<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 7011 74-2770966
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
125 LINCOLN AVENUE
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 PROPERTIES 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
----------------
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. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per
share....................... 17,749,735 $ 8.55 $151,760,235 $52,332
- ---------------------------------------------------------------------------------------------
Warrants to Purchase Common
Stock........................... 10,000,000 $10.00 $100,000,000 $34,483
- ---------------------------------------------------------------------------------------------
Common Stock, $0.01 par value per
share....................... 10,000,000(2) None None None
- ---------------------------------------------------------------------------------------------
Preferred Share Purchase Rights.. 27,749,735 None None None
- ---------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of determining the registration fee. In
accordance with Rule 457(f)(2) and 457(g), the above calculation is based
on the book value of such securities as of March 31, 1996 (the latest
practicable date prior to the date of filing of the registration
statement).
(2) Shares of Common Stock issuable upon exercise of Warrants to purchase
Common Stock.
----------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER/CAPTION HEADING IN PROSPECTUS
------------------- ---------------------
<S> <C>
A.Information About the Transaction
1.Forepart of the Registration
Statement and Outside Front Facing Page of the Registration Statement;
Cover Page of Prospectus.... Cross Reference Sheet; Outside Front Cover
Page of Proxy Statement and Prospectus;
Outside Front Cover Page of Information
Statement and Prospectus.
2.Inside Front and Outside Back
Cover Pages of Prospectus... Available Information; Incorporation by
Reference; Table of Contents.
3.Risk Factors, Ratio of
Earnings to Fixed Charges
and Other Information....... Summary; Risk Factors.
4.Terms of the Transaction...... Summary; The Transaction.
5.Pro Forma Financial Information Concerning PTR; Information
Information................. Concerning ATLANTIC; PTR Pro Forma
Financial Statements; ATLANTIC Pro Forma
Financial Statements; Homestead Pro Forma
Selected Financial Data in Appendix A;
Homestead Pro Forma Financial Statements
in Appendix A.
6.Material Contracts With the
Company Being Acquired...... Summary; The Transaction.
7.Additional Information
Required for Reoffering by
Persons and Parties Deemed Not Applicable.
to be Underwriters..........
8.Interests of Named Experts and Experts; Legal Matters.
Counsel.....................
9.Disclosure of Commission
Position on Indemnification. Not Applicable.
B.Information About the Registrant
10.Information With Respect to S- Not Applicable.
3 Registrants...............
11.Incorporation of Certain
Information by Reference.... Not Applicable.
12.Information With Respect to S-
2 or S-3 Registrants........ Not Applicable.
13.Incorporation of Certain
Information by Reference.... Not Applicable.
14.Information With Respect to
Registrants Other than S-2 Summary; Appendix A.
or S-3 Registrants..........
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER/CAPTION HEADING IN PROSPECTUS
------------------- ---------------------
<S> <C>
C.Information About the Company
Being Acquired
15.Information With Respect to S-3 Available Information; Incorporation by
Companies.................... Reference; Summary; Information Concerning
PTR.
16.Information With Respect to S-2
or S-3 Companies............. Not Applicable.
17.Information With Respect to
Companies Other than S-2 or Available Information; Summary; Information
S-3 Companies................ Concerning ATLANTIC.
D.Voting and Management Information
18.Information if Proxies,
Consents or Authorizations Outside Front Cover Page of Proxy Statement
are to be Solicited.......... and Prospectus; Summary; The Transaction;
Information Concerning PTR; Appendix A.
19.Information if Proxies,
Consents or Authorizations
are not to be Solicited, or Outside Front Cover Page of Information
in an Exchange Offer......... Statement and Prospectus; Summary; The
Transaction; Information Concerning
ATLANTIC; Appendix A.
</TABLE>
2
<PAGE>
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 Properties
Incorporated ("Homestead") to be included as an appendix to 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.
<PAGE>
[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 , on , , 1996 at 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 Properties 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) - .
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 , , 1996,
commencing at a.m., local time, at , 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 Properties 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 ,
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
, 1996
<PAGE>
SUBJECT TO COMPLETION DATED MAY 24, 1996
SECURITY CAPITAL PACIFIC TRUST
PROXY STATEMENT
-----------
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
PROSPECTUS
-----------
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 Properties 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 , 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 37.9% 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 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 May 20, 1996, each PTR shareholder would
receive 0.1313614 shares of Homestead Common Stock and 0.0881278 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 which 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 Appendix A 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
, 1996. A shareholder who returns a signed proxy may revoke it at
any time prior to its exercise.
SEE "RISK FACTORS" AT PAGE 12 OF THIS PROXY 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 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.
-----------
The date of this Proxy Statement and Prospectus is , 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. 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.
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 , 1996.
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are hereby incorporated herein by reference:
(a) PTR's Annual Report on Form 10-K for the year ended December 31,
1995;
(b) PTR's Quarterly Report on Form 10-Q for the period ended March 31,
1996;
(c) PTR's Current Reports on Form 8-K dated February 6, 1996, February
14, 1996 and May 21, 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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... i
INCORPORATION BY REFERENCE................................................ i
SUMMARY................................................................... 2
RISK FACTORS.............................................................. 12
Conflicts of Interest in the Transaction................................ 12
Determination of Relative Ownership Percentages......................... 12
Significant Influence of Principal Shareholder.......................... 13
Absence of Prior Public Market.......................................... 13
Risks of Investments in Mortgages and Funding Commitment................ 14
Impact of Transaction on Future Distributions, Funds From Operations and
Price of PTR Common Shares............................................. 14
Competition............................................................. 14
Limited Operating History............................................... 14
THE TRANSACTION (Proposal 1).............................................. 14
General................................................................. 15
The Distribution........................................................ 15
Background.............................................................. 15
Recommendations of the PTR Board and Reasons for the Transaction........ 22
Fairness Opinion........................................................ 27
Federal Income Tax Consequences......................................... 29
Interests of Certain Persons in the Transaction......................... 33
The Merger Agreement.................................................... 34
Protection of Business Agreement........................................ 39
SCG Investor Agreement.................................................. 39
Funding Commitment Agreements........................................... 40
ATLANTIC and PTR Investor Agreements.................................... 40
Administrative Services Agreement....................................... 41
Escrow Agreement........................................................ 41
Regulatory Filings and Approvals........................................ 42
Restrictions on Sales by Affiliates..................................... 42
Accounting Treatment.................................................... 42
Expenses................................................................ 42
Dissenters' Rights...................................................... 42
Board Recommendation.................................................... 42
AMENDMENT TO THE PTR DECLARATION OF TRUST (Proposal 2).................... 43
THE SPECIAL MEETING....................................................... 43
Purpose of the Meeting.................................................. 43
Date, Time and Place; Record Date....................................... 44
Voting Rights........................................................... 44
Other Matters........................................................... 44
INFORMATION CONCERNING PTR................................................ 45
PTR Historical and Pro Forma Selected Financial Information............. 45
PTR Share Prices........................................................ 46
PTR Policies with Respect to Certain Activities......................... 46
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPARISON OF RIGHTS OF HOLDERS OF PTR COMMON SHARES AND HOMESTEAD COMMON
STOCK.................................................................... 49
Preferred Shares........................................................ 50
Restrictions on Transfer and Redemption of Shares....................... 50
Dissenters' Rights...................................................... 50
Amendments to the PTR Declaration of Trust and the Homestead Charter.... 50
Amendments to the Bylaws................................................ 51
Termination............................................................. 51
Trustees and Directors.................................................. 51
Removal of Trustees and Directors....................................... 52
Vacancies Among Trustees and Directors.................................. 52
Limitation on Trustee and Director Liability............................ 52
Shareholder Liability................................................... 53
Indemnification of Trustees, Directors and Officers..................... 53
Shareholders' Meetings.................................................. 54
Advance Notice of Director Nominations and New Business................. 54
Asset Requirements...................................................... 55
LEGAL MATTERS............................................................. 55
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS................................ 55
EXPENSES OF SOLICITATION.................................................. 56
SHAREHOLDER PROPOSALS..................................................... 56
INDEX TO PTR PRO FORMA FINANCIAL STATEMENTS............................... F-1
APPENDIX A--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 Appendix A and the Annexes hereto) or incorporated herein by
reference. Shareholders are urged to review the entire Proxy Statement and
Prospectus, Appendix A 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 May 20, 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. In addition, unless the context otherwise requires, references to
"Homestead" refer to Homestead Village Properties Incorporated and its
subsidiaries. All references to Homestead Village Properties 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 March 31, 1996,
PTR owned and operated or was developing 56,143 multifamily units with a total
expected cost of $2.4 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 March 31, 1996, PTR had completed
multifamily developments with total expected costs of $338.2 million, had
developments under construction with total expected costs of $332.9 million,
had developments in planning for which construction is anticipated to commence
within 12 months with total expected costs of $414.9 million and owned land
held for future development with total expected costs of $155.1 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 PROPERTIES INCORPORATED
The first Homestead Village facility was opened in 1992 by PTR, which since
then has built and placed into operation 26 additional Homestead Village
facilities. 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 27 facilities,
has begun construction of six additional facilities and has an additional 47
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 economic occupancy and average weekly
rate for stabilized properties was 87% and $217 per week, respectively.
Homestead categorizes its operating properties (which include all properties
not in development) as either "stabilized" or "pre-stabilized." The term
"stabilized" means that development and initial marketing of a property has
been completed and operational for a sufficient period of time to achieve
market rates and market occupancy. All 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 27 facilities in seven 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 $133 million
and $111 million, respectively, and to receive convertible mortgage
notes 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, including payroll and tax
services, data processing and other computer services, human resources,
research, insurance administration, cash management and legal support.
These and other services will be available to Homestead under an
Administrative Services Agreement (described herein). 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-7 IN APPENDIX A, WITH RESPECT TO THE OWNERSHIP OF
HOMESTEAD SECURITIES.
. Since SCG controls all of the parties to the Transaction, conflicts of
interest exist.
. The terms of the Transaction were not determined based on arm's length
negotiations.
. 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 consideration being received by PTR, ATLANTIC
or SCG.
. 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 a.m., local time, on
, , 1996, at . The PTR Board has fixed the
close of business on , 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 May 20, 1996,
SCG beneficially owned approximately 37.9% 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 since 1992 has developed and operated 27 Homestead Village
properties. 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 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, 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 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 Closing 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. 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.
6
<PAGE>
. After giving effect to the distribution of the Homestead Securities by
PTR and ATLANTIC, the exercise of all Homestead Warrants 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 51.4% 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 May 20,
1996, each PTR shareholder would receive 0.1313614 shares of Homestead Common
Stock and 0.0881278 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 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 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.
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 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
7
<PAGE>
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."
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
Under current federal income tax law and regulations, 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 gain
on the Transaction only to the extent that PTR is treated as having received
property or cash ("boot") in the Mergers. PTR will recognize gain upon the
distribution of the Homestead Securities to its shareholders in an amount equal
to the excess of the fair market value of the Homestead Securities on the
Distribution Record Date over PTR's basis therein, and the earnings and profits
of PTR will be increased by the amount of any such gain recognized. 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.
The Distribution of the Homestead Securities 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 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 Distribution
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
8
<PAGE>
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 the applicable waiting period will expire on June 24,
1996, unless extended.
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."
9
<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 as if it had occurred at the
beginning of each period presented 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........... $69,056 $75,809 $53,517 $243,783 $262,473 $183,472 $ 76,129 $ 30,970 $14,721
General and
Administrative
Expenses............... 100 276 214 154 952 784 660 436 697
REIT Management Fee..... 4,812 5,555 3,957 18,018 20,354 13,182 7,073 2,711 793
Earnings from Operations
(1).................... 21,034 22,920 14,540 76,418 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................. 17,569 19,455 10,515 57,218 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
OTHER DATA:
Funds from Operations
Attributable
to Common Shares (2)... $24,405 $27,150 $18,059 $ 89,356 $ 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>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------------- --------------------------------------------------
HISTORICAL
PRO FORMA HISTORICAL --------------------------------------------------
1996 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- --------- --------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real Estate Owned, at
cost................... $1,719,603 $1,930,632 $1,855,866 $1,296,288 $ 872,610 $ 337,274 $117,572
Total Assets............ 1,816,290 1,889,934 1,840,999 1,295,778 890,301 342,235 141,020
Line of Credit.......... 48,039 36,250 129,000 102,000 51,500 54,802 101
Long-Term Debt.......... 350,000 350,000 200,000 200,000 -- -- --
Mortgages Payable....... 157,570 157,570 158,054 93,624 48,872 30,824 35,772
Total Liabilities....... 601,042 594,812 565,331 455,136 135,284 94,186 38,707
Shareholders' Equity.... $1,215,248 $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>
- -------
(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.
10
<PAGE>
(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.
COMPARATIVE PER SHARE DATA
The following sets forth for PTR Common Shares and Homestead Common Stock
certain historical, pro forma, and pro forma equivalent 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 contained in Appendix A 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 equivalent....................... .24 .85
Distributions per Common Share:
Historical................................. .31 1.15
Pro forma equivalent....................... .31 1.15
Book value per Common Share:
Historical................................. 13.30 13.03
Pro forma equivalent....................... 12.19 N/A
HOMESTEAD COMMON STOCK:
Net Income (Loss) per share:
Historical................................. N/A N/A
Pro forma.................................. $ .003 $(.053)
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.................................. $ 8.55 N/A
</TABLE>
11
<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 Appendix A under
the caption "Risk Factors" with respect to an investment in Homestead
Securities.
