cured. Upon the occurrence of an Event of Default hereunder, Atlantic may apply
the Retainage Holdback against any of the obligations secured by the Security
Documents as Atlantic sees fit or, in Atlantic's discretion, to the completion
of any incomplete Improvements. Subject to the foregoing terms and provisions,
to the extent not theretofore disbursed, Atlantic will disburse
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the amounts in the Retainage Holdback in respect of a Project concurrently with
the Final Advance for such Project.
Section 6.4. INTEREST RESERVE. Atlantic shall, on the date hereof,
withhold from the proceeds of the Loans available for distribution the amount of
_________________________ Dollars ($_______________) (the "Interest Reserve").
Provided no Default exists hereunder, the Interest Reserve shall be disbursed
for the payment of interest on the Loans as such interest becomes due and
payable. Upon the occurrence of a Default hereunder, Atlantic shall have no
obligation to make further disbursements from the Interest Reserve, and no
Borrower shall be entitled to any such disbursements, until such Default is
cured. Should interest payable on the Loans exceed the amount of the Interest
Reserve, the Borrowers shall promptly pay such amounts. Upon the occurrence of
an Event of Default, Atlantic may apply any undisbursed portion of the foregoing
reserve against any of the obligations secured by the Security Documents as it
sees fit or, at Atlantic's discretion, to the completion of and incomplete
Improvements.
Section 6.5. OWNER'S CONTINGENCY. The parties acknowledge that each
Project Budget shall contain an owner's contingency (an "Owner's Contingency")
equal to no less than 2% of Project hard and soft costs contained within the
Project Budget. Provided no Default exists hereunder, the Owner's Contingency
for a Project shall be disbursed by Atlantic to the subject Borrower to cover
unanticipated Project costs, costs associated with change orders and hard and
soft cost overruns (before such Borrower or Homestead, as guarantor under the
Completion and Payment Guaranty, shall be required to cover such additional
costs pursuant to the provisions of Section 6.6 hereinbelow or the Completion
and Payment Guaranty) as and when such payments are due and payable. Requests
for disbursement of portions of the Owner's Contingency shall be made with
Homestead's monthly requests for advance of Loan proceeds. Upon the occurrence
of a Default hereunder, Atlantic shall have no obligation to advance any portion
of the Owner's Contingency until such Default is cured. Upon the occurrence of
an Event of Default, Atlantic may apply the Owner's Contingency against any of
the obligations secured by the Security Documents as Atlantic sees fit, or at
Atlantic's option, to the completion of any incomplete Improvements.
Section 6.6. COST OVERRUNS AND SAVINGS; CHANGE ORDER RESERVE. In the
event that the costs to acquire and complete any Project in its entirety,
including, without limitation, the furnishing thereof, exceed the amount of Loan
proceeds available for the subject Project (including the applicable Owner's
Contingency), then the subject Borrower shall with its own funds pay all costs
and expenses which may be required to complete the subject Project as and when
such costs and expenses become due and payable. In the event the costs to
acquire and complete any Project are less than the amount of Loan proceeds
allocated to the subject Project, then the unapplied portion of the Loan
proceeds (including any unexpended portion of the applicable Owner's Contingency
and amounts required to be refunded by Borrower under
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Section 6.1 for any overpayments of Loan proceeds made in the final advance for
a Project) shall be retained by Atlantic as a reserve for Change Orders on other
Projects which are made in accordance with the requirements of this Agreement
(the "Change Order Reserve"). Provided no Default exists hereunder, the Change
Order Reserve shall be disbursed by Atlantic to any Borrower from time to time
to cover the costs of Change Orders to the extent any such Change Order results
in Project costs exceeding the Project Budget, including the Owner's
Contingency, for such Project (before such Borrower or Homestead, as guarantor
under the Completion and Payment Guaranty, shall be required to cover such
additional costs pursuant to the provisions of this Section 6.6 or the
Completion and Payment Guaranty). Requests for disbursement of portions of the
Change Order Reserve shall be made with Homestead's monthly requests for advance
of Loan proceeds. Upon the occurrence of a Default hereunder, Atlantic shall
have no obligation to advance any portion of the Change Order Reserve until such
Default is cured. Upon the occurrence of an Event of Default, Atlantic may
apply the Change Order Reserve against any of the obligations secured by the
Security Documents as Atlantic sees fit or, at Atlantic's option, to the
completion of any incomplete Improvements.
ARTICLE 7.
EVENTS OF DEFAULT
The occurrence of any one or more of the following shall constitute an
Event of Default under this Agreement:
Section 7.1. FAILURE TO PAY. The failure by a Borrower to pay when due
any sums required to be paid under the Notes, the Security Documents, this
Agreement or any other Loan Documents, and such failure is not cured within 10
days after receipt of written notice from Atlantic.
Section 7.2. OTHER LOAN DOCUMENT DEFAULTS. To the extent any such
failure, breach or inaccuracy has, or would have, a Material Adverse Effect, the
failure by a Borrower or Homestead to perform or observe, as and when required,
any covenant, agreement, obligation or condition required to be performed or
observed under this Agreement or under any of the other Loan Documents other
than as set forth elsewhere in this Article 7 (for which no additional grace or
cure period is given by this Section 7.2, or the existence of any breach or
inaccuracy in any of the representations, covenants or warranties set forth in
this Agreement or in any of the other Loan Documents, provided, however, that
(i) no Event of Default shall exist hereunder on account of a breach of any
representation, warranty or covenant set forth in any of the other Loan
Documents (other than this Agreement) until Homestead or such Borrower, as
applicable, shall have failed to cure such breach within any applicable notice
and cure period therein provided; and (ii) no Event of Default shall exist
hereunder on account of a breach of any
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representation, warranty or covenant contained herein unless and until Atlantic
shall provide written notice of such breach to Homestead or such Borrower and
such entity 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 an Event of Default hereunder
so long as Homestead or such Borrower, as applicable, 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.
Section 7.3. JUDGMENT OR ATTACHMENT. The entry by any court of a final
judgment in excess of $500,000 against Homestead or a Borrower that is not
satisfactorily stayed or discharged within 30 days from the date thereof, or any
attachment of any of the Properties or any of the proceeds of the Loans that
shall not be released, stayed or otherwise provided for to Atlantic's
satisfaction within 30 days after the occurrence thereof; provided that in the
case of a stay, Homestead or the subject Borrower, as applicable, shall have
reserved for the full amount thereof.
Section 7.4. VIOLATION OF GOVERNMENTAL REQUIREMENTS. The institution of
any judicial or administrative proceeding alleging that any of the Improvements
violate any Governmental Requirements if such violation gives rise to a Material
Adverse Effect and the failure to have such proceeding dismissed or such
violation corrected within 30 days after the institution thereof, except that
Homestead or the applicable Borrower shall have the right to contest any such
proceeding beyond such 30 day period, provided that Atlantic is satisfied that
the prosecution of such proceeding will neither have any Material Adverse Effect
nor materially impair Atlantic's security.
Section 7.5. INSOLVENCY, ETC. The occurrence of any of the following:
(a) Homestead or any Borrower shall generally not pay its debts as they
become due or shall admit in writing its inability to pay its debts, or shall
make a general assignment for the benefit of creditors;
(b) Homestead or any Borrower shall commence any case, proceeding or other
action seeking reorganization, arrangement, adjustment, liquidation, dissolution
or composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its property;
(c) Homestead or any Borrower shall take any corporate action to authorize
any of the actions set forth above in paragraphs (a) or (b); or
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(d) Any case, proceeding or other action against Homestead or any Borrower
shall be commenced seeking to have an order for relief entered against it as
debtor, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its property, and such case, proceeding or
other action (i) results in the entry of an order for relief against it which is
not fully stayed within 15 Business Days after the entry thereof or (ii) remains
undismissed for a period of 60 days.
Section 7.6. UNAPPROVED TRANSFER. Any sale, conveyance, transfer,
disposition, alienation, hypothecation, leasing (except in the ordinary course
of business) or further encumbrancing of a Project, or any portion thereof or
any interest therein, by any Borrower, other than any conveyance of a portion of
the unimproved land associated with such Project which is in excess of what is
needed for such Project, or a sale, conveyance, transfer, disposition,
alienation, hypothecation or encumbrancing of any legal or equitable interest in
a Borrower or Homestead in violation of the Loan Documents shall be an Event of
Default as of the date of such transfer, without any right to cure.
ARTICLE 8.
REMEDIES
Section 8.1. GENERAL. Upon the occurrence of any Event of Default an
defined in Article 7 of this Agreement, Atlantic, at its option, shall have the
following rights and remedies:
(a) Atlantic may declare any one or more of the Notes to be immediately
due and payable, whereupon the Notes shall become forthwith due and payable
without presentment, demand, protest or further notice of any kind.
(b) Atlantic may bring a foreclosure action with respect to the Security
Documents, take possession of any one or more of the Properties or exercise any
other remedy provided for in the Security Documents.
(c) Atlantic shall be entitled to proceed simultaneously, or selectively
and successively, to enforce its rights and remedies under the Notes, the
Security Documents, the Completion and Payment Guaranty or this Agreement, and
to exercise any or all other rights and remedies available to Atlantic at law or
in equity.
(d) In the event Atlantic shall elect to enforce its rights selectively
under any one or more of the Loan Documents, such action shall not be deemed a
waiver or discharge of any lien
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or encumbrance securing payment of the Notes until such time as Atlantic shall
have been paid in full all sums due under the Notes or secured by the Security
Documents, including any sums advanced or disbursed pursuant to this Agreement.
The foreclosure of any lien provided pursuant to this Agreement or the Security
Documents, without the simultaneous foreclosure of all such liens, shall not
merge the liens granted which are not foreclosed with any interest which
Atlantic might obtain as a result of such selective and successive foreclosure.
(e) Atlantic shall have the right, but not the obligation, to take
possession of any one or more of the Properties and proceed to complete the
Improvements thereto according to the applicable Plans. For this purpose, each
Borrower hereby conditionally assigns to Atlantic as additional security for the
repayment of the Loans all of each such Borrower's rights to the Plans for the
Projects owned by it, any contracts pertaining to the Project owned by such
Borrower, whether for construction, sale or otherwise, and any Permits
pertaining to the subject Property(ies); provided, Atlantic shall, upon
occurrence of an Event of Default, have the option to exercise this assignment,
but shall not be obligated to accept this assignment or to assume any liability
of any Borrower under any such Plans, contracts or Permits. Furthermore, each
Borrower hereby constitutes and appoints Atlantic as its true and lawful
attorney-in-fact with full power of substitution to complete, or cause to be
completed, the Improvements owned by such Borrower in the name of such Borrower
and hereby empowers said attorney or attorneys as follows: (i) to use any funds
of Borrower, including any balance that may be held in escrow and any funds
which may remain unadvanced hereunder, for the purpose of completing the
Improvements being built by such Borrower; (ii) to make such additional changes
and corrections in the Plans for such Improvements as may reasonably be
necessary or desirable to complete such Improvements in substantially the manner
contemplated by the Plans for such Improvements and in a good and workmanlike
manner; (iii) to employ such contractors, subcontractors, agents, architects and
inspectors as shall be required for said purposes; (iv) to pay, settle or
compromise all existing bills and claims that are or may become liens against
the subject Property(ies) or any part thereof or may be necessary or desirable
for the completion of the subject Improvements or the clearance of title; (v) to
execute all applications and certificates in the name of Borrower which may be
required by law or by any contract relating to the subject Improvements; and
(vi) to do any and every act with respect to the applicable Property(ies) which
such Borrower may do in its own behalf. It is understood and agreed that this
power of attorney shall be deemed to be a power coupled with an interest which
cannot be revoked. Atlantic, as attorney-in-fact, shall also have the power to
defend, to the extent Atlantic reasonably deems necessary, at such Borrower's
cost, all actions or proceedings in connection with the subject Improvements and
Property(ies). At the time Atlantic takes possession of a Property(ies), or any
part thereof, all materials on such Property owned by Borrower shall become the
property of Atlantic for the purpose of completing the subject Improvements. In
addition, any materials or equipment paid for with the proceeds of the Notes but
stored at a location other than the subject Property(ies) shall become the
property of Atlantic when it takes possession of the subject Property(ies).
Such Borrower shall pay Atlantic the cost of completion.
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Each Borrower hereby authorizes Atlantic to add such costs to the indebtedness
of the Borrowers to Atlantic, which costs shall be secured by the Security
Documents. Any of the foregoing actions by Atlantic shall not relieve the
Borrowers of their responsibility to repay the Notes. The foregoing provision
shall not be construed as creating any third party beneficiary contract and
nothing in the foregoing shall be construed as giving or conferring any rights
or benefits whatsoever to or upon any other person or entities other than the
parties to this Agreement. Homestead shall indemnify, defend and hold harmless
Atlantic from and against any and all claims, liabilities, loss, damages, suits,
actions, expenses (including reasonable attorneys' fees) and costs arising from
any actions taken by Atlantic in accordance with the power of attorney herein
granted except to the extent attributable to the gross negligence or willful
misconduct of Atlantic.
(f) Atlantic shall not have any obligation to make any advances under the
Notes pursuant to this Agreement after the occurrence and during the continuance
of an Event of Default and at any time during such period, may unilaterally
elect to terminate any obligation of Atlantic to make any future advances under
the Notes pursuant to this Agreement.
Section 8.2. REMEDIES CUMULATIVE. No failure or delay by Atlantic in the
exercise of any rights or remedies available to it under the Loan Documents or
at law or in equity shall operate as a waiver thereof, nor shall any single or
partial exercise by Atlantic of any such right or remedy preclude any further
exercise thereof or of any other right or remedy. The remedies provided in the
Loan Documents or available at law or in equity are cumulative and not
alternative.
ARTICLE 9.
MISCELLANEOUS
Section 9.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties and covenants contained herein shall survive the
execution of this Agreement, the making of the Loans and the delivery of the
Notes and other Loan Documents and the release of any portion of the liens of
the Security Documents, and shall remain in full force and effect until the
termination of this Agreement in accordance with Section 2.8 hereof.
Section 9.2. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors, assigns and affiliates, but shall
not be assignable by any party hereto without the prior written consent of the
other party hereto; provided that Homestead and/or the Partnership Borrower may
assign its rights hereunder in whole or in part to a Homestead Affiliate or
Subsidiary. Other than to a Homestead Affiliate or Subsidiary, no Borrower
shall, without the
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prior written consent of Atlantic, which consent Atlantic may withhold in its
sole discretion, directly or indirectly assign, transfer or convey (i) this
Agreement or any of the other Loan Documents, (ii) any of Borrower's rights or
obligations under any of the Loan Documents, (iii) any portion of the proceeds
of the Notes, (iv) any legal or equitable interest in the Property or (v) any
legal or equitable interest in such Borrower.
Section 9.3. NOTICES. Any notice or other communication provided for
herein or given hereunder to a party hereto shall be in writing and shall be
given by delivery, by telex, telecopier or by mail (registered or certified
mail, postage prepaid, return receipt requested) to the respective parties as
follows:
If to Homestead:
Homestead Village Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: David C. Dressler, Jr.
Facsimile: (505) 982-2925
If to Atlantic:
Security Capital Atlantic Incorporated
7777 Market Center Avenue
El Paso, Texas 79912
Attention: James C. Potts
Facsimile: (915) 877-3301
or to such other address with respect to a party as such party shall notify the
other in writing.
Section 9.4. WAIVER. No party may waive any of the terms or conditions of
this Agreement, except by a duly executed writing referring to the specific
provision to be waived.
Section 9.5. AMENDMENT. This Agreement may be amended only by a writing
duly executed by both Homestead and Atlantic.
Section 9.6. SEVERABILITY. Insofar as is possible, each provision of this
Agreement shall be interpreted so as to render it valid and enforceable under
applicable law and severable from the remainder of this Agreement. A finding
that any such provision is invalid or unenforceable in any jurisdiction shall
not affect the validity or enforceability of any other provision or the validity
or enforceability of such provision under the laws of any other jurisdiction.
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Section 9.7. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement, and supersedes all other prior agreements and understandings, both
written and oral, among the parties hereto and their affiliates, with respect to
the subject matter hereof. The provisions of this Agreement supersede any
provisions set forth in the Existing Loan Documents relating to the disbursement
of Loan proceeds for the Projects.
Section 9.8. EXPENSES. Except as otherwise expressly contemplated herein
to the contrary, regardless of whether the transactions contemplated hereby are
consummated, each party hereto shall pay its own expenses incident to preparing
for, entering into and carrying out this Agreement and the consummation of the
transactions contemplated hereby.
Section 9.9. CAPTIONS. The Article, Section and Paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
Section 9.10. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of
__________________.
Section 9.11. NO JOINT VENTURE OR PARTNERSHIP. Nothing contained in this
Agreement or in any of the other Loan Documents and no other aspect of the
relationship between Homestead or any Borrower and Atlantic shall be construed
as creating a partnership, joint venture, or other relationship of or between
Homestead or any Borrower and Atlantic other than the lending relationship of
lender and borrower. All rights and obligations granted to or undertaken by
either of the parties hereto shall be construed as incidents of such lending
relationship.
Section 9.12. NO THIRD PARTY BENEFICIARY RIGHTS CREATED. The parties
hereto expressly declare that it is their joint and mutual intention that this
Agreement and the transactions contemplated hereby shall not be construed as
creating a third party beneficiary contract, and neither this Agreement nor any
of the other Loan Documents shall be construed as giving or conferring any
rights or benefits whatsoever to or upon any other persons or entities other
than Homestead, any Borrower and Atlantic.
Section 9.13. INCORPORATION BY REFERENCE. This Agreement, the Notes and
the Security Documents are intended to be construed as part of the same
transaction, and all of the covenants, agreements, conditions, terms and
provisions contained in any one of the Loan Documents shall be deemed to be
included in each of the other Loan Documents with the same force and effect as
though set forth in full therein. In the event any of the provisions of this
Agreement are in conflict with or inconsistent with the provisions of the
Security Documents, this Agreement shall govern and control.
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Section 9.14. COUNTERPARTS. This Agreement may be executed in counterpart
copies, each of which shall constitute an original, and all of which together
shall constitute one and the same document.