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 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, $0.01 par value per share ("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.
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
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 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
12
<PAGE>
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."
SIGNIFICANT INFLUENCE OF PRINCIPAL SHAREHOLDER
SCG beneficially owns approximately 37.9% of the issued and outstanding PTR
Common Shares and 66.5% of the issued and outstanding shares of ATLANTIC
Common Stock. As a result, SCG currently controls approximately 37.9% and
66.5% 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 4,062,788 shares of Homestead Common Stock of which 2,243,038 shares of
Homestead Common Stock 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 3,595,091 and 2,793,811 shares of Homestead Common Stock,
respectively, for total of 10,451,690 shares of Homestead Common Stock, or
approximately 58.9% of the outstanding shares of Homestead Common Stock.
Through its beneficial ownership of Homestead Common Stock, it is expected
that SCG will control 58.9% of the vote on all matters submitted for Homestead
shareholder action. SCG will also own Homestead Warrants to acquire an
additional 5,103,884 shares of Homestead Common Stock. 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.
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Distribution, there will be no public market for the Homestead
Securities. Application will be made to quote or list the Homestead Common
Stock and the Homestead Warrants on a national securities exchange or
interdealer quotation system. Although such quotation or listing is a
condition to closing of the Mergers, 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.
13
<PAGE>
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 $133
million, primarily to develop the properties contributed to Homestead by PTR.
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 6.7% 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 8.2% 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.
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. 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.
14
<PAGE>
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 May 20, 1996, each shareholder would
receive 0.1313614 shares of Homestead Common Stock and 0.0881278 Homestead
Warrants for each PTR Common Share held. There are currently issued and
outstanding 9,200,000 shares of Series A Preferred Shares which are convertible
into an aggregate of 11,189,040 PTR Common Shares, at a conversion price of
$20.56 per share, subject to adjustment. Additionally, options to acquire
28,000 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 11,217,040 PTR Common Shares would be issued, which would result in
each PTR shareholder receiving 0.1136996 shares of Homestead Common Stock and
0.0762789 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 (after deduction of brokerage fees) to PTR shareholders
who would otherwise be entitled to receive fractional shares or warrants.
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.
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 Appendix A.
15
<PAGE>
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 Appendix A. 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
16
<PAGE>
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 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.
17
<PAGE>
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 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.
18
<PAGE>
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 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.
19
<PAGE>
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 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 represent 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
20
<PAGE>
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 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
21
<PAGE>
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 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
22
<PAGE>
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 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
6.7% of PTR's assets, and for the quarter ended March 31, 1996 constituted
9.0% of PTR's revenues and 8.2% 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
23
<PAGE>
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.
. 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 and
other 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 and was based on the
respective discounted cash flows of PTR, ATLANTIC and SCG for the 80 identified
Homestead Village properties in operation, under construction or in pre-
development planning at July 1, 1996, which will be contributed to Homestead in
connection with the Mergers, and the PTR and ATLANTIC REIT Management fees and
property management fees which SCG is anticipated to derive from such
properties, net of overhead. SCG reviewed the number of Homestead Village
properties that each of PTR and ATLANTIC is expected to have in operation or
under development at July 1, 1996, of which PTR is expected to have 28
properties in operation, seven properties under construction and 19 properties
in pre-development planning, and of which ATLANTIC will have five 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 projected net
operating income at 11%, and discounted both cash flows back to July 1, 1996,
using a discount rate of 11%. SCG's analysis assumes that 1998 will be the
first year in which all 80 Homestead Village properties would be stabilized.
The capitalization rate of 11% applied to 1998 net operating income for PTR and
ATLANTIC reflects SCG's belief of current real estate market
24
<PAGE>
capitalization rates for non-branded lodging facilities. 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 study by an independent third party of private
and public companies in the financial services sector after adjusting for
growth expectations and business objectives for each company. Because all
properties will not be stabilized until 1998, the discount rate of 17.5%
applied to SCG's cash flow between 1996 and 1998 reflects SCG's belief that
financial services cash flows generated during development and pre-stabilized
operations require a higher risk premium. 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 $133 million and approximately $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 effect of
these provisions of the PTR Funding Commitment Agreement is that PTR will fund
approximately $898,000 for each $1,000,000 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 took into account the fact that as of July 1, 1996 PTR will have 28
Homestead Village facilities in operation and generating income, while
ATLANTIC will 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.
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.
25
<PAGE>
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.
(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
26
<PAGE>
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.
(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
27
<PAGE>
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, this Proxy Statement and Prospectus, the Annual
Reports to Stockholders and Annual Reports on Form 10-K for the years ended
December 31, 1995 and December 31, 1994; certain interim reports to
shareholders and Quarterly Reports on Form 10-Q; certain financial analyses and
forecasts for PTR and Homestead, including analyses and forecasts of the
operating performance of PTR and the assets being contributed by PTR to
Homestead (the "Performance Results"), prepared by the management of PTR,
ATLANTIC and SCG, respectively (collectively, the "Analyses"), and provided to
Goldman, Sachs by PTR REIT Management. Goldman, Sachs also held discussions
with senior officers of PTR regarding its past and current business operations
and financial condition of PTR and the future prospects of PTR and 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 PTR REIT Management 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 PTR REIT Management, ATLANTIC
REIT Management and management of 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.
(a) Contribution analysis. Goldman, Sachs compared PTR REIT Management's
projections of (i) PTR's EBITDA assuming no PTR Transaction, with (ii)
EBITDA received by PTR assuming the PTR Transaction occurred.
(b) Comparison of earnings' multiples. Goldman, Sachs compared (i) earnings'
multiples attributed to PTR and selected multifamily REITs, with (ii)
earnings' multiples attributed to selected extended-stay and selected high
growth companies comparable to Homestead.
28
<PAGE>
(c) Comparison of PTR's value assuming (i) no PTR Transaction occurs, with (ii)
completion of the PTR Transaction. Goldman, Sachs reviewed projections
provided by PTR's management of PTR's projected financial performance,
Homestead's projected financial performance, the tax liability resulting
from the Homestead stock distribution to PTR shareholders and the relative
valuation of the securities of Homestead to be received by PTR in exchange
for the PTR Properties.
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. Goldman, Sachs may in the
future provide financial advisory and investment banking services to PTR,
ATLANTIC, SCG, Homestead or their affiliates.
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 certain material United States Federal income
tax consequences of the Transaction to PTR and PTR shareholders. The summary is
based upon the Code, administrative pronouncements, judicial decisions and
Treasury regulations, subsequent changes to any of which may affect the tax
consequences described herein. 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
29
<PAGE>
taxpayers such as financial institutions, broker-dealers, life insurance
companies, tax-exempt organizations, investment companies and foreign
taxpayers. 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. The Mergers have been structured to generally qualify as a tax-
free transaction for United States Federal income tax purposes. PTR, ATLANTIC,
SCG and Homestead have requested a ruling from the IRS that, among other
matters, the Mergers constitute a transaction subject to Section 351 of the
Code and related provisions. In the event that PTR does not receive a favorable
ruling from the IRS prior to the consummation of the Transaction, it is
expected that Mayer, Brown & Platt will give an opinion that, among other
matters, the Mergers constitute a transaction subject to Section 351 or the
reorganization provisions of the Code and related provisions. The obligation of
PTR, ATLANTIC, Homestead and SCG to consummate the Transaction is conditioned
on receipt of either a favorable ruling from the IRS or an opinion of Mayer,
Brown & Platt that the Mergers so qualify. 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
assets transferred 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, 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, (i)
PTR will recognize taxable gain, but only to the extent that the fair market
value of the assets transferred by PTR in the Mergers exceeds PTR's and its
subsidiaries' tax basis therein, and (ii) the tax basis of the Homestead Common
Stock received by PTR will be increased by the amount of any such taxable gain
recognized. Any such 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 fair market value of the Homestead Securities on the Distribution Record
Date over PTR's tax basis therein, 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 Record 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 Record
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 Record Date should be
their value as reflected by their trading prices on the Distribution Record
Date 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.
As a result of the Transaction, PTR will recognize gain to the full extent of
the excess of the value of the Homestead Village properties transferred to
Homestead in the Mergers over PTR's or its subsidiaries' basis
30
<PAGE>
therein (the "built-in gain"). PTR will recognize the built-in gain either as
a result of the receipt of "boot" in the Mergers or upon the Distribution (or
on the Mergers and Distribution together), but in no event will PTR recognize
the built-in gain on both the Mergers and the Distribution.
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 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
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 be considered return of capital, would reduce PTR's tax
basis in the convertible mortgages (but not below zero) by the value of the
deemed distribution, and, 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 to its shareholders 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.
31
<PAGE>
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, 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, more of the earnings and profits of PTR will be allocable to the
Homestead Securities and cash distributed. 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. 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.
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 of the Homestead Common
Stock received in the Distribution will be the fair market value of the
Homestead Common Stock on the Distribution Record Date to be determined as
discussed above. A shareholder's holding period of the Homestead Common Stock
received in the Distribution will begin on 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.
32
<PAGE>
Homestead Warrants. A shareholder's tax basis of the Homestead Warrants
received in the Distribution will be the fair market value of the Homestead
Warrants on the Distribution Record Date to be determined as discussed above. A
shareholder's holding period of the Homestead Warrants received in the
Distribution will begin on 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 be
considered a return of capital, the Warrant Holder's tax basis in the Homestead
Warrants would be reduced (but not below zero) by the value of the deemed
distribution and, 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. 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 May 20, 1996, PTR's trustees and executive officers
who own PTR Common Shares or ATLANTIC Common Stock would, in the aggregate,
receive a total of 44,593 shares of Homestead Common Stock and 29,915 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
10,566,272 shares of Homestead Common Stock and 5,180,751 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,
Mark Conroe, W. Geoffrey Jewett, John Patterson and Gregg Plouff, will become
officers and employees of Homestead.
33
<PAGE>
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 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
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
34
<PAGE>
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 provide full access to all of its properties, books,
contracts, commitments and records, as appropriate; 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, (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 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
35
<PAGE>
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 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
36
<PAGE>
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.
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
37
<PAGE>
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.
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
38
<PAGE>
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 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), 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 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 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
39
<PAGE>
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 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 $133 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 use its
reasonable efforts 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.
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
40
<PAGE>
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 certain
administrative, office facility and other services with respect to certain
aspects of Homestead's business. These services are expected to include, but
are not limited to, payroll and tax services, data processing and other
computer services, human resources, research, insurance administration, cash
management, and legal support. 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 in accordance with the written instructions of SCG. In
the event that written 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.
41
<PAGE>
REGULATORY FILINGS AND APPROVALS
Consummation of the Transaction is subject to the provisions of the HSR Act,
for which the applicable waiting period will expire on June 24, 1996, unless
extended. There can be no assurance that such regulatory requirement will be
satisfied, and, if satisfied, there can be no assurance as to the date of any
such approvals. 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 transactions to be accomplished as a result of the Transaction will be
accounted for under the purchase method of accounting in accordance with GAAP.
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.
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.
42
<PAGE>
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.
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
43
<PAGE>
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 prospectus of Homestead
is attached hereto as Appendix A and is incorporated herein by reference.
DATE, TIME AND PLACE; RECORD DATE
The PTR Special Meeting is scheduled to be held at a.m., local time, on
, , 1996, at . The PTR Board has fixed the
close of business on , 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 May 20, 1996, there were
72,210,918 PTR Common Shares outstanding and PTR had approximately 3,300 record
holders. As of May 20, 1996, SCG and PTR's trustees and executive officers
beneficially owned an aggregate of 27,629,674 shares or approximately 38.3% 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.
44
<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 as if it had
occurred at the beginning of each period presented 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........... $69,056 $75,809 $53,517 $243,783 $262,473 $183,472 $ 76,129 $ 30,970 $14,721
General and
Administrative
Expenses............... 100 276 214 154 952 784 660 436 697
REIT Management Fee..... 4,812 5,555 3,957 18,018 20,354 13,182 7,073 2,711 793
Earnings from Operations
(1).................... 21,034 22,920 14,540 76,418 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................. 17,569 19,455 10,515 57,218 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
OTHER DATA:
Funds from Operations
Attributable
to Common Shares (2)... $24,405 $27,150 $18,059 $ 89,356 $ 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>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------------- --------------------------------------------------
HISTORICAL
PRO FORMA HISTORICAL --------------------------------------------------
1996 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- --------- --------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real Estate Owned, at
cost................... $1,719,603 $1,930,632 $1,855,866 $1,296,288 $ 872,610 $ 337,274 $117,572
Total Assets............ 1,816,290 1,889,934 1,840,999 1,295,778 890,301 342,235 141,020
Line of Credit.......... 48,039 36,250 129,000 102,000 51,500 54,802 101
Long-Term Debt.......... 350,000 350,000 200,000 200,000 -- -- --
Mortgages Payable....... 157,570 157,570 158,054 93,624 48,872 30,824 35,772
Total Liabilities....... 601,042 594,812 565,331 455,136 135,284 94,186 38,707
Shareholders' Equity.... $1,215,248 $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>
- -------
(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.
45
<PAGE>
(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.
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 through May 21, 1996....... 22 1/2 19 1/4 0.310
</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 May 20, 1996, PTR had approximately 3,300 record holders of PTR Common
Shares. As of May 20, 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.
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
46
<PAGE>
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 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
47
<PAGE>
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 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.
48
<PAGE>
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 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.
49
<PAGE>
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, 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 May 20, 1996, PTR had 9,200,000 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.
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.