Section 9.15. SCOPE OF REVIEW OF PLANS. Neither the approval of the Plans
nor any subsequent inspections or approvals of the Improvements during
construction shall constitute a warranty or representation by Atlantic or any of
its agents, representatives or designees as to the technical or legal
sufficiency, adequacy or safety of the structures or any of their component
parts, including without limitation fixtures, equipment or furnishings, nor
shall such approvals or inspections constitute such a warranty or representation
as to the subsoil conditions involved in the Property or any other physical
condition or feature pertaining to the Property. All acts, including any
failure to act, relating to the Property by any agents, representatives or
designees of Atlantic are performed solely for the benefit of Atlantic to assure
repayment of the Loans and are not for the benefit of Borrower or any other
person, including without limitation purchasers, guests or other occupants.
Section 9.16. GOVERNMENTAL REGULATION. Anything contained in this
Agreement to the contrary notwithstanding, Atlantic shall not be obligated to
extend credit to Borrower in an amount in violation of any limitation or
prohibition provided by any applicable governmental statute or regulation.
Section 9.17. SUBORDINATION. Each Borrower hereby subordinates all
rights, liens and claims for any of the proceeds and advances under the Notes to
the liens, operation and effect of the Security Documents.
Section 9.18. INDEMNITY. Homestead and each Borrower agree to indemnify,
defend and hold Atlantic harmless from and against any and all claims, injuries,
damages and liabilities that may be asserted or claimed against Atlantic by any
person as a result or by reason of, or that may be incurred or suffered by
Atlantic as a result or by reason of, the construction contemplated herein or
the operation of the ownership or Encumbered Property or any part thereof.
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IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement, or caused this Agreement to be duly executed on its behalf,
as of the date first set forth above.
HOMESTEAD VILLAGE INCORPORATED
By:
----------------------------
David C. Dressler, Jr.
Chairman
SECURITY CAPITAL ATLANTIC INCORPORATED
By:
----------------------------
James C. Potts
Co-Chairman
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<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
Exhibit A - Prior Security Documents
Exhibit B - Existing Projects
Exhibit C - Form of Completion and Payment Guaranty
Exhibit D - Form of Homestead Note
Exhibit E - Form of Homestead Security Documents
Exhibit F - Form of Partnership Security Documents
Exhibit G - Future Projects and Allocated Loan Amount
</TABLE>
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EXHIBIT 10.5
GUARANTY OF COMPLETION AND PAYMENT
----------------------------------
THIS GUARANTY OF COMPLETION AND PAYMENT (this "Guaranty") is made and
entered into as of the ___ day of _____________, 1996, by (i) HOMESTEAD VILLAGE
INCORPORATED ("Guarantor"), to and for the benefit of (ii) SECURITY CAPITAL
PACIFIC TRUST, a Maryland real estate investment trust ("PTR").
RECITALS
--------
A. Pursuant to that certain Funding Commitment Agreement (the "Funding
Agreement") dated as of the date hereof, by and among Guarantor, PTR and PTR
Homestead Village Limited Partnership, a Delaware limited partnership, PTR has
agreed to loan up to an aggregate maximum amount of $__________ (the "Loan") to
Guarantor and/or any Subsidiary (as such term is in the Funding Agreement) for
the purpose of acquiring and developing the Projects (as defined in the Funding
Agreement). The Loan is (i) evidenced by certain Amended and Restated
Promissory Notes in the aggregate face amount of the Loan (which notes, together
with any other notes delivered from time to time to evidence the Loan, and all
amendments and restatements to any of such notes are collectively called the
"Notes"), and (ii) secured by various Security Documents (as defined in the
Funding Agreement).
B. All terms used herein, but not defined herein, shall have the meanings
ascribed to them in the Funding Agreement.
C. PTR is willing to advance the funds of the Loan pursuant to the
Funding Agreement only on condition that the Guarantor deliver this Guaranty.
D. Guarantor has a direct or indirect financial interest in each
Subsidiary, and is therefore benefitted by the making of the Loan.
AGREEMENT
---------
NOW, THEREFORE, in consideration of these Recitals, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Guarantor hereby covenants and agrees as follows:
1. Recitals. The foregoing Recitals are hereby incorporated herein and
made a substantive part hereof.
<PAGE>
2. Completion Guaranty.
(a) Construction Matters. So long as PTR disburses the proceeds of
the Loan in accordance with the terms and provisions of the Funding Agreement,
Guarantor irrevocably and unconditionally fully guarantees to PTR the following:
(a) payment of all costs of the design, engineering and construction of each
Project (including the furnishing thereof) undertaken by a Subsidiary; and (b)
completion of construction of each Project undertaken by a Subsidiary (including
the furnishing thereof) substantially in accordance with the Plans for such
Project and in compliance with applicable codes, ordinances, laws, statutes,
rules and regulations of any governmental authority having jurisdiction.
(b) Excess Costs. In the event that the actual cost of the design,
engineering and construction of a Project undertaken by a Subsidiary exceeds the
amount available for such Project from the Loan proceeds, including any Owner's
Contingency in the Project Budget for such Project, Guarantor shall pay such
costs ("Excess Costs") as and when they become due and payable. It is understood
that Guarantor's obligation under the preceding sentence is not subject to the
subject Subsidiary's initial obligation to do so pursuant to the terms of the
Funding Agreement.
(c) Completion. For the purposes of this Guaranty, the construction
of the Improvements shall be deemed to have been completed at such time as Final
Completion has occurred pursuant to the terms of the Funding Agreement.
(d) Indemnification of PTR and Trustees. Guarantor shall indemnify
and hold PTR, the trustees under the Security Documents executed by a Subsidiary
(collectively, the "Trustees") and their respective agents, officers and
employees harmless from and against all claims, expenses, loss and liability of
any and every kind other than those arising out of the gross negligence or
willful misconduct of PTR, including, without limitation, attorneys' fees,
arising out of or in connection with the design, engineering, construction and
completion of each Project and, so long as PTR disburses the proceeds of the
Loan in accordance with the terms and provisions of the Funding Agreement, shall
protect each Project from any mechanic's, materialmen's or similar liens that
may be filed against such Project. Guarantor shall not have any right of
recourse against PTR, Trustees or their respective agents and employees by
reason of any action such parties may take or omit to take under the provisions
of this Guaranty or under the provisions of the Funding Agreement.
(e) Completion of Construction. If Guarantor shall fail to cause
Final Completion of a Project undertaken by a Subsidiary with Loan Proceeds to
be achieved, or shall otherwise fail to pursue diligently the performance of the
obligations of Guarantor hereunder, immediately upon receipt of a written demand
given to Guarantor by PTR in the manner herein provided, PTR, at its option,
shall have the right to cause the completion of the subject Project either
before or after or simultaneously with any other remedy of PTR against Guarantor
and/or such Subsidiary, with such changes or modifications in the Plans and in
any contracts and
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subcontracts relating thereto which PTR deems reasonably necessary, and to
expend such sums as PTR deems proper in its sole and unreviewable discretion in
order to so complete the same and to pay costs of construction of the same
theretofore incurred by the subject Subsidiary and/or Guarantor, and Guarantor
shall pay all such amounts (which constitute Excess Costs) with interest thereon
at the default rate provided for in the Notes calculated from the date of
Guarantor's default, to PTR upon demand. So long as all conditions precedent to
PTR's obligations to make disbursements under the Funding Agreement are
satisfied, PTR shall continue to make disbursements in the manner specified in
the Funding Agreement.
(f) No Release. The liability of Guarantor shall not be terminated,
affected, impaired or reduced in any way by any delay, failure or refusal of PTR
to exercise any right or remedy PTR may have against any person, including,
without limitation, any Subsidiary, any general contractor, any subcontractor or
any other guarantors liable for all or any part of the costs of construction of
a Project guaranteed herein by Guarantor, or by the release of any Subsidiary
from performance or observance of any of the agreements, covenants, terms or
conditions contained in the Funding Agreement, by the operation of law or
otherwise, whether made with or without notice to Guarantor.
(g) Termination of Completion Guaranty. Satisfaction by Guarantor of
any liability hereunder at any one time with respect to payment of any amounts
required under this Guaranty shall not discharge Guarantor with respect to any
further amounts that may be required hereunder at any other time for the subject
Project or any other Project, it being the intent hereof that this Guaranty and
the obligations of Guarantor under this Guaranty shall be continuing and
irrevocable until the date on which Final Completion of all Subsidiary Projects
funded under the Funding Agreement has occurred and all costs and expenses
incurred in connection therewith have been paid in full (the "Completion
Termination Date"). Further, if at any time all or any part of any payment made
by Guarantor under or with respect to this Guaranty is or must be rescinded or
returned for any reason whatsoever (including, but not limited to, the
insolvency, bankruptcy or reorganization of a Subsidiary or Guarantor), then
Guarantor's obligations hereunder shall, to the extent of the payment rescinded
or returned, be deemed to have continued in existence, notwithstanding such
previous payment made by Guarantor or receipt of payment by PTR, and Guarantor's
obligations hereunder shall continue to be effective or be reinstated, as the
case may be, as to such payment, all as though such previous payment by
Guarantor had never been made.