50
<PAGE>
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
Appendix A. The directors are divided into three classes. One class will hold
office for a term expiring at the annual meeting of shareholders in 1997, a
second class will hold office for a term expiring at the annual meeting of
shareholders in 1998 and a third class will hold office for a term expiring at
the annual meeting of shareholders in 1999. Each director will hold office for
the term to which he or she is elected and until his or her successor is duly
elected and qualified. 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 (i) is not affiliated with SCG or any of its affiliates,
directly or indirectly, whether by ownership of, ownership interest in,
employment by, any material business or professional relationship with, or
service as an officer or director of, SCG or any of its affiliates, (ii) is not
servicing as a trustee or director for more than three entities organized or
controlled by SCG and (iii) performs no other services for Homestead, except as
director.
51
<PAGE>
The Maryland REIT Law does not set forth the duties of trustees of a Maryland
REIT such as PTR. The MGCL provides that a director of a Maryland corporation
such as Homestead shall perform his or her duties in good faith, in a manner he
or she 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.
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
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
52
<PAGE>
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, 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
53
<PAGE>
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 in April 1996, 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, if signed by the Governor of Maryland, 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 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
54
<PAGE>
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
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.
55
<PAGE>
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.
56
<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-7
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1995 (unaudited)...................................... F-9
</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)
Homestead Village Properties Incorporated ("Homestead") was funded and the PTR-
Homestead Village Group merged into Homestead, (iii) the net assets of
Atlantic-Homestead Village Group and SCG-Homestead Village Group were acquired
by Homestead through the issuance of additional Homestead common shares and
warrants, and (iv) PTR distributes all of the Homestead shares and warrants it
received from the merger with Homestead to the PTR shareholders. This unaudited
Pro Forma Condensed Consolidated Balance Sheet should be read in conjunction
with the PTR-Homestead Village Group, Atlantic-Homestead Village Group and SCG-
Homestead Village Group historical combined financial statements presented in
the 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 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 PER SHARE DATA)
<TABLE>
<CAPTION>
FORMATION OF
HOMESTEAD
AND MERGER ACQUISITION ACQUISITION
WITH PTR- PTR/ OF ATLANTIC OF SCG PRO FORMA
LAND TO HOMESTEAD HOMESTEAD HOMESTEAD HOMESTEAD OTHER PRO BEFORE SPIN-OFF
PTR BE VILLAGE CONSOLIDATED VILLAGE VILLAGE FORMA AND
ASSETS HISTORICAL(A) ACQUIRED GROUP(D) PRO FORMA GROUP (E) GROUP (F) ADJUSTMENTS DECONSOLIDATION
------ ------------- -------- ------------ ------------ ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate........ $1,840,474 $11,789(b) $-- $1,852,263 $24,095 $ 233 $ -- $1,876,591
Mortgage notes
receivable......... 14,764 -- -- 14,764 -- -- -- 14,764
---------- ------- ---- ---------- ------- ------- -------- ----------
Total
investments..... 1,855,238 11,789 -- 1,867,027 24,095 233 -- 1,891,355
Cash and cash
equivalents........ 8,338 -- 1(c) 8,339 27,239 12 (1,500)(g) 34,090
Accounts
receivable......... 3,047 -- -- 3,047 -- 481 -- 3,528
Other assets....... 23,311 -- -- 23,311 1,817 19,481 1,500(g) 46,109
---------- ------- ---- ---------- ------- ------- -------- ----------
Total assets.... $1,889,934 $11,789 $ 1 $1,901,724 $53,151 $20,207 $ -- $1,975,082
========== ======= ==== ========== ======= ======= ======== ==========
LIABILITIES AND
HAREHOLDERS' EQUITYS
- --------------------
Liabilities:
Line of credit.. . $ 36,250 $11,789(b) $-- $ 48,039 $ -- $ -- $ -- $ 48,039
Long term
unsecured debt.. . 350,000 -- -- 350,000 -- -- -- 350,000
Mortgages
payable......... . 157,570 -- -- 157,570 -- -- -- 157,570
Accounts payable . 24,488 -- -- 24,488 1,289 6 -- 25,783
Accrued expenses
and other
liabilities..... . 26,504 -- -- 26,504 163 3 -- 26,670
---------- ------- ---- ---------- ------- ------- -------- ----------
Total
liabilities..... 594,812 11,789 -- 606,601 1,452 9 -- 608,062
---------- ------- ---- ---------- ------- ------- -------- ----------
Minority interest.. -- -- -- -- -- -- 71,897(h) 71,897
---------- ------- ---- ---------- ------- ------- -------- ----------
Shareholders'
equity:
Series A
Cumulative
Preferred shares . 230,000 -- -- 230,000 -- -- -- 230,000
Series B
Cumulative
Redeemable
Perpetual
Preferred shares . 105,000 -- -- 105,000 -- -- -- 105,000
Common shares... . 72,376 -- -- 72,376 42 16 (58)(h) 72,376
Additional paid-
in capital...... . 952,679 -- 1(c) 952,680 51,657 20,182 (71,839)(h) 952,680
Dividends in
excess of net
earnings........ . (62,996) -- -- (62,996) -- -- -- (62,996)
Treasury shares,
at cost......... . (1,937) -- -- (1,937) -- -- -- (1,937)
---------- ------- ---- ---------- ------- ------- -------- ----------
Total
shareholders'
equity.......... 1,295,122 -- 1 1,295,123 51,699 20,198 (71,897) 1,295,123
---------- ------- ---- ---------- ------- ------- -------- ----------
Total
liabilities and
shareholders'
equity.......... $1,889,934 $11,789 $ 1 $1,901,724 $53,151 $20,207 $ -- $1,975,082
========== ======= ==== ========== ======= ======= ======== ==========
<CAPTION>
SPIN-OFF OF
HOMESTEAD
SHARES TO PTR PRO FORMA
SHAREHOLDERS RESULTING
AND FROM
DECONSOLIDATION HOMESTEAD
ASSETS OF HOMESTEAD(I) SPIN-OFF
------ --------------- -------------
<S> <C> <C>
Real estate........ $(156,988) $1,719,603
Mortgage notes
receivable......... 51,563 66,327
--------------- -------------
Total
investments..... (105,425) 1,785,930
Cash and cash
equivalents........ (28,683) 5,407
Accounts
receivable......... (97) 3,431
Other assets....... (24,587) 21,522
--------------- -------------
Total assets.... $(158,792) $1,816,290
=============== =============
LIABILITIES AND
HAREHOLDERS' EQUITYS
- --------------------
Liabilities:
Line of credit.. . $ -- $ 48,039
Long term
unsecured debt.. . -- 350,000
Mortgages
payable......... . -- 157,570
Accounts payable . (5,319) 20,464
Accrued expenses
and other
liabilities..... . (1,701) 24,969
--------------- -------------
Total
liabilities..... (7,020) 601,042
--------------- -------------
Minority interest.. (71,897) --
--------------- -------------
Shareholders'
equity:
Series A
Cumulative
Preferred shares . -- 230,000
Series B
Cumulative
Redeemable
Perpetual
Preferred shares . -- 105,000
Common shares... . -- 72,376
Additional paid-
in capital...... . (74,591) 878,089
Dividends in
excess of net
earnings........ . (5,284) (68,280)
Treasury shares,
at cost......... . -- (1,937)
--------------- -------------
Total
shareholders'
equity.......... (79,875) 1,215,248
--------------- -------------
Total
liabilities and
shareholders'
equity.......... $(158,792) $1,816,290
=============== =============
</TABLE>
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
filed with the Securities and Exchange Commission which is incorporated
herein by reference.
(b) Reflects land parcels under contract to be acquired 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) Reflects the funding of Homestead Village Properties Incorporated
("Homestead") through the issuance of 1,000 shares of common stock in
exchange for $1.
(d) Upon the consummation of the merger of Homestead with PTR-Homestead
Village Group, Homestead will issue to PTR 9,485,727 shares of $.01 par
value common stock in exchange for the net assets of the PTR-Homestead
Village Group. Additionally, PTR will receive 6,363,789 warrants to
purchase additional shares of Homestead common stock at the exercise price
of $10 per share.
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.
(e) Reflects the acquisition of the net assets of the Atlantic-Homestead
Village Group by Homestead at estimated fair market value of $51,699
through the issuance to Security Capital Atlantic Incorporated
("Atlantic") of 4,201,220 shares of $.01 par value of Homestead common
stock. Additionally, Atlantic will receive 2,818,517 warrants to purchase
additional shares of Homestead common stock at the exercise price of $10
per share.
Included in the net assets of the Atlantic-Homestead Village Group are
estimated costs of $9,582 relating to the acquisition of land, subsequent
to March 31, 1996 and prior to the date of the Transaction. Also included
is cash of $27,167 contributed by Atlantic as partial consideration for the
Homestead stock received (the $27,167 is expected to be reduced to
approximately $18,600 at the Closing Date as a result of development costs
incurred between March 31, 1996 and the Closing Date). Additionally, the
estimated fair market value of the net assets acquired are approximately
$4,076 in excess of the historical cost basis. Management estimates the
increase in value to be attributable to property and equipment. Immediately
prior to the Transaction, all intercompany debt of Atlantic-Homestead
Village Group was converted into contributed capital.
(f) Reflects the acquisition of the net assets of the SCG-Homestead Village
Group by Homestead at estimated fair market value. 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
$.01 par value common stock. At the date of the Transaction, Security
Capital Group Incorporated ("SCG") will receive a pro rata portion
(1,640,786) of the total shares to be received, based on the ratio of
actual funding provided by PTR and Atlantic to Homestead to the total
expected funding to be provided, as more fully described in the
Transaction. 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 reflected as trademarks
and other intangible assets. Additionally, SCG will receive 817,694
warrants to purchase additional shares of Homestead common stock at the
exercise price of $10 per share. Immediately prior to the Transaction, all
intercompany debt and $491 of employee related liabilities, included in
other accrued expenses, of SCG-Homestead Village Group were converted into
contributed capital.
F-4
<PAGE>
(g) Reflects estimated costs incurred in connection with the Transaction.
(h) Represents the minority interest in Homestead's shareholders' equity
resulting from shares issued to Atlantic and SCG in connection with the
acquisitions described in (e) and (f) above.
(i) Reflects the distribution to PTR shareholders of Homestead common shares
and warrants PTR received from the merger with Homestead. Also reflects
deconsolidation of Homestead from PTR as a result of the distribution of
all of its Homestead shares to PTR shareholders. Amounts 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.
F-5
<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 at the beginning of each period presented: (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) Homestead Village Properties Incorporated ("Homestead") was
funded and the PTR-Homestead Village Group merged into Homestead; (iii) The net
assets of Atlantic-Homestead Village Group and SCG-Homestead Village Group were
acquired by Homestead through the issuance of additional Homestead common
shares and warrants; and (iv) PTR distributes all of the Homestead common
shares and 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 consolidated
financial statements of PTR for 1995, as set forth on Form 10-K 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 Prospectus attached in Appendix A. In management's opinion,
all adjustments necessary to reflect the effects of these transactions have
been made.
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 at the
beginning of each period presented, 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-6
<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
PTR-HOMESTEAD FORMA
VILLAGE GROUP RESULTING
INCLUDED IN FROM
PTR HOMESTEAD PRO FORMA HOMESTEAD
HISTORICAL(A) SPIN-OFF(B) ADJUSTMENTS SPIN-OFF
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental income............. $75,809 $(6,753) $ -- $69,056
Interest & other income... 547 (115) 1,160 (c) 1,592
------- ------- ------ -------
76,356 (6,868) 1,160 70,648
------- ------- ------ -------
Expenses:
Rental expenses........... 30,297 (3,446) -- 26,851
Depreciation.............. 10,618 (859) -- 9,759
Interest.................. 6,520 (961) 243 (d) 7,948
2,146 (f)
General and
administrative, including
REIT management fee......
5,831 (537) (39)(e) 4,912
(343)(f)
Other..................... 170 (26) -- 144
------- ------- ------ -------
Total expenses.......... 53,436 (5,829) 2,007 49,614
------- ------- ------ -------
Earnings from operations.... 22,920 (1,039) (847) 21,034
Gain on sale of investments,
net........................ 2,923 -- -- 2,923
------- ------- ------ -------
Net earnings................ 25,843 (1,039) (847) 23,957
Less Preferred share
dividends.................. 6,388 -- -- 6,388
------- ------- ------ -------
Net earnings
attributable to common
shares................. $19,455 $(1,039) $ (847) $17,569
======= ======= ====== =======
Weighted average common
shares outstanding......... 72,211 72,211
------- -------
Per share net earnings
attributable to common
shares..................... $ 0.27 $ 0.24
======= =======
</TABLE>
F-7
<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,
as set forth on Form 10Q filed with the Securities and Exchange
Commission, which is incorporated herein by reference.
(b) Reflects the historical combined statement of operations of the PTR-
Homestead Village Group for the three months ended March 31, 1996, which
is presented in the Prospectus.
(c) The pro forma adjustment reflects interest income earned at 9% on $51,563
convertible mortgage notes assumed by Homestead in connection with the
merger with PTR.
(d) 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.
(e) Reflects the reduction of the 16% REIT management fee attributable to the
increased interest expense in (c) 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.