(h) Modifications by PTR. Guarantor acknowledges that any Subsidiary
may (and/or PTR may at any time enter into agreements with any Subsidiary
receiving Loan proceeds to) amend, modify or change the Plans applicable to such
Subsidiary's Project, any contracts or subcontracts relating to the Project
and/or the Funding Agreement or any other documents evidencing, securing or
relating to the Loan, or may at any time waive or release any provision or
provisions thereof and, with reference thereto, may make and enter into all such
agreements as such Subsidiary and/or PTR may deem proper or desirable, without
any notice or further
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assent from Guarantor, and without in any manner impairing or affecting this
Guaranty or any of PTR's rights hereunder or any of Guarantor's obligations
hereunder.
3. Guaranty of Payment. Guarantor also irrevocably and unconditionally
fully guarantees to PTR to pay and perform when due the Liabilities.
"Liabilities" shall mean all obligations of the Subsidiaries to PTR of any kind
whatsoever, howsoever created, arising or evidenced, whether pursuant to a
covenant, representation, warranty, indemnity or other agreement of kind,
whether direct or indirect, absolute or contingent, now or hereafter existing,
or due or to become due, under the Notes or any of the other Loan Documents.
Obligations under the Loan Documents shall include the obligation to pay
interest under the Notes executed by any Subsidiary, including interest at the
post-maturity or default rate.
4. Nature of the Guaranty. This Guaranty shall be direct, immediate, and
primary, and is one of payment and performance and not just collection. PTR
shall be under no obligation to pursue its rights against a Subsidiary or any
other right or remedy available to it or pursue any collateral or security
before proceeding against Guarantor. Guarantor expressly waives all rights it
may have now or in the future under any statute, or at common law, or at law or
in equity, or otherwise, including, without limitation, any rights Guarantor may
have to compel PTR to proceed in respect of the Guarantor's obligation hereunder
against any Subsidiary or any other party or against any security for the
payment or performance of Guarantor's obligation hereunder before proceeding
against, or as a condition to proceeding against, Guarantor. All payments made
pursuant to this Guaranty shall be made in United States currency to PTR in
immediately available funds, without reduction for any recoupment, set-off,
counterclaim or defense based upon any claim that Guarantor may have against any
Subsidiary. The obligations and liabilities of Guarantor pursuant to this
Guaranty shall be unconditional, irrespective of the genuineness, validity,
priority, regularity or enforceability of the Notes or the Loan Documents or any
other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor.
5. Rights of PTR to Deal With Subsidiaries and Guarantor. Guarantor
hereby assents to any and all terms and agreements between PTR and any
Subsidiaries receiving Loan proceeds or between PTR and any person, including
Guarantor, who guarantees in whole or in part the payment or performance of any
Subsidiary's obligations with respect to PTR, and all amendments and
modifications thereof, whether presently existing or hereafter made and whether
oral or in writing. PTR may, without compromising, impairing, diminishing, or
in any way releasing Guarantor from any obligations hereunder and without
notifying or obtaining the prior approval of Guarantor at any time or from time
to time: (a) waive or excuse a default or defaults by a Subsidiary or any
person who has guaranteed in whole or in part any of such Subsidiary's
obligations, or delay in the exercise by PTR of any or all of PTR's rights or
remedies with respect to such default or defaults; (b) grant extensions of time
for payment or performance by a Subsidiary or any person who has guaranteed in
whole or in part any of such Subsidiary's obligations, including Guarantor; (c)
release, substitute, exchange, surrender or add collateral of a Subsidiary or of
any person who has guaranteed in whole or in part any of such
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Subsidiary's obligations, or waive, release or subordinate, in whole or in part,
any lien or security interest held by PTR on any real or personal property
securing payment or performance, in whole or in part, of a Subsidiary's
obligations, including Guarantor; (d) release a Subsidiary or any person who has
guaranteed in whole or in part any of such Subsidiary's obligations, including
Guarantor; (e) apply payments made by a Subsidiary, or by any person who has
guaranteed in whole or in part, any of such Subsidiary's obligations, including,
without limitation, Guarantor, to any sums owed by a Subsidiary to PTR, in any
order or manner, or to any specific account or accounts, as PTR may elect; (f)
modify, change, renew, extend or amend in any respect PTR's agreement with a
Subsidiary or any person who has guaranteed in whole or in part any of such
Subsidiary's obligations, including Guarantor, or any documents, instrument or
writing embodying or reflecting the same.
6. Waivers by Guarantor. Guarantor waives (a) any and all notices
whatsoever with respect to this Guaranty or with respect to any Subsidiary's
obligations, including, but not limited to, notice of: (i) PTR's acceptance
hereof or PTR's intention to act, or PTR's action, in reliance hereon; (ii) the
present existence or future incurring of any Subsidiary's obligations or any
terms or amounts thereof or any change therein; (iii) default by a Subsidiary or
any surety, pledgor, grantor of security, guarantor or other person who has
guaranteed or secured in whole or in part such Subsidiary's obligations,
including Guarantor; and (iv) the obtaining or release of any guaranty or surety
agreement (in addition to this Guaranty), pledge, assignment or other security
for any of a Subsidiary's obligations; and (b) (i) presentment and demand for
payment of any sum due from a Subsidiary or any person who has guaranteed in
whole or in part any of such Subsidiary's obligations, including Guarantor, and
protest of nonpayment; (ii) notice of default by a Subsidiary or any person who
has guaranteed in whole or in part any of such Subsidiary's obligations and
notice of any extension of time for payment or performance under the Note and
any other indulgences granted by PTR to a Subsidiary; (iii) demand for
performance by a Subsidiary or any person who has guaranteed in whole or in part
any of such Subsidiary's obligations, including Guarantor; (iv) to the fullest
extent legally possible, any and all defenses which may now or hereafter exist
by virtue of any statutes of limitations, valuation, marshaling, forbearance,
redemption, exemption, appraisement, stay or moratorium laws or other similar
laws now or hereafter in effect; and (v) all other notices and demands otherwise
required by law which Guarantor may lawfully waive. PTR may (without notice to
or consent of the Guarantor, and with or without consideration) release,
compromise, settle with or proceed against Guarantor without releasing,
lessening or affecting the obligations hereunder or under any of the documents
relating to the Loan. It is the intention hereof that Guarantor shall remain
liable as a principal until payment in full of all indebtedness and performance
and observance of the terms, covenants and conditions of the Notes and of each
other Loan Document to be performed and observed by any Subsidiaries,
notwithstanding any act, omission or thing which might otherwise operate as a
legal or equitable discharge of Guarantor. Guarantor shall be responsible for
obtaining information regarding its Subsidiaries, including, but not limited to,
any changes in the business or financial condition of any Subsidiaries, and PTR
shall have no duty to notify Guarantor of any such information.
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7. Collection Expenses. Guarantor shall pay to PTR, upon demand, all
losses, costs and expenses, including attorneys' fees, if collection is referred
to an attorney, that may be incurred by PTR in attempting to cause satisfaction
of Guarantor's liability under this Guaranty.
8. Invalidity of Any Part. If any provision or part of any provision of
this Guaranty shall for any reason be held invalid, illegal or unenforceable in
any respect, such other provisions or the remaining part of any effective
provisions of this Guaranty shall be construed as if such invalid, illegal or
unenforceable provision or part thereof had never been contained herein, but
only to the extent of its invalidity, illegality or unenforceability.
9. Impairment of Subrogation Rights. Guarantor agrees that it shall have
no right of subrogation whatsoever with respect to the Notes, or to the monies
due or unpaid thereon, or to any collateral securing the same, unless and until
PTR shall have received payment in full of all sums due under the Notes and the
Loan Documents. Guarantor waives and releases PTR from any damages which
Guarantor may incur as a result of any intentional or unintentional or negligent
action or inaction of PTR impairing, diminishing or destroying any rights of
subrogation which Guarantor may have upon payment of any of the Subsidiaries'
obligations. Guarantor further agrees that all the present and future
indebtedness to Guarantor of any Subsidiary receiving Loan proceeds shall be and
hereby is subordinated, assigned and transferred to PTR. Notwithstanding any
other provision of this Guaranty to the contrary, if Guarantor is or becomes an
"insider" (as defined in Section 101 of the United States Bankruptcy Code) with
respect to its Subsidiaries or any other guarantor, Guarantor irrevocably waives
any and all rights of contribution, indemnification, reimbursement or any
similar right against any of its Subsidiaries and/or such other guarantor
(including any right of subrogation), whether such rights arise under an express
or implied contract or by operation of law; it being the specific intention of
this sentence that in any bankruptcy or insolvency proceeding filed by or
against such Subsidiary or any other guarantor, no guarantor, including the
Guarantor, shall be deemed a "creditor" (as defined in Section 101 of the United
State Bankruptcy Code) of any Subsidiary or any other guarantor by reason of the
existence of this Guaranty with the result that the exercise of such rights
would require PTR to return to the bankruptcy estate of any Subsidiary or any
other guarantor any payments received by PTR on account of the obligations
guaranteed hereby. Subject to the limitations set forth in the preceding
sentence, until all of the obligations guaranteed hereby have been duly and
punctually performed to the satisfaction of PTR, Guarantor shall not be
subrogated to any right of PTR against any Subsidiary, any other guarantor or
any collateral, and any moneys, property or other consideration received at any
time by Guarantors from any Subsidiary in connection with such rights of
subrogation prior to the performance by such Subsidiary of all the obligations
guaranteed hereby shall be held in trust for PTR and shall be paid or
transferred to PTR upon demand therefor. Guarantor agrees not to assert any
right of contribution against any other guarantor of the obligations guaranteed
hereby in any manner that is inconsistent with the preceding two sentences.