(f) Reflects additional interest expense resulting from presenting the pro
forma condensed consolidated statement of operations as if the merger and
spin-off transactions had occurred on January 1, 1996. The effects of
those transactions were that the PTR-Homestead Village Group's assets as
of March 31, 1996 would have been spun-off on January 1, 1996, while all
debt incurred to finance the assets would have been outstanding for the
entire three months ended March 31, 1996, since such debt would not have
been retired as a result of the spin-off. The impact of the additional
interest expense, net of the resulting reduction in the REIT management
fee is as follows:
<TABLE>
<CAPTION>
PTR-HOMESTEAD VILLAGE PROPERTIES
---------------------------------------
OPERATING UNDER DEVELOPMENT TOTAL
--------- ----------------- --------
<S> <C> <C> <C>
March 31, 1996 historical cost..... $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...... $ 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.
F-8
<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-HOMESTEAD PTR PRO FORMA
VILLAGE GROUP RESULTING
INCLUDED IN FROM
PTR HOMESTEAD PRO FORMA HOMESTEAD
HISTORICAL (A) SPIN-OFF (B) ADJUSTMENTS SPIN-OFF
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income......... $262,473 $(18,690) $ -- $243,783
Interest.............. 2,400 (13) 4,641 (c) 7,028
-------- -------- ------- --------
264,873 (18,703) 4,641 250,811
-------- -------- ------- --------
Expenses:
Rental expenses....... 104,046 (8,618) -- 95,428
Depreciation.......... 36,685 (2,343) -- 34,342
Interest.............. 19,584 (2,958) 943 (d) 25,041
7,472 (f)
General and
administrative,
including REIT
management fee....... 21,306 (1,787) (151)(e) 18,172
(1,196)(f)
Provision for possible
loss on investments.. 420 -- -- 420
Other................. 1,136 (146) -- 990
-------- -------- ------- --------
Total expenses...... 183,177 (15,852) 7,068 174,393
-------- -------- ------- --------
Earnings from
operations............. 81,696 (2,851) (2,427) 76,418
Gain on sale of
investments, net....... 2,623 -- -- 2,623
-------- -------- ------- --------
Net earnings............ 84,319 (2,851) (2,427) 79,041
Less Preferred share
dividends.............. 21,823 -- -- 21,823
-------- -------- ------- --------
Net earnings
attributable to
common shares...... $ 62,496 $ (2,851) $(2,427) 57,218
======== ======== ======= ========
Weighted average common
shares outstanding..... 67,062 67,062
======== ========
Per share net earnings
attributable to common
shares................. $ 0.93 $ 0.85
======== ========
</TABLE>
F-9
<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, as set
forth on Form 10-K filed with the Securities and Exchange Commission,
which is incorporated herein by reference.
(b) 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.
(c) The pro forma adjustment reflects interest income earned at 9% on $51,563
convertible mortgage notes assumed by Homestead in connection with the
merger with PTR.
(d) 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.
(e) Reflects the reduction of the 16% REIT management fee attributable to the
increased interest expense in (c) 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.
(f) Reflects additional interest expense resulting from presenting the pro
forma condensed consolidated statement of operations as if the merger and
spin-off transactions had occurred on January 1, 1995. The effects of
those transactions were that the PTR-Homestead Village Group's assets as
of March 31, 1996 would have been spun-off on January 1, 1995, while all
debt incurred to finance the assets would have been outstanding for the
entire year ended December 31, 1995, since such debt would not have been
retired as a result of the spin-off. The impact of the additional interest
expense, net of the resulting reduction in the REIT management fee is as
follows:
<TABLE>
<CAPTION>
PTR-HOMESTEAD VILLAGE PROPERTIES
---------------------------------------
OPERATING UNDER DEVELOPMENT TOTAL
--------- ----------------- --------
<S> <C> <C> <C>
March 31, 1996 historical cost..... $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...... $ 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.
F-10
<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 , on , , 1996 at 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 Properties 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 66.5% 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 ,
, 1996, commencing at a.m., local time, at , 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 Properties 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
, 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
, 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 MAY 24, 1996
SECURITY CAPITAL ATLANTIC INCORPORATED
INFORMATION STATEMENT
-----------
HOMESTEAD VILLAGE PROPERTIES 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 Properties 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
, 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 66.5% 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 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 May 20, 1996, each ATLANTIC shareholder
would receive 0.070277 shares of Homestead Common Stock and 0.047148 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 which owns 100 shares of
ATLANTIC Common Stock on the Distribution Record Date would receive seven
shares of Homestead Common Stock and four Homestead Warrants plus cash for
fractional shares and warrants. ATLANTIC intends to file 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 Appendix A hereto
and is incorporated herein by reference. This Information Statement and
Prospectus is first being sent to shareholders of ATLANTIC on or about
, 1996.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
SEE "RISK FACTORS" AT PAGE 12 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 , 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.
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............................................................... 12
Conflicts of Interest in the Transaction................................. 12
Determination of Relative Ownership Percentages.......................... 12
Significant Influence of Principal Shareholder........................... 13
Absence of Prior Public Market........................................... 13
Risks of Investments in Mortgages and Funding Commitment................. 14
Impact of Transaction on Funds From Operations........................... 14
Competition.............................................................. 14
Limited Operating History................................................ 14
THE TRANSACTION............................................................ 14
General.................................................................. 14
The Distribution......................................................... 14
Background............................................................... 15
Recommendations of the ATLANTIC Board and Reasons for the Transaction.... 22
Fairness Opinion......................................................... 27
Federal Income Tax Consequences.......................................... 30
Interests of Certain Persons in the Transaction.......................... 34
The Merger Agreement..................................................... 34
Protection of Business Agreement......................................... 39
SCG Investor Agreement................................................... 40
Funding Commitment Agreements............................................ 41
ATLANTIC and PTR Investor Agreements..................................... 41
Administrative Services Agreement........................................ 42
Escrow Agreement......................................................... 42
Regulatory Filings and Approvals......................................... 42
Restrictions on Sales by Affiliates...................................... 42
Accounting Treatment..................................................... 43
Expenses................................................................. 43
Dissenters' Rights....................................................... 43
Board Recommendation..................................................... 43
THE SPECIAL MEETING........................................................ 43
Purpose of the Meeting................................................... 43
Date, Time and Place; Record Date........................................ 43
Voting Rights............................................................ 44
Other Matters............................................................ 44
INFORMATION CONCERNING ATLANTIC............................................ 44
General.................................................................. 44
Employees................................................................ 45
Legal Proceedings........................................................ 45
Competition.............................................................. 45
ATLANTIC REIT MANAGEMENT................................................... 45
ATLANTIC PROPERTIES........................................................ 46
Properties Owned......................................................... 46
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ATLANTIC SELECTED FINANCIAL INFORMATION................................... 48
ATLANTIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 49
Overview................................................................ 49
Results of Operations................................................... 50
Environmental Matters................................................... 51
Liquidity and Capital Resources......................................... 52
REIT Management Agreement............................................... 56
ATLANTIC PER SHARE DIVIDENDS.............................................. 57
ATLANTIC POLICIES WITH RESPECT TO CERTAIN ACTIVITIES...................... 57
Investment Policies..................................................... 57
Financing Policies...................................................... 58
Conflict of Interest Policies........................................... 58
Policies Applicable to the ATLANTIC REIT Manager and Officers and
Directors of ATLANTIC.................................................. 59
Policies With Respect to Other Activities............................... 59
PRINCIPAL SHAREHOLDERS.................................................... 60
FEDERAL INCOME TAX CONSIDERATIONS......................................... 61
Taxation of ATLANTIC.................................................... 61
Taxation of the Shareholders of ATLANTIC................................ 62
Backup Withholding...................................................... 63
COMPARISON OF RIGHTS OF HOLDERS OF ATLANTIC COMMON STOCK AND HOMESTEAD
COMMON STOCK............................................................. 63
Preferred Shares........................................................ 63
Restrictions on Transfer and Redemption of Shares....................... 64
Directors............................................................... 65
Vacancies Among Directors............................................... 66
Limitation on Director Liability........................................ 66
Indemnification of Directors and Officers............................... 66
Special Shareholders' Meetings.......................................... 66
Advance Notice of Directors' Nominations and New Business............... 67
LEGAL MATTERS............................................................. 67
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AND EXPERTS...................... 67
EXPENSES OF SOLICITATION.................................................. 67
INDEX TO ATLANTIC FINANCIAL STATEMENTS.................................... F-1
APPENDIX A--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 Appendix A and the Annexes hereto). Shareholders are urged to review
the entire Information Statement and Prospectus, Appendix A and the Annexes
hereto. Unless otherwise noted, share ownership information is as of May 20,
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. In addition, unless the context otherwise requires, references to
"Homestead" refer to Homestead Village Properties Incorporated and its
subsidiaries. All references to Homestead Village Properties 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 March 31, 1996,
ATLANTIC's portfolio consisted of 25,266 multifamily units, including 9,107
units under construction and in planning, in 16 metropolitan areas and 32
submarkets in the premier growth areas of the southeastern United States. The
aggregate investment cost of these 102 properties, including planned
renovations and total budgeted development expenditures, is $1.28 billion.
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 PROPERTIES INCORPORATED
The first Homestead Village property was opened in 1992 by PTR, which since
then has built and placed into operation 26 additional Homestead Village
properties. 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 27 facilities,
has begun construction of six additional facilities and has an additional 47
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 economic occupancy and average weekly
rate for stabilized properties was 87% and $217, respectively. Homestead
categorizes its operating properties (which include all properties not in
development) as either "stabilized" or "pre-stabilized." The term "stabilized"
means that development and initial marketing of a property has been completed
and operational for a sufficient period of time to achieve market rates and
market occupancy. All 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 27 facilities in seven 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 $133 million, respectively, and to receive convertible mortgage
notes, 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, including payroll and tax
services, data processing and other computer services, human resources,
research, insurance administration, cash management and legal support.
These and other services will be available to Homestead under an
Administrative Services Agreement (described herein). 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-7 IN APPENDIX A, WITH RESPECT TO THE OWNERSHIP OF
HOMESTEAD SECURITIES.
. Since SCG controls all of the parties to the Transaction, conflicts of
interest exist.
. The terms of the Transaction were not determined based on arm's length
negotiations.
. 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 consideration being received by ATLANTIC, PTR
or SCG.
. 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 a.m., local
time, on , , 1996, at . The ATLANTIC Board has
fixed the close of business on , 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.
4
<PAGE>
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."
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 May 20, 1996, SCG beneficially owned
approximately 66.5% 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 since 1995 has developed certain Homestead Village
properties. 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.
5
<PAGE>
. 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 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, 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 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 Closing 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. 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 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 51.4% 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
6
<PAGE>
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 outstanding
on May 20, 1996, each ATLANTIC shareholder would receive 0.070277 shares of
Homestead Common Stock and 0.047148 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 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 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.
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."
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
7
<PAGE>
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."
FEDERAL INCOME TAX CONSEQUENCES
Under current federal income tax law and regulations, 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
gain on the Transaction only to the extent that ATLANTIC is treated as having
received property or cash ("boot") in the Mergers. ATLANTIC will recognize gain
upon the distribution of the Homestead Securities to its shareholders in an
amount equal to the excess of the fair market value of the Homestead Securities
on the Distribution Record Date over ATLANTIC's basis therein, and the earnings
and profits of ATLANTIC will be increased by the amount of any such gain
recognized. 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.
The Distribution of the Homestead Securities 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 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 Distribution 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)
8
<PAGE>
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 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 the applicable waiting period will expire on June 24,
1996, unless extended.
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."
9
<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.......... $ 31,737 $ 120,201 $ 30,809 $ 22,952 $ 103,634 $ 55,071 $ 156
General and
Administrative
Expenses.............. 168 583 187 105 646 266 1
REIT Management Fee.... 2,034 7,612 2,123 1,515 6,923 3,671 12
Net Earnings........... 6,104 21,458 6,650 4,175 19,639 9,926 38
Net Earnings per Share. 0.11 0.41 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........... 56,838 52,547 55,555 37,133 43,889 24,454 572
OTHER DATA:
Funds from Operations
(2)................... $ 11,005 $ 39,410 $ 11,454 $ 7,780 $ 35,564 $ 18,696 $ 66
Net Cash Provided
(Used) by Operating
Activities............ 17,561 49,081 18,011 12,954 45,235 26,205 (492)
Net Cash Used by
Investing Activities.. (47,201) (289,982) (47,201) (39,177) (240,652) (392,718) (31,005)
Net Cash Provided by
Financing Activities.. 28,743 241,932 29,249 24,579 195,649 372,638 31,634
<CAPTION>
PRO FORMA HISTORICAL
------------ --------------------------------------------------
MARCH 31, DECEMBER 31,
MARCH 31, ------------------ ------------------------------
1996 1996 1995 1995 1994 1993
------------ -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real Estate Owned, at
cost.................. $ 944,363 $936,129 $678,564 $ 888,928 $ 631,260 $ 31,005
Total Assets........... 932,809 929,318 678,683 885,824 637,846 31,850
Line of Credit (3)..... 223,353 226,000 181,000 190,000 153,000 --
Mortgages Payable...... 129,291 123,291 115,317 118,524 107,347 --
Total Liabilities...... 378,986 376,967 310,334 328,886 271,216 178
Total Shareholders'
Equity................ 553,823 552,351 368,349 556,938 366,630 31,672
Number of Shares
Outstanding........... 59,781 55,570 37,588 55,526 37,133 3,163
</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.
(3) At the date of this Information Statement and Prospectus, ATLANTIC had $207
million outstanding under its $300 million line of credit.