10. Remedies Cumulative. Each right, power and remedy of PTR under this
Guaranty, the Note, the Loan Documents or any other agreement or instrument
signed by a
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Subsidiary or Guarantor or under applicable laws shall be cumulative and
concurrent, and the exercise of any one or more of them shall not preclude the
simultaneous or later exercise by PTR of any or all such other rights, powers or
remedies at law or in equity or under this Guaranty. No failure or delay by PTR
to insist upon the strict performance of any one or more of its rights, powers
or remedies consequent upon a breach thereof or default hereunder shall
constitute a waiver thereof, or preclude PTR from exercising any such right,
power or remedy. By accepting partial payment on this Guaranty, PTR shall not
be deemed to have waived the right either to require prompt payment when due and
payment of all other amounts payable under this Guaranty or to exercise any
rights and remedies available to it in order to collect all such other amounts.
No modification, change, waiver or amendment of this Guaranty shall be deemed to
be made by PTR unless in writing and signed by PTR, and each such waiver, if
any, shall apply only with respect to the specific instance involved and only to
the extent expressly provided therein.
11. No Action By PTR to Impair Enforcement of Rights Hereunder. No act of
commission or omission of any kind or at any time upon the part of PTR in
respect of any matter whatsoever, shall in any way affect or impair its right to
enforce any right, power or benefit under this Guaranty, and no set-off,
counterclaim, reduction or diminution of an obligation, or any defense of any
kind or nature which Guarantor has or may have against PTR, shall be available
to Guarantor or against PTR.
12. Limitation of Liability of Subsidiary Not to Affect Liability of the
Guarantor Hereunder. Without limiting the foregoing, it is specifically
understood that any impairment, modification, limitation or discharge of the
liability of any Subsidiary under any Note or any other Loan Document arising
out of or by virtue of any act of bankruptcy, or any arrangement, reorganization
or similar proceeding for relief of debtors under Federal or state law initiated
by or against such Subsidiary shall not affect, impair, modify, limit or
discharge the liability of Guarantor hereunder in any manner whatsoever, and
this Guaranty shall remain and continue in full force and effect. It is the
intent and purpose of this Guaranty that Guarantor shall and do hereby waive all
rights and benefits which might accrue to them by reason of any such
proceedings, and Guarantor agrees that it shall be liable for the full amount of
the obligations guaranteed by them hereby, irrespective of, and without regard
to, any impairment, modification, limitation or discharge of the liability of
such Subsidiary under such Note or any or all of the Loan Documents that may
result from any such proceedings.
13. Independent Obligations of Guarantor. The obligations of Guarantor
hereunder are irrevocable and are independent of the Loan or other obligations
of any Subsidiary, and a separate action or actions may be brought and
prosecuted against Guarantor, regardless of whether any action is brought
against such Subsidiary or whether such Subsidiary is joined in any such action
or actions.
14. Choice of Law; Consent to Jurisdiction; Venue. This Guaranty, having
been executed, sealed and delivered in the State of New Mexico shall be
construed, interpreted and
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enforced under the internal laws (and not the laws pertaining to conflicts or
choice of law) of the State of New Mexico. Should any provision of this
Guaranty require judicial interpretation, it is agreed that the court
interpreting or considering same shall not apply the presumption that the terms
hereof shall be more strictly construed against a party by reason of the rule or
conclusion that a document should be construed more strictly against the party
who itself or through its agent prepared the same, it being agreed that all
parties hereto have participated in the preparation of this Guaranty and that
each party consulted (or had the opportunity to consult) legal counsel before
the execution of this Guaranty. Guarantor consents to the jurisdiction of the
courts of any county in the State of New Mexico selected by PTR and to the
jurisdiction of any United States District Court in the State of New Mexico, if
jurisdiction exists.
15. Counterparts. This Guaranty may be executed in any number of
counterparts, each of which shall be considered an original for all purposes;
provided, however, that all such counterparts shall together constitute one and
the same instrument.
16. Binding Nature. This Guaranty shall inure to the benefit of, and be
enforceable by, PTR and its successors and assigns, and shall be binding upon
and enforceable against the Guarantor and its legal and personal
representatives, heirs, successors and assigns. This Guaranty may be assigned
by PTR, or any other holder of the Note at any time or from time to time.
17. Joint and Several Nature. In the event there exists more than one
Guarantor, all obligations, responsibilities, warranties, representations and
liabilities hereunder shall be joint and several.
18. Notices. Any and all notices or other communications hereunder shall
be deemed to have been duly given if in writing and if transmitted by hand-
delivery, Federal Express, Express Mail or other nationally recognized overnight
courier or by certified mail, return receipt requested, as follows:
To PTR: Security Capital Pacific Trust
7777 Market Center Avenue
El Paso, Texas 79912
Attention: C. Ronald Blankenship
To Guarantor: Homestead Village Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: David C. Dressler, Jr.
With a copy to: Mayer, Brown & Platt
141 East Palace Avenue
Santa Fe, New Mexico 87501
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Attention: Caroline Brower, Esquire
or to such other address as either party may furnish to the other by notice in
accordance with this Paragraph 18.
19. Tense; Gender. As used herein, the plural shall refer to and include
the singular, and the singular the plural, and the use of any gender shall
include and refer to any other gender.
20. Time of Essence. Guarantor and PTR expressly agree that time shall be
of the essence in the performance of obligations of Guarantor under this
Guaranty.
21. Entire Agreement. This Guaranty sets forth the final and entire
agreement between the parties hereto with respect hereto and is intended to be
an integration of all prior negotiations and understandings. PTR and Guarantor
and their respective agents shall not be bound by any terms, conditions,
statements, warranties or representations, oral or written, express or implied,
not set forth or incorporated herein.
22. WAIVER OF JURY TRIAL, ETC. GUARANTOR AND PTR (BY ITS ACCEPTANCE
HEREOF) WAIVES ANY RIGHT TO A TRIAL BY JURY OF ANY OR ALL ISSUES ARISING IN ANY
ACTION OR PROCEEDING BETWEEN GUARANTOR AND PTR OR THEIR SUCCESSORS OR ASSIGNS,
UNDER OR CONNECTED WITH THE LOAN, THIS GUARANTY OR ANY OF ITS PROVISIONS OR ANY
OF THE LOAN DOCUMENTS, AND AGREES THAT THE OBLIGATION EVIDENCED BY THIS GUARANTY
IS AN EXEMPTED TRANSACTION UNDER THE TRUTH-IN-LENDING ACT, 15 U.S.C. SECTION
1601, ET SEQ. THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY
PTR AND GUARANTOR, AND GUARANTOR ACKNOWLEDGES THAT NEITHER PTR NOR ANY PERSON
ACTING ON BEHALF OF PTR HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS
WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.
GUARANTOR FURTHER ACKNOWLEDGES THAT IT HAS BEEN OR HAD THE OPPORTUNITY TO BE
REPRESENTED IN THE SIGNING OF THIS GUARANTY AND IN THE MAKING OF THIS WAIVER BY
INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
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IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty of Completion
and Payment as of the date first set forth above.
GUARANTOR:
HOMESTEAD VILLAGE INCORPORATED
ATTEST:
By:
- -------------------------- ------------------------------
, Secretary Its:
-----------------------------
[Corporate Seal]
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Exhibit 10.10
GUARANTY OF COMPLETION AND PAYMENT
----------------------------------
THIS GUARANTY OF COMPLETION AND PAYMENT (this "Guaranty") is made and
entered into as of the ___ day of _____________, 1996, by (i) HOMESTEAD VILLAGE
INCORPORATED ("Guarantor"), to and for the benefit of (ii) SECURITY CAPITAL
ATLANTIC INCORPORATED, a Maryland corporation ("Atlantic").
RECITALS
--------
A. Pursuant to that certain Funding Commitment Agreement (the "Funding
Agreement") dated as of the date hereof, by and among Guarantor, Atlantic and
Atlantic Homestead Village Limited Partnership, a Delaware limited partnership,
Atlantic has agreed to loan up to an aggregate maximum amount of $__________
(the "Loan") to Guarantor and/or any Subsidiary (as such term is in the Funding
Agreement) for the purpose of acquiring and developing the Projects (as defined
in the Funding Agreement). The Loan is (i) evidenced by certain Amended and
Restated Promissory Notes in the aggregate face amount of the Loan (which notes,
together with any other notes delivered from time to time to evidence the Loan,
and all amendments and restatements to any of such notes are collectively called
the "Notes"), and (ii) secured by various Security Documents (as defined in the
Funding Agreement).
B. All terms used herein, but not defined herein, shall have the meanings
ascribed to them in the Funding Agreement.
C. Atlantic is willing to advance the funds of the Loan pursuant to the
Funding Agreement only on condition that the Guarantor deliver this Guaranty.
D. Guarantor has a direct or indirect financial interest in each
Subsidiary, and is therefore benefitted by the making of the Loan.
AGREEMENT
---------
NOW, THEREFORE, in consideration of these Recitals, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Guarantor hereby covenants and agrees as follows:
1. Recitals. The foregoing Recitals are hereby incorporated herein and
made a substantive part hereof.
<PAGE>
2. Completion Guaranty.
(a) Construction Matters. So long as Atlantic disburses the proceeds
of the Loan in accordance with the terms and provisions of the Funding
Agreement, Guarantor irrevocably and unconditionally fully guarantees to
Atlantic the following: (a) payment of all costs of the design, engineering and
construction of each Project (including the furnishing thereof) undertaken by a
Subsidiary; and (b) completion of construction of each Project undertaken by a
Subsidiary (including the furnishing thereof) substantially in accordance with
the Plans for such Project and in compliance with applicable codes, ordinances,
laws, statutes, rules and regulations of any governmental authority having
jurisdiction.
(b) Excess Costs. In the event that the actual cost of the design,
engineering and construction of a Project undertaken by a Subsidiary exceeds the
amount available for such Project from the Loan proceeds, including any Owner's
Contingency in the Project Budget for such Project, Guarantor shall pay such
costs ("Excess Costs") as and when they become due and payable. It is understood
that Guarantor's obligation under the preceding sentence is not subject to the
subject Subsidiary's initial obligation to do so pursuant to the terms of the
Funding Agreement.
(c) Completion. For the purposes of this Guaranty, the construction
of the Improvements shall be deemed to have been completed at such time as Final
Completion has occurred pursuant to the terms of the Funding Agreement.
(d) Indemnification of Atlantic. Guarantor shall indemnify and hold
Atlantic and its agents, officers and employees harmless from and against all
claims, expenses, loss and liability of any and every kind other than those
arising out of the gross negligence or willful misconduct of Atlantic,
including, without limitation, attorneys' fees, arising out of or in connection
with the design, engineering, construction and completion of each Project and,
so long as Atlantic disburses the proceeds of the Loan in accordance with the
terms and provisions of the Funding Agreement, shall protect each Project from
any mechanic's, materialmen's or similar liens that may be filed against such
Project. Guarantor shall not have any right of recourse against Atlantic or its
agents and employees by reason of any action such parties may take or omit to
take under the provisions of this Guaranty or under the provisions of the
Funding Agreement.
(e) Completion of Construction. If Guarantor shall fail to cause
Final Completion of a Project undertaken by a Subsidiary with Loan Proceeds to
be achieved, or shall otherwise fail to pursue diligently the performance of the
obligations of Guarantor hereunder, immediately upon receipt of a written demand
given to Guarantor by Atlantic in the manner herein provided, Atlantic, at its
option, shall have the right to cause the completion of the subject Project
either before or after or simultaneously with any other remedy of Atlantic
against Guarantor and/or such Subsidiary, with such changes or modifications in
the Plans and in any contracts and subcontracts relating thereto which Atlantic
deems reasonably necessary, and to
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expend such sums as Atlantic deems proper in its sole and unreviewable
discretion in order to so complete the same and to pay costs of construction of
the same theretofore incurred by the subject Subsidiary and/or Guarantor, and
Guarantor shall pay all such amounts (which constitute Excess Costs) with
interest thereon at the default rate provided for in the Notes calculated from
the date of Guarantor's default, to Atlantic upon demand. So long as all
conditions precedent to Atlantic's obligations to make disbursements under the
Funding Agreement are satisfied, Atlantic shall continue to make disbursements
in the manner specified in the Funding Agreement.
(f) No Release. The liability of Guarantor shall not be terminated,
affected, impaired or reduced in any way by any delay, failure or refusal of
Atlantic to exercise any right or remedy Atlantic may have against any person,
including, without limitation, any Subsidiary, any general contractor, any
subcontractor or any other guarantors liable for all or any part of the costs of
construction of a Project guaranteed herein by Guarantor, or by the release of
any Subsidiary from performance or observance of any of the agreements,
covenants, terms or conditions contained in the Funding Agreement, by the
operation of law or otherwise, whether made with or without notice to Guarantor.
(g) Termination of Completion Guaranty. Satisfaction by Guarantor of
any liability hereunder at any one time with respect to payment of any amounts
required under this Guaranty shall not discharge Guarantor with respect to any
further amounts that may be required hereunder at any other time for the subject
Project or any other Project, it being the intent hereof that this Guaranty and
the obligations of Guarantor under this Guaranty shall be continuing and
irrevocable until the date on which Final Completion of all Subsidiary Projects
funded under the Funding Agreement has occurred and all costs and expenses
incurred in connection therewith have been paid in full (the "Completion
Termination Date"). Further, if at any time all or any part of any payment made
by Guarantor under or with respect to this Guaranty is or must be rescinded or
returned for any reason whatsoever (including, but not limited to, the
insolvency, bankruptcy or reorganization of a Subsidiary or Guarantor), then
Guarantor's obligations hereunder shall, to the extent of the payment rescinded
or returned, be deemed to have continued in existence, notwithstanding such
previous payment made by Guarantor or receipt of payment by Atlantic, and
Guarantor's obligations hereunder shall continue to be effective or be
reinstated, as the case may be, as to such payment, all as though such previous
payment by Guarantor had never been made.
(h) Modifications by Atlantic. Guarantor acknowledges that any
Subsidiary may (and/or Atlantic may at any time enter into agreements with any
Subsidiary receiving Loan proceeds to) amend, modify or change the Plans
applicable to such Subsidiary's Project, any contracts or subcontracts relating
to the Project and/or the Funding Agreement or any other documents evidencing,
securing or relating to the Loan, or may at any time waive or release any
provision or provisions thereof and, with reference thereto, may make and enter
into all such agreements as such Subsidiary and/or Atlantic may deem proper or
desirable, without any notice
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or further assent from Guarantor, and without in any manner impairing or
affecting this Guaranty or any of Atlantic's rights hereunder or any of
Guarantor's obligations hereunder.
3. Guaranty of Payment. Guarantor also irrevocably and unconditionally
fully guarantees to Atlantic to pay and perform when due the Liabilities.
"Liabilities" shall mean all obligations of the Subsidiaries to Atlantic of any
kind whatsoever, howsoever created, arising or evidenced, whether pursuant to a
covenant, representation, warranty, indemnity or other agreement of kind,
whether direct or indirect, absolute or contingent, now or hereafter existing,
or due or to become due, under the Notes or any of the other Loan Documents.
Obligations under the Loan Documents shall include the obligation to pay
interest under the Notes executed by any Subsidiary, including interest at the
post-maturity or default rate.
4. Nature of the Guaranty. This Guaranty shall be direct, immediate, and
primary, and is one of payment and performance and not just collection.
Atlantic shall be under no obligation to pursue its rights against a Subsidiary
or any other right or remedy available to it or pursue any collateral or
security before proceeding against Guarantor. Guarantor expressly waives all
rights it may have now or in the future under any statute, or at common law, or
at law or in equity, or otherwise, including, without limitation, any rights
Guarantor may have to compel Atlantic to proceed in respect of the Guarantor's
obligation hereunder against any Subsidiary or any other party or against any
security for the payment or performance of Guarantor's obligation hereunder
before proceeding against, or as a condition to proceeding against, Guarantor.
All payments made pursuant to this Guaranty shall be made in United States
currency to Atlantic in immediately available funds, without reduction for any
recoupment, set-off, counterclaim or defense based upon any claim that Guarantor
may have against any Subsidiary. The obligations and liabilities of Guarantor
pursuant to this Guaranty shall be unconditional, irrespective of the
genuineness, validity, priority, regularity or enforceability of the Notes or
the Loan Documents or any other circumstance which might otherwise constitute a
legal or equitable discharge of a surety or guarantor.
5. Rights of Atlantic to Deal With Subsidiaries and Guarantor. Guarantor
hereby assents to any and all terms and agreements between Atlantic and any
Subsidiaries receiving Loan proceeds or between Atlantic and any person,
including Guarantor, who guarantees in whole or in part the payment or
performance of any Subsidiary's obligations with respect to Atlantic, and all
amendments and modifications thereof, whether presently existing or hereafter
made and whether oral or in writing. Atlantic may, without compromising,
impairing, diminishing, or in any way releasing Guarantor from any obligations
hereunder and without notifying or obtaining the prior approval of Guarantor at
any time or from time to time: (a) waive or excuse a default or defaults by a
Subsidiary or any person who has guaranteed in whole or in part any of such
Subsidiary's obligations, or delay in the exercise by Atlantic of any or all of
Atlantic's rights or remedies with respect to such default or defaults; (b)
grant extensions of time for payment or performance by a Subsidiary or any
person who has guaranteed in whole or in part any of such Subsidiary's
obligations, including Guarantor; (c) release, substitute, exchange, surrender
or add collateral of a Subsidiary or of any person who has guaranteed in
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whole or in part any of such Subsidiary's obligations, or waive, release or
subordinate, in whole or in part, any lien or security interest held by Atlantic
on any real or personal property securing payment or performance, in whole or in
part, of a Subsidiary's obligations, including Guarantor; (d) release a
Subsidiary or any person who has guaranteed in whole or in part any of such
Subsidiary's obligations, including Guarantor; (e) apply payments made by a
Subsidiary, or by any person who has guaranteed in whole or in part, any of such
Subsidiary's obligations, including, without limitation, Guarantor, to any sums
owed by a Subsidiary to Atlantic, in any order or manner, or to any specific
account or accounts, as Atlantic may elect; (f) modify, change, renew, extend or
amend in any respect Atlantic's agreement with a Subsidiary or any person who
has guaranteed in whole or in part any of such Subsidiary's obligations,
including Guarantor, or any documents, instrument or writing embodying or
reflecting the same.