10
<PAGE>
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 Appendix A 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 equivalent................ 0.11 0.41
Distributions per share:
Historical.......................... 0.21 0.80
Pro forma equivalent................ 0.21 0.80
Book value per share:
Historical.......................... 9.94 10.03
Pro forma equivalent................ 9.26 9.34
HOMESTEAD COMMON STOCK:
Earnings from Operations per share:
Historical.......................... N/A N/A
Pro forma........................... $0.003 $(0.053)
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........................... $8.55 N/A
</TABLE>
11
<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 Appendix A under the caption "Risk Factors" with respect to an
investment in Homestead Securities.
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 common shares of beneficial interest, $1.00 par value per share
(the "PTR Common Shares"), of PTR and 67 shares of SCG Common Stock. Mr.
Garcia does not own any shares of ATLANTIC Common Stock, PTR Common Shares or
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.
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 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 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
12
<PAGE>
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."
SIGNIFICANT INFLUENCE OF PRINCIPAL SHAREHOLDER
SCG beneficially owns approximately 66.5% of the issued and outstanding
shares of ATLANTIC Common Stock and 37.9% of the issued and outstanding PTR
Common Shares. As a result, SCG currently controls approximately 66.5% and
37.9% 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 4,062,788 shares of Homestead Common Stock of which 2,243,038 shares of
Homestead Common Stock 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 2,793,811 and 3,595,091 shares of Homestead Common Stock,
respectively, for a total of 10,451,690 shares of Homestead Common Stock or
approximately 58.9% of the outstanding shares of Homestead Common Stock.
Through its beneficial ownership of Homestead Common Stock, it is expected
that SCG will control 58.9% of the vote on all matters submitted for Homestead
shareholder action. 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 5,103,884 shares of Homestead Common Stock. 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.
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Distribution, there will be no public market for the Homestead
Securities. Application will be made to quote or list the Homestead Common
Stock and the Homestead Warrants on a national securities exchange or
interdealer quotation system. Although such quotation or listing is a
condition to closing the Mergers, 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.
13
<PAGE>
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 no Homestead Village
properties 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. There can be no assurance that Homestead
will be profitable in the future.
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
14
<PAGE>
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 May 20, 1996,
each ATLANTIC shareholder would receive 0.070277 shares of Homestead Common
Stock and 0.047148 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 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. THE DISTRIBUTION WILL NOT AFFECT THE
NUMBER OF, OR THE RIGHTS ATTACHING TO, OUTSTANDING SHARES OF ATLANTIC COMMON
STOCK.
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 Appendix A.
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 Appendix A. 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
15
<PAGE>
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.
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
16
<PAGE>
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 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.
17
<PAGE>
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.
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
18
<PAGE>
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.
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.
Although 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.
19
<PAGE>
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 represent 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. 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
20
<PAGE>
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.
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
21
<PAGE>
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 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
22
<PAGE>
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 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 and other 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
23
<PAGE>
vconcept, 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
ATLANTIC, PTR and SCG in Homestead was established by SCG and was based on the
respective discounted cash flows of ATLANTIC, PTR and SCG for the 80
identified Homestead Village properties in operation, under construction or in
pre-development planning at July 1, 1996, which will be contributed to
Homestead in connection with the Mergers, and the ATLANTIC and PTR REIT
Management fees and property management fees which SCG is anticipated to
derive from such properties, net of overhead. SCG reviewed the number of
Homestead Village properties that each of ATLANTIC and PTR is expected to have
in operation or under development at July 1, 1996, of which ATLANTIC will have
five properties under construction and 21 properties in pre-development
planning, and of which PTR is expected to have 28 properties in operation,
seven properties under construction and 19 properties in pre-development
planning. For purposes of determining the relative ownership interests of
ATLANTIC and PTR in Homestead, SCG projected the net operating income for each
of these properties for the 18 months ended December 31, 1997, capitalized
1998 projected net operating income at 11%, and discounted both back to July
1, 1996, using a discount rate of 11%. SCG's analysis assumes that 1998 will
be the first year in which all 80 Homestead Village properties would be
stabilized. The capitalization rate of 11% applied to 1998 net operating
income for PTR and ATLANTIC reflects SCG's belief of current real estate
market capitalization rates for non-branded lodging facilities. The discount
rate of 11% applied to ATLANTIC and PTR 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 study by an independent third party of
private and public companies in the financial services sector after adjusting
for growth expectations and business objectives for each company. Because all
properties will not be stabilized until 1998, the discount rate of 17.5%
applied to SCG's cash flow between 1996 and 1998 reflects SCG's belief that
financial services cash flows generated during development and pre-stabilized
operations require a higher risk premium. 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%.
24
<PAGE>
Pursuant to each Funding Commitment Agreement, PTR and ATLANTIC will provide
Homestead aggregate funding on such developments in the amounts of up to
approximately $133 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 of the ATLANTIC Funding Commitment Agreement is
that ATLANTIC will fund $1,133,535 for each $1,000,000 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 took into account the fact that as of July 1, 1996 PTR will
have 28 Homestead Village facilities in operation and generating income, while
ATLANTIC will 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.
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.
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.
25
<PAGE>
(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 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
26
<PAGE>
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.
(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 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
27
<PAGE>
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, 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.
28
<PAGE>
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 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.
29
<PAGE>
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 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.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material United States Federal income
tax consequences of the Transaction to ATLANTIC and ATLANTIC shareholders. The
summary is based upon the Code, administrative pronouncements, judicial
decisions and Treasury regulations, subsequent changes to any of which may
affect the tax consequences described herein. 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. 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.
30
<PAGE>
Tax Consequences to ATLANTIC
The Mergers. The Mergers have been structured to generally qualify as a tax-
free transaction for United States Federal income tax purposes. PTR, ATLANTIC,
SCG and Homestead have requested a ruling from the IRS that, among other
matters, the Mergers constitute a transaction subject to Section 351 of the
Code and related provisions. In the event that ATLANTIC does not receive a
favorable ruling from the IRS prior to the consummation of the Transaction, it
is expected that Mayer, Brown & Platt will give an opinion that, among other
matters, the Mergers constitute a transaction subject to Section 351. The
obligation of PTR, ATLANTIC, Homestead and SCG to consummate the Mergers is
conditioned on receipt of either a favorable ruling from the IRS or an opinion
of Mayer, Brown & Platt that the Mergers so qualify. 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 assets transferred except to the extent that
ATLANTIC is treated as having received "boot" in the Transaction, (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, 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, (i) ATLANTIC will
recognize taxable gain, but only to the extent that the fair market value of
the assets transferred by ATLANTIC in the Mergers exceeds ATLANTIC's and its
subsidiaries' tax basis therein, and (ii) the tax basis of the Homestead Common
Stock received by ATLANTIC will be increased by the amount of any such taxable
gain recognized. Any such 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 fair market value of the Homestead Securities on the Distribution Record
Date over ATLANTIC's tax basis therein, 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 Record 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 Record
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 Distribution Record Date 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.
As a result of the Transaction, ATLANTIC will recognize gain to the full
extent of the excess of the value of the Homestead Village properties
transferred to Homestead in the Mergers over ATLANTIC's or its subsidiaries'
basis therein (the "built-in gain"). ATLANTIC will recognize the built-in gain
either as a result of the receipt of "boot" in the Mergers or upon the
Distribution (or on the Mergers and Distribution together), but in no event
will ATLANTIC recognize the built-in gain on both the Mergers and the
Distribution.
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
31
<PAGE>
Agreements." The terms of the Funding Commitment Agreement provides that
ATLANTIC will fund $1,133,535 for each $1,000,000 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 be considered a return of capital, would reduce
ATLANTIC's tax basis in the convertible mortgages (but not below zero) by the
value of the deemed distribution, and, 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 to its shareholders 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, 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.
32
<PAGE>
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 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.
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 of the Homestead Common
Stock received in the Distribution will be the fair market value of the
Homestead Common Stock on the Distribution Record Date to be determined as
discussed above. A shareholder's holding period of the Homestead Common Stock
received in the Distribution will begin on 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 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 of the Homestead Warrants
received in the Distribution will be the fair market value of the Homestead
Warrants on the Distribution Record Date to be determined as discussed above. A
shareholder's holding period of the Homestead Warrants received in the
Distribution will begin on 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
33
<PAGE>
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 be considered a return of capital, the Warrant
Holder's tax basis in the Homestead Warrants would be reduced (but not below
zero) by the value of the deemed distribution and, 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. 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 such 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 May 20, 1996, ATLANTIC's directors and executive
officers who own ATLANTIC Common Stock or PTR Common Shares will, in the
aggregate, receive a total of 20,557 shares of Homestead Common Stock and
13,789 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 10,566,272 shares of Homestead
Common Stock and 5,180,751 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, Mark Conroe, John
Patterson and Mark Riley, will become officers and employees of Homestead.
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 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
34
<PAGE>
(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 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 provide full access to all of
its properties, books, contracts, commitments and records, as appropriate; 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
35
<PAGE>
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, (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 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.
36
<PAGE>
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 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
37
<PAGE>
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.
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.
38
<PAGE>
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.
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 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
39
<PAGE>
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), 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 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 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 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 shall be deemed to be a designee
of SCG. The nominee(s) of SCG may, but need not, include
40
<PAGE>
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 $133 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 use its
reasonable efforts 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.
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.
41
<PAGE>
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 certain
administrative, office facility and other services with respect to certain
aspects of Homestead's business. These services are expected to include, but
are not limited to, payroll and tax services, data processing and other
computer services, human resources, research, insurance administration, cash
management, and legal support. 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 in accordance with the written instructions of SCG. In the event
that written 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 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 the applicable waiting period will expire on June 24, 1996, unless
extended. There can be no assurance that such regulatory requirement will be
satisfied, and, if satisfied, there can be no assurance as to the date of any
such approvals. 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
42
<PAGE>
"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 transactions to be accomplished as a result of the Transaction will be
accounted for under the purchase method of accounting in accordance with GAAP.
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."
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 prospectus of
Homestead is attached hereto as Appendix A and is incorporated by reference.
DATE, TIME AND PLACE; RECORD DATE
The ATLANTIC Special Meeting is scheduled to be held at a.m., local
time, on , , 1996, at . The ATLANTIC Board has
fixed the close of business on , 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 May
20, 1996, there were 59,796,204 shares of ATLANTIC Common Stock outstanding
held of record by approximately 290 shareholders. As of May 20, 1996, SCG and
ATLANTIC's directors and executive officers beneficially owned an aggregate of
39,927,996 shares or approximately 66.8% 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.
43
<PAGE>
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.
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 March 31, 1996, ATLANTIC owned assets in 32 of the 143 submarkets within
its 12 primary target market cities. 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.
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.
44
<PAGE>
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.
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."
45
<PAGE>
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 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 March
31, 1996.
<TABLE>
<CAPTION>
PERCENTAGE
OF ASSETS
NUMBER OF BASED ON
PROPERTIES COST(1)
---------- ----------
<S> <C> <C>
Atlanta, Georgia.................................... 29 31%
Birmingham, Alabama................................. 5 5%
Charlotte, North Carolina........................... 4 5%
Columbia, South Carolina............................ 1 1%
Ft. Lauderdale/West Palm Beach, Florida............. 8 7%
Ft. Myers, Florida.................................. 1 1%
Jacksonville, Florida............................... 6 6%
Memphis, Tennessee.................................. 2 1%
Miami, Florida...................................... 2 2%
Nashville, Tennessee................................ 4 5%
Orlando, Florida.................................... 5 3%
Raleigh, North Carolina............................. 7 6%
Richmond, Virginia.................................. 6 6%
Sarasota, Florida................................... 1 2%
Tampa, Florida...................................... 8 5%
Washington, D.C..................................... 13 14%
--- ---
Total........................................... 102 100%
=== ===
</TABLE>
- --------
(1) For operating properties at March 31, 1996, represents cost, including
planned renovations. For properties under construction or in planning at
March 31, 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
46
<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.
47
<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.......... $ 31,737 $ 120,201 $ 30,809 $ 22,952 $ 103,634 $ 55,071 $ 156
General and
Administrative
Expenses.............. 168 583 187 105 646 266 1
REIT Management Fee.... 2,034 7,612 2,123 1,515 6,923 3,671 12
Net Earnings........... 6,104 21,458 6,650 4,175 19,639 9,926 38
Net Earnings per Share. 0.11 0.41 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........... 56,838 52,547 55,555 37,133 43,889 24,454 572
OTHER DATA:
Funds from Operations
(2)................... $ 11,005 $ 39,410 $ 11,454 $ 7,780 $ 35,564 $ 18,696 $ 66
Net Cash Provided
(Used) by Operating
Activities............ 17,561 49,081 18,011 12,954 45,235 26,205 (492)
Net Cash Used by
Investing Activities.. (47,201) (289,982) (47,201) (39,177) (240,652) (392,718) (31,005)
Net Cash Provided by
Financing Activities.. 28,743 241,932 29,249 24,579 195,649 372,638 31,634
<CAPTION>
PRO FORMA HISTORICAL
------------ --------------------------------------------------
MARCH 31, DECEMBER 31,
MARCH 31, ------------------ ------------------------------
1996 1996 1995 1995 1994 1993
------------ -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real Estate Owned, at
cost.................. $ 944,363 $936,129 $678,564 $ 888,928 $ 631,260 $ 31,005
Total Assets........... 932,809 929,318 678,683 885,824 637,846 31,850
Line of Credit (3)..... 223,353 226,000 181,000 190,000 153,000 --
Mortgages Payable...... 129,291 123,291 115,317 118,524 107,347 --
Total Liabilities...... 378,986 376,967 310,334 328,886 271,216 178
Total Shareholders'
Equity................ 553,823 552,351 368,349 556,938 366,630 31,672
Number of Shares
Outstanding........... 59,781 55,570 37,588 55,526 37,133 3,163
</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.