6. Waivers by Guarantor. Guarantor waives (a) any and all notices
whatsoever with respect to this Guaranty or with respect to any Subsidiary's
obligations, including, but not limited to, notice of: (i) Atlantic's acceptance
hereof or Atlantic's intention to act, or Atlantic's action, in reliance hereon;
(ii) the present existence or future incurring of any Subsidiary's obligations
or any terms or amounts thereof or any change therein; (iii) default by a
Subsidiary or any surety, pledgor, grantor of security, guarantor or other
person who has guaranteed or secured in whole or in part such Subsidiary's
obligations, including Guarantor; and (iv) the obtaining or release of any
guaranty or surety agreement (in addition to this Guaranty), pledge, assignment
or other security for any of a Subsidiary's obligations; and (b) (i) presentment
and demand for payment of any sum due from a Subsidiary or any person who has
guaranteed in whole or in part any of such Subsidiary's obligations, including
Guarantor, and protest of nonpayment; (ii) notice of default by a Subsidiary or
any person who has guaranteed in whole or in part any of such Subsidiary's
obligations and notice of any extension of time for payment or performance under
the Note and any other indulgences granted by Atlantic to a Subsidiary; (iii)
demand for performance by a Subsidiary or any person who has guaranteed in whole
or in part any of such Subsidiary's obligations, including Guarantor; (iv) to
the fullest extent legally possible, any and all defenses which may now or
hereafter exist by virtue of any statutes of limitations, valuation, marshaling,
forbearance, redemption, exemption, appraisement, stay or moratorium laws or
other similar laws now or hereafter in effect; and (v) all other notices and
demands otherwise required by law which Guarantor may lawfully waive. Atlantic
may (without notice to or consent of the Guarantor, and with or without
consideration) release, compromise, settle with or proceed against Guarantor
without releasing, lessening or affecting the obligations hereunder or under any
of the documents relating to the Loan. It is the intention hereof that
Guarantor shall remain liable as a principal until payment in full of all
indebtedness and performance and observance of the terms, covenants and
conditions of the Notes and of each other Loan Document to be performed and
observed by any Subsidiaries, notwithstanding any act, omission or thing which
might otherwise operate as a legal or equitable discharge of Guarantor.
Guarantor shall be responsible for obtaining information regarding its
Subsidiaries, including, but not limited to, any changes in the business or
financial condition of any Subsidiaries, and Atlantic shall have no duty to
notify Guarantor of any such information.
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7. Collection Expenses. Guarantor shall pay to Atlantic, upon demand,
all losses, costs and expenses, including attorneys' fees, if collection is
referred to an attorney, that may be incurred by Atlantic in attempting to cause
satisfaction of Guarantor's liability under this Guaranty.
8. Invalidity of Any Part. If any provision or part of any provision of
this Guaranty shall for any reason be held invalid, illegal or unenforceable in
any respect, such other provisions or the remaining part of any effective
provisions of this Guaranty shall be construed as if such invalid, illegal or
unenforceable provision or part thereof had never been contained herein, but
only to the extent of its invalidity, illegality or unenforceability.
9. Impairment of Subrogation Rights. Guarantor agrees that it shall have
no right of subrogation whatsoever with respect to the Notes, or to the monies
due or unpaid thereon, or to any collateral securing the same, unless and until
Atlantic shall have received payment in full of all sums due under the Notes and
the Loan Documents. Guarantor waives and releases Atlantic from any damages
which Guarantor may incur as a result of any intentional or unintentional or
negligent action or inaction of Atlantic impairing, diminishing or destroying
any rights of subrogation which Guarantor may have upon payment of any of the
Subsidiaries' obligations. Guarantor further agrees that all the present and
future indebtedness to Guarantor of any Subsidiary receiving Loan proceeds shall
be and hereby is subordinated, assigned and transferred to Atlantic.
Notwithstanding any other provision of this Guaranty to the contrary, if
Guarantor is or becomes an "insider" (as defined in Section 101 of the United
States Bankruptcy Code) with respect to its Subsidiaries or any other guarantor,
Guarantor irrevocably waives any and all rights of contribution,
indemnification, reimbursement or any similar right against any of its
Subsidiaries and/or such other guarantor (including any right of subrogation),
whether such rights arise under an express or implied contract or by operation
of law; it being the specific intention of this sentence that in any bankruptcy
or insolvency proceeding filed by or against such Subsidiary or any other
guarantor, no guarantor, including the Guarantor, shall be deemed a "creditor"
(as defined in Section 101 of the United State Bankruptcy Code) of any
Subsidiary or any other guarantor by reason of the existence of this Guaranty
with the result that the exercise of such rights would require Atlantic to
return to the bankruptcy estate of any Subsidiary or any other guarantor any
payments received by Atlantic on account of the obligations guaranteed hereby.
Subject to the limitations set forth in the preceding sentence, until all of the
obligations guaranteed hereby have been duly and punctually performed to the
satisfaction of Atlantic, Guarantor shall not be subrogated to any right of
Atlantic against any Subsidiary, any other guarantor or any collateral, and any
moneys, property or other consideration received at any time by Guarantors from
any Subsidiary in connection with such rights of subrogation prior to the
performance by such Subsidiary of all the obligations guaranteed hereby shall be
held in trust for Atlantic and shall be paid or transferred to Atlantic upon
demand therefor. Guarantor agrees not to assert any right of contribution
against any other guarantor of the obligations guaranteed hereby in any manner
that is inconsistent with the preceding two sentences.
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10. Remedies Cumulative. Each right, power and remedy of Atlantic under
this Guaranty, the Note, the Loan Documents or any other agreement or instrument
signed by a Subsidiary or Guarantor or under applicable laws shall be cumulative
and concurrent, and the exercise of any one or more of them shall not preclude
the simultaneous or later exercise by Atlantic of any or all such other rights,
powers or remedies at law or in equity or under this Guaranty. No failure or
delay by Atlantic to insist upon the strict performance of any one or more of
its rights, powers or remedies consequent upon a breach thereof or default
hereunder shall constitute a waiver thereof, or preclude Atlantic from
exercising any such right, power or remedy. By accepting partial payment on
this Guaranty, Atlantic shall not be deemed to have waived the right either to
require prompt payment when due and payment of all other amounts payable under
this Guaranty or to exercise any rights and remedies available to it in order to
collect all such other amounts. No modification, change, waiver or amendment of
this Guaranty shall be deemed to be made by Atlantic unless in writing and
signed by Atlantic, and each such waiver, if any, shall apply only with respect
to the specific instance involved and only to the extent expressly provided
therein.
11. No Action By Atlantic to Impair Enforcement of Rights Hereunder. No
act of commission or omission of any kind or at any time upon the part of
Atlantic in respect of any matter whatsoever, shall in any way affect or impair
its right to enforce any right, power or benefit under this Guaranty, and no
set-off, counterclaim, reduction or diminution of an obligation, or any defense
of any kind or nature which Guarantor has or may have against Atlantic, shall be
available to Guarantor or against Atlantic.
12. Limitation of Liability of Subsidiary Not to Affect Liability of the
Guarantor Hereunder. Without limiting the foregoing, it is specifically
understood that any impairment, modification, limitation or discharge of the
liability of any Subsidiary under any Note or any other Loan Document arising
out of or by virtue of any act of bankruptcy, or any arrangement, reorganization
or similar proceeding for relief of debtors under Federal or state law initiated
by or against such Subsidiary shall not affect, impair, modify, limit or
discharge the liability of Guarantor hereunder in any manner whatsoever, and
this Guaranty shall remain and continue in full force and effect. It is the
intent and purpose of this Guaranty that Guarantor shall and do hereby waive all
rights and benefits which might accrue to them by reason of any such
proceedings, and Guarantor agrees that it shall be liable for the full amount of
the obligations guaranteed by them hereby, irrespective of, and without regard
to, any impairment, modification, limitation or discharge of the liability of
such Subsidiary under such Note or any or all of the Loan Documents that may
result from any such proceedings.
13. Independent Obligations of Guarantor. The obligations of Guarantor
hereunder are irrevocable and are independent of the Loan or other obligations
of any Subsidiary, and a separate action or actions may be brought and
prosecuted against Guarantor, regardless of whether any action is brought
against such Subsidiary or whether such Subsidiary is joined in any such action
or actions.
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14. Choice of Law; Consent to Jurisdiction; Venue. This Guaranty, having
been executed, sealed and delivered in the State of New Mexico shall be
construed, interpreted and enforced under the internal laws (and not the laws
pertaining to conflicts or choice of law) of the State of New Mexico. Should
any provision of this Guaranty require judicial interpretation, it is agreed
that the court interpreting or considering same shall not apply the presumption
that the terms hereof shall be more strictly construed against a party by reason
of the rule or conclusion that a document should be construed more strictly
against the party who itself or through its agent prepared the same, it being
agreed that all parties hereto have participated in the preparation of this
Guaranty and that each party consulted (or had the opportunity to consult) legal
counsel before the execution of this Guaranty. Guarantor consents to the
jurisdiction of the courts of any county in the State of New Mexico selected by
Atlantic and to the jurisdiction of any United States District Court in the
State of New Mexico, if jurisdiction exists.