(3) At the date of this Information Statement and Prospectus, ATLANTIC had
$207 million outstanding under its $300 million line of credit.
48
<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 should not be taken as 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 $300 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 while financing constraints
(specifically, reduced availability of development capital) have limited new
construction to levels substantially below construction activity in prior
years. 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 zoned land 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 like-kind exchanges, into assets that are more
consistent with ATLANTIC'S investment objectives.
49
<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, excluding real estate taxes ($3.1 million), real
estate taxes ($.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 make-ready and certain other costs, such as 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.
In building its portfolio, ATLANTIC has made significant investments in
multifamily properties in each year since its inception. Accordingly, the
composition of its portfolio changed significantly from the first quarter of
1995 to the first quarter of 1996. For ATLANTIC's 38 stabilized properties at
March 31, 1996, that were fully operational throughout both the first quarter
of 1996 and the first quarter of 1995, 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 in 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 and real estate taxes increased over the 1994 levels
by $14.4 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 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 and depreciation) increased
50
<PAGE>
$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 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 composition of its portfolio
changed significantly from 1993 to 1994 and from 1994 to 1995. ATLANTIC's
portfolio includes 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, 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.
General and Administrative Expenses including ATLANTIC REIT Management
Fee. The ATLANTIC REIT Management fee paid 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 $9,888,000 over 1993; $9,926,000 ($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, 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
51
<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 $.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 million in the three-month period ended
March 31, 1996, $37 million in 1995 and $153 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 and 18.2% on a
pro forma basis after giving 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
52
<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, 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.
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.
53
<PAGE>
Homestead Transaction
ATLANTIC has traditionally focused on multifamily assets, which since the
first quarter of 1995 has included certain 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 discussed in "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. Upon 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 25 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 July 1994. In August
1995, the line of credit was increased to $300 million. The line of credit is
scheduled to mature in June 1997 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. 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). ATLANTIC is
currently in compliance with all covenants.
As of May 20, 1996, $207 million of borrowings are outstanding and
multifamily properties with an undepreciated cost of approximately $475.5
million are pledged as collateral.
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 this debt.
54
<PAGE>
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 rate debt exposure associated with these bond issues, ATLANTIC has
entered into interest rate protection agreements. Under these interest rate
protection 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 ATLANTIC pays interest on a fixed
rate as provided in the agreement.
ATLANTIC has three interest rate protection agreements: i) an agreement
expiring in June 2002 on approximately $23 million of bonds that fixes the
interest rate at 6.31% (including the cost of the interest rate protection
agreement); ii) an agreement expiring in June 2005 on approximately $65 million
of bonds that fixes the interest rate at 6.59% (including the cost of the
interest rate protection agreement); and iii) an agreement expiring in June
2005 on $5 million of bonds that fixes the interest rate at 4.82% (including
the cost of the interest rate protection 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 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 projected 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
projected 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. A $0.21 per share distribution for the first quarter of
1996 was paid on March 28, 1996. The distribution paid aggregated $11.7
million.
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 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.
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 $.07 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.
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
55
<PAGE>
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. 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 Incorporated, 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.
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
56
<PAGE>
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 DIVIDENDS
There is no established public trading market for the ATLANTIC Common Stock
or the Homestead Common Stock. The following table sets forth the ATLANTIC
dividends 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
1995
First Quarter......................................... $0.20
Second Quarter........................................ $0.20
Third Quarter......................................... $0.20
Fourth Quarter........................................ $0.20
1996
First Quarter......................................... $0.21
</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.
As of May 20, 1996, ATLANTIC had approximately 290 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,
57
<PAGE>
(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).
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,
58
<PAGE>
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.
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 which ATLANTIC could reasonably be
expected to have an interest in developing. In addition, under Maryland law,
any contract or transaction between ATLANTIC and any director or any entity in
which the director has a material financial interest will be voidable unless
(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.
59
<PAGE>
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.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of May 20, 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.................. 39,757,157(1) 66.5%
125 Lincoln Avenue
Santa Fe, New Mexico 87501
William D. Sanders (Corporate
Ownership).................. 39,757,157(2) 66.5
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 7.4
Ameritech Corporation
225 West Randolph Street
HQ-13A
Chicago, Illinois 60606
C. Ronald Blankenship.......... 1,000 *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Manuel A. Garcia, III.......... 0 *
P.O. Box 2066
Daugar Restaurants, Inc.
Winter Park, Florida 32790
Ned S. Holmes.................. 120,000(3) *
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)............ 170,839 *
</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
60
<PAGE>
with a syndicate of banks. As of May 20, 1996, there were $30 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 $1.9 billion as of May 20,
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) 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 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
61
<PAGE>
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 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
62
<PAGE>
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 designation and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption of the shares
of each series, and such other
63
<PAGE>
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 also exempt a proposed transferee from the Ownership Limit. As a condition
of such exemption, the proposed transferee must give written notice to ATLANTIC
of the proposed transfer no later than the fifteenth day prior to any transfer
which, if consummated, would result in the intended transferee owning shares in
excess of 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
64
<PAGE>
transferee will receive the lesser of (i) the price paid by the purported
transferee for the Excess Shares (or, if no 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, upon demand, to ATLANTIC, which shall pay any such amounts 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 hold office for a term expiring at the
annual meeting of shareholders in 1997, a second class will hold office for a
term expiring at the annual meeting of shareholders in 1998 and a third class
will hold office for a term expiring at the annual meeting of shareholders in
1999. As the term of each class
65
<PAGE>
expires, directors in that class will be elected for a term of three years and
until their successors are duly elected and qualified. 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 (i) is not
affiliated with SCG or any of its affiliates, directly or indirectly, whether
by ownership of, ownership interest in, employment by, any material business or
professional relationship with, or service as, an officer or director of SCG or
any or its affiliates, (ii) is not serving as a trustee or director for more
than three entities organized or controlled by SCG and (iii) performs no other
services for Homestead, except as director. ATLANTIC's Bylaws contain
substantially similar provisions.
VACANCIES AMONG DIRECTORS
The MGCL provides that unless the articles of incorporation 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 ATLANTIC Bylaws and 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 ATLANTIC Board or the Homestead Board.
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 permits indemnification of directors, officers, employees and agents
of a corporation unless the act or omission was material to the matter giving
rise to the proceeding and was committed in bad faith, was the result of active
and deliberate dishonesty, allowed the party seeking indemnification to receive
an improper personal benefit or, 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.
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
66
<PAGE>
is being called. A bill passed by the Maryland legislature in April, 1996,
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, if signed by the Governor of Maryland,
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 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.
67
<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-25
Note to Schedule III.................................................... F-29
PRO FORMA (UNAUDITED):
Summary of Pro Forma adjustments........................................ F-30
Pro Forma Balance Sheet as of March 31, 1996............................ F-31
Pro Forma Statement of Earnings for the three-month period ended March
31, 1996............................................................... F-32
Pro Forma Statement of Earnings for the year ended December 31, 1995.... F-33
Notes to Pro Forma Financial Statements................................. F-34
COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
PURSUANT TO RULE 3-14:
Report of Independent Certified Public Accountants...................... F-38
Group A Properties Combined Historical Summary of Gross Income and
Direct Operating Expenses for the year ended December 31, 1994......... F-39
Notes to Group A Properties Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-40
Report of Independent Certified Public Accountants...................... F-42
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-43
Notes to Group B Properties Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-44
Report of Independent Certified Public Accountants...................... F-46
Group C Properties Combined Historical Summary of Gross Income and
Direct Operating Expenses for the Year ended December 31, 1995......... F-47
Notes to Group C Properties Combined Historical Summary of Gross Income
and Direct Operating Expenses.......................................... F-48
</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, excluding real estate taxes.................. 9,632 6,488
Real estate taxes............................................. 3,104 2,430
Depreciation.................................................. 4,804 3,605
Interest...................................................... 4,342 4,677
General and administrative, including REIT management fee..... 2,310 1,620
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") 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.
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, as set forth in the loan agreement. ATLANTIC
is in compliance with all such convenants.
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 interest rate
protection
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>
F-7
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
- --------
(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 interest rate protection 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.
ATLANTIC has effectively mitigated its variable rate debt exposure by
entering into interest rate protection agreements covering eight variable rate
bond issues included in ATLANTIC's credit enhancement agreement with the
Federal National Mortgage Association ("Fannie Mae"). Under these interest
rate protection 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 6.31% General Re Financial Products Corporation
$64.6 million........... 10 years 6.59% Morgan Guaranty Trust Company of New York
$5.0 million............ 10 years 4.82% Morgan Guaranty Trust Company of New York
</TABLE>
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 the
balance in the principal reserve fund at the variable rates as provided by the
mortgage agreements.
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.
F-8
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
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--DISTRIBUTIONS AND FUNDS FROM OPERATIONS
ATLANTIC's current policy is to pay distributions to shareholders based upon
funds from operations and aggregating annually at least 95% of its taxable
income. Funds from operations is not to be construed as a substitute for "net
earnings" in evaluating operating results nor as a substitute for "cash flow"
in evaluating liquidity.
In January 1996, ATLANTIC adopted the National Association of Real Estate
Investment Trusts' (NAREIT) new definition of funds from operations. Under
this new definition, loan cost amortization is expensed in determining funds
from operations. For comparability, funds from operations for the three months
ended March 31, 1995 gives effect to this change in definition as if it had
been applied since January 1, 1995.
Funds from operations for three-month periods ended March 31, 1996 and 1995
were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Net earnings............................................. $ 6,650 $ 4,175
Add depreciation......................................... 4,804 3,605
------- -------
Funds from operations.................................... $11,454 $ 7,780
======= =======
Weighted average shares outstanding...................... 55,555 37,133
======= =======
</TABLE>
On December 19, 1995, the Board of Directors of ATLANTIC set an annualized
distribution level of $.84 per share in 1996. On March 28, 1996, ATLANTIC made
a quarterly distribution of $0.21 per share.
NOTE 5--SHAREHOLDERS' EQUITY
Capital Offerings
ATLANTIC began a private offering in the fourth quarter of 1995. In
connection with this offering ATLANTIC sold 11,391,030 shares; 8,847,030
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.
F-9
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
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. At this time,
ATLANTIC has no Series A Junior Participating Preferred Stock outstanding.
NOTE 6--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. The REIT
Management fee was $2,123,000 and $1,515,000 for the three months ended March
31, 1996 and 1995, respectively.
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. For the three months
ended March 31, 1996 and 1995, ATLANTIC paid SCG Realty Services aggregate
fees of $920,000 and $717,000, respectively. 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.................................. 31,880 17,457 75
Real estate taxes................................ 9,570 5,595 --
Depreciation..................................... 15,925 8,770 28
Interest......................................... 19,042 9,240 --
General and administrative, including REIT man-
agement fee..................................... 7,569 3,937 13
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 interest rate protection agreements to
manage its variable interest rate exposure. Interest rate protection
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 currently 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 other parties to the interest rate protection
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. A provision for possible loss is
made when collection of receivables is considered doubtful.
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.
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.
F-17
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 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, as set forth in the loan agreement. ATLANTIC
is in compliance with all such covenants.
F-18
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 an interest rate protection agreement
with Goldman Sachs Capital Markets 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 interest rate protection agreement, ATLANTIC has effectively
mitigated a significant portion of the variable interest rate exposure
associated with the line of credit.
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
interest rate protection
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>
F-19
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
- --------
(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 interest rate protection 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 interest rate protection agreements covering seven variable rate
bond issues included in ATLANTIC's credit enhancement agreement with the
Federal National Mortgage Association ("Fannie Mae"). Under these interest
rate protection 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 protection agreement with General Re
Financial Products Corporation to a fixed interest rate of 6.31% (including
the cost of the interest rate protection agreement) and to a fixed interest
rate of 6.59% (including the cost of the interest rate protection agreement)
on the $64.6 million of bonds included in the ten-year protection agreement
with Morgan Guaranty Trust Company of New York. 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 the balance in the principal
reserve fund at the variable rates as provided by the mortgage agreements.
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>
F-20
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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>
NOTE 4--DISTRIBUTIONS AND FUNDS FROM OPERATIONS
ATLANTIC's current policy is to pay distributions to shareholders based upon
funds from operations and aggregating annually at least 95% of its taxable
income. Funds from operations is not to be construed as a substitute for "net
earnings" in evaluating operating results nor as a substitute for "cash flow"
in evaluating liquidity. In January 1996, ATLANTIC adopted the National
Association of Real Estate Investments Trusts' 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. Funds from
operations for the years ended December 31, 1995 and 1994 give effect to this
change in definition as if it had been in effect during those periods.
ATLANTIC did not incur loan cost amortization prior to 1994, therefore, funds
from operations for the period from October 26, 1993 (inception) to December
31, 1993 is not affected by the change in definition.
Funds from operations for the years ended December 31, 1995, 1994, and 1993
were as follows (in thousands):
<TABLE>
<CAPTION>
(FROM
INCEPTION)
1995 1994 1993
------- ------- ----------
<S> <C> <C> <C>
Net earnings................................... $19,639 $ 9,926 $38
Add depreciation............................... 15,925 8,770 28
------- ------- ---
Funds from operations.......................... $35,564 $18,696 $66
======= ======= ===
Weighted average shares outstanding............ 43,889 24,454 572
======= ======= ===
</TABLE>
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 set 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.
F-21
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--SHAREHOLDERS' EQUITY
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.
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.
F-22
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
REIT management fees aggregated $6,923,000, $3,671,000, and $12,000 for the
years ended December 31, 1995, 1994, and 1993 respectively.
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
F-23
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
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. For the years ended December 31, 1995 and
1994, respectively, ATLANTIC paid fees aggregating $3,499,000 and $2,018,000
to Realty Services, including $3,475,000 and $1,536,000 for property
management fees and $24,000 and $482,000 for other services.
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.
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-24
<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-25
<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-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
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-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>
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-28
<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-29
<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-out 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-30
<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 $18,671 (a) $ $954,800 $(10,437) $944,363
Less accumulated
depreciation......... 28,364 (699)(a) 27,665 -- 27,665
-------- ------- -------- -------- -------- --------
Net real estate
investments.......... 907,765 19,370 927,135 (10,437) 916,698
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 $15,817 $ $945,135 $(12,326) $932,809
======== ======= ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Line of credit........ $226,000 $ 9,029 (b) $(48,425)(c) $186,604 $ 36,749 $223,353
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
-------- ------- -------- -------- -------- --------
Total liabilities... 376,967 15,147 (48,425) 343,689 35,297 378,986
-------- ------- -------- -------- -------- --------
Shareholders' Equity:
Common shares
(250,000,000 shares
authorized;
55,569,635 issued in
historical period and
59,780,505 issued on
pro forma basis)..... 556 42 (c) 598 598
Additional paid-in
capital.............. 576,976 48,383 (c) 625,359 625,359
Distributions in
excess of net
earnings............. (25,181) 670 (a) (24,511) (47,623) (72,134)
-------- ------- -------- -------- -------- --------
Total shareholders'
equity............. 552,351 670 48,425 601,446 (47,623) 553,823
-------- ------- -------- -------- -------- --------
Total liabilities
and shareholders'
equity............. $929,318 $15,817 $ 0 $945,135 $(12,326) $932,809
======== ======= ======== ======== ======== ========
</TABLE>
See accompanying notes to pro forma financial statements.
F-31
<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 $934 (f) $ $ $31,743 $ (6) $31,737
Interest income....... 72 72 72
------- ---- ----------- ------------ ------- ----- -------
Total income........ 30,881 934 31,815 (6) 31,809
------- ---- ----------- ------------ ------- ----- -------
Expenses
Rental expenses....... 12,736 460 (f) 13,196 13,196
Mortgage interest..... 2,041 120 (f)(g) 2,161 2,161
Depreciation.......... 4,804 (93)(h) 190 (i) 4,901 4,901
Interest on general
debt................. 2,301 2,301 905 3,206
General and
administrative....... 186 186 (18) 168
REIT management fees.. 2,124 53 (j) 2,177 (143) 2,034
Other................. 39 39 39
------- ---- ----------- ------------ ------- ----- -------
Total expenses...... 24,231 487 190 53 24,961 744 25,705
------- ---- ----------- ------------ ------- ----- -------
Net earnings (loss),
excludes gain on
disposition............ $ 6,650 $447 $ (190) $ (53) $ 6,854 $(750) $ 6,104
======= ==== =========== ============ ======= ===== =======
Weighted average shares
outstanding............ 55,555 1,283 (o) 56,838 56,838
======= ============ ======= =======
Net earnings per share,
excludes gain on
disposition............ $ 0.12 $ 0.12 $ 0.11
======= ======= =======
</TABLE>
See accompanying notes to pro forma financial statements.
F-32
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
PRO FORMA STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
(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............. $103,634 $16,571 (f) $ $ $120,205 $ (4) $120,201
Interest income........... 245 245 245
-------- ------- ------------ ------------ -------- ------- --------
Total income............ 103,879 16,571 120,450 (4) 120,446
-------- ------- ------------ ------------ -------- ------- --------
Expenses
Rental expenses........... 41,450 8,286 (f) (1,067)(k) 48,669 48,669
Mortgage interest......... 7,662 1,104 (f)(l) 8,766 8,766
Depreciation.............. 15,925 (1,052)(h) 3,079 (m) 17,952 17,952
Interest on general debt.. 11,380 11,380 3,772 15,152
General and
administrative........... 646 646 (63) 583
REIT management fees...... 6,923 1,283 (n) 8,206 (594) 7,612
Other..................... 254 254 254
-------- ------- ------------ ------------ -------- ------- --------
Total expenses.......... 84,240 8,338 2,012 1,283 95,873 3,115 98,988
-------- ------- ------------ ------------ -------- ------- --------
Net earnings (loss),
excludes gain on
disposition................ $ 19,639 $ 8,233 $ (2,012) $ (1,283) $ 24,577 $(3,119) $ 21,458
======== ======= ============ ============ ======== ======= ========
Weighted average shares
outstanding................ 43,889 8,658 (o) 52,547 52,547
======== ============ ======== ========
Net earnings per share,
excludes gain on
disposition................ $ 0.45 $ 0.47 $ 0.41
======== ======== ========
</TABLE>
See accompanying notes to pro forma financial statements.
F-33
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO PRO FORMA FINANCIAL STATEMENTS
MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
(a) Represents the acquisition of three 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:
Esprit..................................... April 10, 1996 $ 8,000
Paces Court................................ April 22, 1996 11,007
Park Place................................. April 22, 1996 14,355
--------
33,362
--------
Disposition:
Greenbrier................................. April 9, 1996 (14,691)(1)
--------
Net acquisitions......................... $ 18,671
========
</TABLE>
- --------
(1) Greenbriar 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 to fund the pro forma net acquisitions above.
Additionally, reflects ATLANTIC's assumption of a $6 million mortgage note
payable upon the purchase of the Esprit property.
(c) Reflects the sale of 4,210,870 common shares ($.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) Reflects consummation of the Merger Agreement and spin-out 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.
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 and
2,818,517 Homestead Warrants in exchange for ATLANTIC's contribution of
Homestead Village net assets as of March 31, 1996, the Homestead Village
assets expected to be acquired prior to the Closing Date and cash.
4) The additional borrowings under ATLANTIC's line of credit necessary to
finance ATLANTIC's contribution to Homestead as of January 1, 1995.
5) Additional interest expense and a corresponding reduction in the REIT
management fee resulting from the additional pro forma borrowings of
$36,749,000 and the borrowings that financed the Homestead Village net
assets contributed by ATLANTIC. ATLANTIC's weighted average daily interest
rates (7.92% for the year ended December 31, 1995 and 7.61% for the three-
month period ended March 31, 1996) were used to calculate the additional
interest expense.
6) The special dividend to ATLANTIC shareholders of all of the Homestead
Securities to be received by ATLANTIC under the Merger Agreement. The
expected value of the Homestead securities is $51,699,000 and ATLANTIC's
expected basis in the assets contributed is expected to be $47,623,000. The
resulting gain on the exchange of $4,076,000 is reflected in "Distributions
in excess of net earnings" in the accompanying pro forma balance sheet as
of March 31, 1996.
F-34
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
(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%
Cedar Bay Village....... 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%
Esprit.................. 4/10/96 Charlotte, NC 8,000 202 Moderate 93.6%
Paces Court............. 4/22/96 Greenville, SC 14,355 234 Middle 91.0%
Park Place.............. 4/22/96 Coral Springs, FL 11,007 350 Moderate 91.7%
</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-35
<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 INTEREST
------- --------- --------
<S> <C> <C> <C>
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996:
Group C Properties............................ $ 1,446 $ 717 $ 120
Less: Post acquisition amounts already
included in ATLANTIC's historical
balances................................. -- -- --
Less: Disposition............................. (512) (257) --
------- ------ ------
Net adjustment to ATLANTIC's historical bal-
ances...................................... $ 934 $ 460 $ 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
------- ------ ------
Totals for the year......................... 33,575 15,414 2,146
Less: Post acquisition amounts already in-
cluded in ATLANTIC's historical balances. (10,338) (4,142) (583)
Less: Dispositions............................ (6,666) (2,986) (459)
------- ------ ------
Net adjustment to ATLANTIC's historical bal-
ances...................................... $16,571 $8,286 $1,104
======= ====== ======
</TABLE>
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 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(i) 68(i) 0(i)
------- ------ -----
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(ii) 1,097(ii) 234(ii)
------- ------ -----
Total 1995 Group B................... $ 9,662 $4,395 $ 887
======= ====== =====
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) Represents incremental income and expense adjustments necessary to
reconcile the 1994 audited results with the 1995 actual results.
(ii) 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.
F-36
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
NOTES TO PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
(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 in April 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 in April 1996 occurred on January 1, 1995.
(k) Reflects the difference for the year ended December 31, 1995 between 1)
historical property management fee expense and ATLANTIC's pro forma property
management fee expense of $(86,000) and 2) historical make-ready expense and
ATLANTIC's pro forma make-ready expense of $(981,000).
(l) 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%.
(m) 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.
(n) 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.
(o) 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.
F-37
<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-38
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
GROUP A PROPERTIES
COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C>
Gross income:
Rental........................................................... $12,951,378
Other............................................................ 387,073
-----------
Total gross income............................................. 13,338,451
-----------
Direct operating expenses:
Utilities and other property operating expenses.................. 3,051,955
Real estate taxes................................................ 1,255,172
Repairs and maintenance.......................................... 997,451
Management fees.................................................. 601,533
Interest on certain obligations assumed.......................... 159,253
Advertising...................................................... 217,925
Insurance........................................................ 205,648
-----------
Total direct operating expenses................................ 6,488,937
-----------
Excess of gross income over direct operating expenses.............. $ 6,849,514
===========
</TABLE>
See accompanying notes.
F-39
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
GROUP A PROPERTIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES
DECEMBER 31, 1994
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 relates to the
operations of the following Group A Properties which were acquired from
unaffiliated parties by Security Capital Atlantic Incorporated (the Company)
between April 1, 1995 and September 30, 1995:
<TABLE>
<CAPTION>
ACQUISITION DATE 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,
1995 Cedar Bay Village Orlando, Florida 1,709
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, 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.
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-40
<PAGE>
SECURITY CAPITAL ATLANTIC INCORPORATED
GROUP A PROPERTIES
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS
INCOME AND DIRECT OPERATING EXPENSES--(CONTINUED)
3. RELATED PARTY TRANSACTIONS
Management fees of $601,533 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
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.
At December 31, 1994, the mortgage note had an outstanding balance of
$2,037,830. The Companys assumption of this mortgage note did not provide for
any modification to the original terms, therefore, interest expense incurred
prior to the Companys assumption is representative of future interest expense.
Accordingly, interest expense of $159,253 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 an interest rate
protection 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 Companys assumption of the debt. Accordingly, no
interest expense is recognized in the accompanying combined Historical
Summary.
F-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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 10,
1996 Esprit Charlotte, North Carolina $ 8,000
April 22,
1996 Park Place Coral Springs, Florida 14,355
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.
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 Esprit Apartment 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-48
<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. THE PROSPECTUS (OF WHICH THIS APPENDIX A FORMS A PART) +
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
APPENDIX A
SUBJECT TO COMPLETION DATED MAY , 1996
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
PROSPECTUS
-----------
This Appendix A 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 Appendix A is
attached. This Appendix A constitutes part of the Prospectus of Homestead
Village Properties 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 Distribution Record Date (as
hereafter defined).
There has been no public trading market for the shares of Homestead Common
Stock or the Homestead Warrants. Homestead will apply for listing or quotation
of the Homestead Common Stock and the Homestead Warrants on a national
securities exchange or an interdealer quotation system, although no assurance
can be given that such application will be approved.
SEE "RISK FACTORS" AT PAGE A-7 OF THIS APPENDIX A FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF HOMESTEAD SECURITIES.