15. Counterparts. This Guaranty may be executed in any number of
counterparts, each of which shall be considered an original for all purposes;
provided, however, that all such counterparts shall together constitute one and
the same instrument.
16. Binding Nature. This Guaranty shall inure to the benefit of, and be
enforceable by, Atlantic and its successors and assigns, and shall be binding
upon and enforceable against the Guarantor and its legal and personal
representatives, heirs, successors and assigns. This Guaranty may be assigned
by Atlantic, or any other holder of the Note at any time or from time to time.
17. Joint and Several Nature. In the event there exists more than one
Guarantor, all obligations, responsibilities, warranties, representations and
liabilities hereunder shall be joint and several.
18. Notices. Any and all notices or other communications hereunder shall
be deemed to have been duly given if in writing and if transmitted by hand-
delivery, Federal Express, Express Mail or other nationally recognized overnight
courier or by certified mail, return receipt requested, as follows:
To Atlantic: Security Capital Atlantic Incorporated
7777 Market Center Avenue
El Paso, Texas 79912
Attention: James C. Potts
To Guarantor: Homestead Village Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: David C. Dressler, Jr.
With a copy to: Mayer, Brown & Platt
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141 East Palace Avenue
Santa Fe, New Mexico 87501
Attention: Caroline Brower, Esquire
or to such other address as either party may furnish to the other by notice in
accordance with this Paragraph 18.
19. Tense; Gender. As used herein, the plural shall refer to and include
the singular, and the singular the plural, and the use of any gender shall
include and refer to any other gender.
20. Time of Essence. Guarantor and Atlantic expressly agree that time
shall be of the essence in the performance of obligations of Guarantor under
this Guaranty.
21. Entire Agreement. This Guaranty sets forth the final and entire
agreement between the parties hereto with respect hereto and is intended to be
an integration of all prior negotiations and understandings. Atlantic and
Guarantor and their respective agents shall not be bound by any terms,
conditions, statements, warranties or representations, oral or written, express
or implied, not set forth or incorporated herein.
22. WAIVER OF JURY TRIAL, ETC. GUARANTOR AND ATLANTIC (BY ITS ACCEPTANCE
HEREOF) WAIVES ANY RIGHT TO A TRIAL BY JURY OF ANY OR ALL ISSUES ARISING IN ANY
ACTION OR PROCEEDING BETWEEN GUARANTOR AND ATLANTIC OR THEIR SUCCESSORS OR
ASSIGNS, UNDER OR CONNECTED WITH THE LOAN, THIS GUARANTY OR ANY OF ITS
PROVISIONS OR ANY OF THE LOAN DOCUMENTS, AND AGREES THAT THE OBLIGATION
EVIDENCED BY THIS GUARANTY IS AN EXEMPTED TRANSACTION UNDER THE TRUTH-IN-LENDING
ACT, 15 U.S.C. SECTION 1601, ET SEQ. THIS WAIVER IS KNOWINGLY, INTENTIONALLY
AND VOLUNTARILY MADE BY ATLANTIC AND GUARANTOR, AND GUARANTOR ACKNOWLEDGES THAT
NEITHER ATLANTIC NOR ANY PERSON ACTING ON BEHALF OF ATLANTIC HAS MADE ANY
REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO
MODIFY OR NULLIFY ITS EFFECT. GUARANTOR FURTHER ACKNOWLEDGES THAT IT HAS BEEN
OR HAD THE OPPORTUNITY TO BE REPRESENTED IN THE SIGNING OF THIS GUARANTY AND IN
THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE
WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty of Completion
and Payment as of the date first set forth above.
GUARANTOR:
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HOMESTEAD VILLAGE INCORPORATED
ATTEST:
By:
- -------------------------- -----------------------------
, Secretary Its:
----------------------------
[Corporate Seal]
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EXHIBIT 15
Security Capital Pacific Trust
El Paso, Texas
Ladies and Gentlemen:
Re: Registration Statement No. 333-4455 on Form S-4
With respect to the subject registration statement, we acknowledge our
awareness of the incorporation therein of our AU 722 report dated April 23,
1996 related to our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant within the meaning of sections 7 and 11 of the Act.
Very truly yours,
KPMG Peat Marwick LLP
Chicago, Illinois
August 6, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees and Shareholders of Security Capital Pacific Trust
The Board of Directors and Shareholders of Security Capital Atlantic
Incorporated
The Board of Directors and Shareholders of Security Capital Group
Incorporated:
With respect to the accompanying Amendment No. 2 to the registration
statement on Form S-4 of Homestead Village Incorporated which includes a
prospectus related to Homestead Village Incorporated and a proxy statement
related to Security Capital Pacific Trust, we consent to:
(i) incorporation by reference of our report dated January 31, 1996,
except as to note 12, which is as of February 23, 1996, relating to the
balance sheets of Security Capital Pacific Trust as of December 31, 1995
and 1994, the related statements of earnings, shareholders' equity, and
cash flows for each of the years in the three-year period ended December
31, 1995, and the related schedule as of December 31, 1995, which report
appears in the December 31, 1995 annual report on Form 10-K, as amended by
Form 10-K/A No. 1, of Security Capital Pacific Trust;
(ii) 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, 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, which
report is included herein;
(iii) 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, 1995, which
report is included herein;
(iv) the use of our report dated May 1, 1996 on 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
(deficit) and cash flows for each of the years in the three-year period
ended December 31, 1995, which report is included herein, and;
(v) incorporation by reference of our report dated July 11, 1996, on the
combined statement of revenues and certain expenses of the Group A
properties reported in the Current Report on Form 8-K dated August 1, 1996,
and;
(vi) the reference to our firm under the heading "Independent Public
Accountants and Experts" in the registration statement.
KPMG Peat Marwick LLP
Chicago, Illinois
August 6, 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 May 21, 1996, in the Prospectus of Homestead
Village Incorporated that is made a part of the Amendment No. 2 to the
Registration Statement (Form S-4 No. 333-4455) of Homestead Village
Incorporated.
Ernst & Young LLP
Dallas, Texas
August 5, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Independent
Certified Public Accountants and Experts" and to the use of (a) our report
dated January 26, 1996, except for Note 3, as to which the date is February 5,
1996, with respect to the financial statements at December 31, 1995 and 1994
and for each of the years ended December 31, 1995 and 1994 and the period
October 26, 1993 (inception) through December 31, 1993 and schedule of
Security Capital Atlantic Incorporated ("ATLANTIC"), (b) our reports dated
March 5, 1996 with respect to the Combined Historical Summaries of Gross
Income and Direct Operating Expenses of the Group A and Group B Properties of
ATLANTIC and (c) our report dated April 26, 1996 with respect to the Combined
Historical Summary of Gross Income and Direct Operating Expenses of the Group
C Properties of ATLANTIC, all of which are included in the Information
Statement of ATLANTIC that is made a part of the Amendment No. 2 to the
Registration Statement (Form S-4 No. 333-4455) and the Prospectus of Homestead
Village Incorporated ("Homestead") for the registration of Homestead common
stock.
Ernst & Young LLP
West Palm Beach, Florida
August 5, 1996
<PAGE>
Exhibit 99.1
FORM OF PROXY
-------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
OF SECURITY CAPITAL PACIFIC TRUST
The undersigned shareholder of Security Capital Pacific Trust, a Maryland
real estate investment trust ("PTR"), hereby appoints C. Ronald Blankenship and
Jeffrey A. Klopf, and each of them, as proxy for the undersigned, with full
power of substitution to attend the Special Meeting of Shareholders of PTR to be
held on September 12, 1996, at 10:00 a.m., Mountain time, at 7777 Market Center
Avenue, El Paso, Texas, and at any adjournment(s) or postponement(s) thereof,
and to vote and otherwise represent all the shares that the undersigned is
entitled to vote with the same effect as if the undersigned were present and
voting such shares, on the following matters and in the following manner as
further described in the accompanying Proxy Statement and Prospectus. The
undersigned hereby revokes any proxy previously given with respect to such
shares.
The undersigned acknowledges receipt of the Notice of Special Meeting
of Shareholders and the accompanying Proxy Statement and Prospectus.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF THIS PROXY IS EXECUTED BUT NO SPECIFICATION IS MADE, THE
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" ITEMS 1 AND 2 BELOW, AND IN
THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF.
1. The approval and adoption of the Merger and Distribution Agreement, dated as
of May 21, 1996, among PTR, Security Capital Atlantic Incorporated,
Security Capital Group Incorporated and Homestead Village Properties
Incorporated and the transactions contemplated thereby.
[_] FOR [_] AGAINST [_] ABSTAIN
2. The amendment to the Restated Declaration of Trust.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To vote and otherwise represent the shares on any other matters which may
properly come before the meeting or any adjournment(s) or postponement(s)
thereof in their discretion.
[_] MARK HERE IF YOU PLAN TO
ATTEND THE MEETING
Please sign exactly as name appears
hereon and date. If the shares are
held jointly, each holder should
sign. When signing as an attorney,
executor, administrator, trustee,
guardian or as an officer signing
for a corporation, please give the
full title under signature.
-----------------------------------
Signature
-----------------------------------
Signature, if held jointly
Dated:__________, 1996