-----------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROSPECTUS (OF WHICH THIS
APPENDIX A FORMS A PART) 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 APPENDIX A 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 Appendix A is , 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... A-2
RISK FACTORS.............................................................. A-7
Significant Influence of Principal Shareholder.......................... A-7
Limited Operating History............................................... A-7
Risks of Borrowing...................................................... A-7
Development Risks....................................................... A-8
Risks Associated with Rapid Growth...................................... A-8
Risks Associated with the Lodging Industry.............................. A-8
Competition in the Lodging Industry..................................... A-8
Need for Additional Capital............................................. A-9
Impact of Environmental Regulations..................................... A-9
Government Regulation and Compliance with Americans with Disabilities
Act.................................................................... A-10
Losses in Excess of Insurance Coverage.................................. A-10
Reliance on Key Personnel............................................... A-10
Limitations on Changes in Control....................................... A-10
Absence of Prior Public Market.......................................... A-11
Shares Eligible for Future Sale......................................... A-12
Absence of Dividends.................................................... A-12
DIVIDEND POLICY........................................................... A-12
CAPITALIZATION............................................................ A-13
HOMESTEAD PRO FORMA SELECTED FINANCIAL INFORMATION........................ A-14
PTR-HOMESTEAD VILLAGE GROUP SELECTED FINANCIAL INFORMATION................ A-15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF PTR-HOMESTEAD VILLAGE GROUP................................ A-16
Overview................................................................ A-16
Environmental Matters................................................... A-16
Liquidity and Capital Resources......................................... A-16
Results of Operations................................................... A-16
ATLANTIC-HOMESTEAD VILLAGE GROUP SELECTED FINANCIAL INFORMATION........... A-18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ATLANTIC-HOMESTEAD VILLAGE GROUP........................... A-19
Overview................................................................ A-19
Environmental Matters................................................... A-19
Liquidity and Capital Resources......................................... A-19
SCG-HOMESTEAD VILLAGE GROUP SELECTED FINANCIAL INFORMATION................ A-20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF SCG-HOMESTEAD VILLAGE GROUP................................ A-21
Overview................................................................ A-21
Liquidity and Capital Resources......................................... A-21
Results of Operations................................................... A-21
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS................................................................... A-22
Objectives............................................................... A-22
History.................................................................. A-23
The Facilities........................................................... A-24
Growth and Development Strategy.......................................... A-25
Operating Strategy....................................................... A-25
Homestead Village Properties............................................. A-26
Administrative Services Agreement........................................ A-26
Industry Overview........................................................ A-27
Competition.............................................................. A-28
Environmental Matters.................................................... A-29
Governmental Regulation.................................................. A-29
Trademarks............................................................... A-30
Insurance................................................................ A-30
Employees................................................................ A-30
Legal Proceedings........................................................ A-30
MANAGEMENT................................................................. A-30
Directors and Officers................................................... A-30
Other Officers of Homestead.............................................. A-31
Management Philosophy.................................................... A-33
Management Compensation.................................................. A-34
Stock Option Plan........................................................ A-34
RELATIONSHIP WITH SECURITY CAPITAL GROUP INCORPORATED...................... A-35
CERTAIN RELATIONSHIPS AND TRANSACTIONS..................................... A-36
Protection of Business Agreement......................................... A-36
SCG Investor Agreement................................................... A-36
Funding Commitment Agreements............................................ A-37
ATLANTIC and PTR Investor Agreements..................................... A-38
Escrow Agreement......................................................... A-38
Finder's Agreements...................................................... A-39
PRINCIPAL SHAREHOLDERS..................................................... A-40
DESCRIPTION OF HOMESTEAD SECURITIES........................................ A-41
General.................................................................. A-41
Homestead Common Stock................................................... A-41
Preferred Stock.......................................................... A-42
Purchase Rights.......................................................... A-42
Homestead Warrants....................................................... A-44
Convertible Mortgage Notes............................................... A-45
CERTAIN PROVISIONS OF MARYLAND LAW AND OF HOMESTEAD'S CHARTER AND BYLAWS... A-46
Classification of the Homestead Board.................................... A-46
Business Combinations.................................................... A-47
Control Share Acquisitions............................................... A-47
Advance Notice Provisions................................................ A-48
SHARES AVAILABLE FOR FUTURE SALE........................................... A-48
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS................................. A-49
ADDITIONAL INFORMATION..................................................... A-49
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 Appendix A or
the ATLANTIC Information Statement and Prospectus, including this Appendix A.
Shareholders are urged to review the entire PTR Proxy Statement and Prospectus
or the ATLANTIC Information Statement and Prospectus, as applicable, this
Appendix and the Annexes thereto, and the documents, if any, incorporated
therein by reference. All references to Homestead Village Properties
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 PROPERTIES INCORPORATED
The first Homestead Village facility was opened in 1992 by PTR, which since
then has built and placed into operation 26 additional Homestead Village
facilities. 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 operates 27 facilities, has begun construction of six
additional facilities and has an additional 47 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 economic occupancy and average weekly
rate for stabilized properties was 87% and $217 per week, respectively.
Homestead categorizes its operating properties (which include all properties
not in development) as either "stabilized" or "pre-stabilized." The term
"stabilized" means that development and initial marketing of properties has
been completed and in effect for a sufficient period of time to achieve market
rates and market occupancy. All 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.
A-2
<PAGE>
. Homestead currently operates 27 facilities in seven 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 $133 million and
$111 million, respectively, and to receive convertible mortgage notes 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, including payroll and tax services, data
processing and other computer services, human resources, research,
insurance administration services, cash management and legal support.
These and other services will be available to Homestead under an
Administrative Services Agreement (described herein). 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 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 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 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
A-3
<PAGE>
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 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 Closing Date.
. Pursuant to the applicable Funding Commitment Agreement, PTR and ATLANTIC
have agreed to provide funding of $133 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. 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 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 51.4% of the outstanding
Homestead Common Stock.
A-4
<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
Homestead Warrants............................................ 10,000,000
Fully Exercised and Converted(1).............................. 55,520,352 shares
</TABLE>
- --------
(1) 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.
A-5
<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 Registration Statement. 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
------------ ------------
(AMOUNTS IN THOUSANDS
EXCEPT SHARE DATA)
<S> <C> <C>
OPERATIONS SUMMARY:
Room Revenue....................................... $ 6,753 $ 18,337
Total Revenue...................................... 6,874 18,721
Property Operating Expenses........................ 2,946 7,600
Corporate Operating Expenses....................... 2,000 6,188
EBITDA(1).......................................... 1,928 4,933
Net Income (Loss).................................. 48 (937)
PER SHARE DATA:
EBITDA(1).......................................... 0.11 0.28
Net Income (Loss).................................. .003 (.053)
Net Book Value..................................... $ 8.55 N/A
Weighted Average Number of Shares of Common Stock
Outstanding....................................... 17,749,735 17,749,735
<CAPTION>
PRO FORMA
MARCH 31,
1996
------------
<S> <C> <C>
FINANCIAL POSITION:
Property and Equipment, net........................ $ 156,988
Total Assets....................................... 211,538
Convertible Mortgage Notes Payable................. 51,563
Total Liabilities.................................. 59,766
Shareholders' Equity............................... 151,772
Common Stock Outstanding........................... 17,749,735
</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 cash needs. Homestead has included EBITDA herein
because Homestead believes that it is one measure used by certain investors
to determine operating cash flow.
A-6
<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 Appendix A.
SIGNIFICANT INFLUENCE OF PRINCIPAL SHAREHOLDER
SCG beneficially owns approximately 37.9% of the issued and outstanding PTR
Common Shares and 66.5% of the issued and outstanding shares of ATLANTIC
Common Stock. Immediately after completion of the Mergers, SCG is expected to
beneficially own 4,062,788 shares of Homestead Common Stock of which 2,243,038
shares of Homestead Common Stock 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 3,595,091 and 2,793,811 shares of
Homestead Common Stock, respectively, for a total of 10,451,690 shares of
Homestead Common Stock or approximately 58.9% of the outstanding shares of
Homestead Common Stock. SCG will also own Homestead Warrants to acquire an
additional 5,103,884 shares of Homestead Common Stock. Through its beneficial
ownership of Homestead Common Stock, it is expected that SCG will control
58.9% of the vote on all matters submitted for Homestead shareholder action.
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 of
directors (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. There can be no assurance that Homestead
will be profitable in the future.
RISKS OF BORROWING
Upon completion of the Distribution, 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.
A-7
<PAGE>
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.
Homestead currently has six 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 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. 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
A-8
<PAGE>
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 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.
A-9
<PAGE>
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., John Patterson, Gary DeLapp and Donald Schultz. The loss of the
services of 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 declared 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 20% or more of the outstanding shares of
Homestead Common Stock or announces a tender offer for 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
A-10
<PAGE>
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 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.
One class will hold office initially for a term expiring at the annual meeting
of shareholders to be held in 1997, another class will hold office initially
for a term expiring at the annual meeting of shareholders to be held in 1998
and another class will hold office initially for a term expiring at the annual
meeting of shareholders to be held in 1999. As the term of each class expires,
directors in that class will be elected for a term of three years and until
their successors are duly elected and qualified. Since at least two annual
meetings will generally be required to effect a change in a majority of the
Homestead Board, this provision could have the effect of delaying, deferring or
preventing a change in control of Homestead even if a change in control were in
the shareholders' interests.
Certain Statutory Provisions. Homestead is subject to the Maryland General
Corporation Law (the "MGCL"), which imposes certain restrictions and requires
certain procedures with respect to the acquisition of certain levels of share
ownership and business combinations, including combinations with interested
shareholders. These provisions of the MGCL could have the effect of delaying,
deferring or preventing a change in control of Homestead even if a change in
control were in the shareholders' interest. Additionally, the Homestead
Articles exempt SCG and its affiliates from these provisions, allowing SCG and
its affiliates 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 Distribution, there will be no public market for the Homestead
Securities. Application will be made to quote or list the Homestead Common
Stock and the Homestead Warrants on a national securities exchange or an
interdealer quotation system. Although such listing or quotation is a condition
to closing of the
A-11
<PAGE>
Mergers, there can be no assurance that such application will be accepted or
that, if accepted, an active trading market will develop. In addition, there
can be no assurance of the price at which holders of the Homestead Common
Stock or Homestead Warrants will be able to sell such Homestead Securities.
From time to time, the stock market experiences significant price and volume
volatility, which may affect the market price of the Homestead Common Stock or
Homestead Warrants for reasons unrelated to Homestead's performance.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Homestead Common Stock, or the
perception that such sales could occur, could adversely affect the prevailing
market price for Homestead Common Stock. Upon completion of the Distribution,
Homestead will have 17,749,735 shares of Homestead Common Stock outstanding.
Except for shares issued to SCG, all such shares, as well as 10,000,000 shares
issuable upon exercise of Homestead Warrants (other than those issued to SCG),
may be sold in the public markets without limitation. Additionally, up to
6,720,783 shares of Homestead Common Stock may be issuable upon exercise of
outstanding convertible mortgage notes and up to 21,049,834 shares of
Homestead Common Stock may be issuable upon exercise of convertible mortgage
notes to be issued pursuant to the Funding Commitment Agreements (described
herein). 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 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 dividends in the foreseeable future.
A-12
<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 (in
thousands).
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------ ---------
<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)
Additional paid-in capital/contributed capital.. -- 176,108
Shares in escrow................................ -- (29,797)(3)
Retained earnings............................... -- 5,284
---- --------
Total shareholders' equity.................... -- 151,772 (2)
---- --------
Total capitalization.......................... -- $203,335 (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) Reflects 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, the 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-13
<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 Registration Statement. 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
-------------------------
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(AMOUNTS IN THOUSANDS
EXCEPT SHARE DATA)
<S> <C> <C>
OPERATIONS SUMMARY
Room Revenue....................................... $ 6,753 $ 18,337
Total Revenue...................................... 6,874 18,721
Property Operating Expenses........................ 2,946 7,600
Corporate Operating Expenses....................... 2,000 6,188
EBITDA(1).......................................... 1,928 4,933
Net Income (Loss).................................. 48 (937)
PER SHARE DATA:
EBITDA(1).......................................... 0.11 0.28
Net Income (Loss).................................. .003 $ (.053)
Net Book Value..................................... $ 8.55 N/A
Weighted Average Number of Shares of Common Stock
Outstanding....................................... 17,749,735 17,749,735
<CAPTION>
PRO FORMA
MARCH 31,
1996
------------
<S> <C> <C>
FINANCIAL POSITION:
Property and Equipment, net........................ $ 156,988
Total Assets....................................... 211,538
Convertible Mortgage Notes Payable................. 51,563
Total Liabilities.................................. 59,766
Shareholders' Equity............................... $ 151,772
Common Stock Outstanding........................... 17,749,735
</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 cash needs. Homestead has included EBITDA herein
because Homestead believes that it is one measure used by certain investors
to determine operating cash flow.
A-14
<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 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
-------- -------- -------- -------- -------- -------
<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............. 3,446 1,458 8,618 3,606 1,302 254
Corporate Operating
Expenses............. 563 371 1,933 1,158 413 16
Total Expenses........ 5,829 2,766 15,852 7,018 2,204 367
Net Income............ 1,039 683 2,851 974 409 10
OTHER DATA:
EBITDA(1) 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>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------------------
1996 1995 1994 1993 1992
--------- -------- ------- ------- ------
<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>
- --------
(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 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.
A-15
<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 26
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 results of operations or financial position.
LIQUIDITY AND CAPITAL RESOURCES
From inception through March 31, 1996, PTR-Homestead Village Group invested
$125.2 million for the acquisition and development of 36 Homestead Village
properties, 23 of which are operating, seven of which are under construction
and six of which are 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 expects 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 management 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.
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 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. Corporate operating expenses increased
approximately $0.8 million due to additional REIT management fees incurred 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-16
<PAGE>
Interest expense increased $1.5 million 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 related to REIT management
fees increased approximately $0.7 million during this period as a result of
increased 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 quarter ended March 31, 1996 was $6.9 million, an
increase of $3.4 million over the quarter 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
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. Corporate operating expenses increased
approximately $0.2 million due to additional REIT management fees incurred 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-17
<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 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
------------ -----------------
<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
--------- ------------
<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-18
<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. There are currently no operating properties. As of March 31, 1996,
the Atlantic-Homestead Village Group has 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 results of operations or financial position.
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 plans 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.
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-19
<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 periods 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
-------- ------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
REIT and Property
Management Fees........... $ 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)
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>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------
1996 1995 1994 1993 1992
--------- ------- ----- ---- ----
<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>
- --------
(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.
A-20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF SCG-HOMESTEAD VILLAGE GROUP
OVERVIEW
The SCG-Homestead Village Group's business consists of providing
development, and property and REIT management services for the Homestead
Village properties developed, owned and operated by the PTR-Homestead Village
Group and the Atlantic-Homestead Village Group. SCG-Homestead Village Group
earns REIT management fees which in general are 16% of cash flow (as defined)
and property management fees which are computed as a percentage (5%-7%) of
gross revenues (as defined).
LIQUIDITY AND CAPITAL RESOURCES
The SCG-Homestead Village Group has incurred operating deficits since
inception as a result of performing development services for the PTR-Homestead
Village Group and the Atlantic-Homestead Village Group without compensation.
Under the REIT Management agreement, 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.
A-21
<PAGE>
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.
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 27 facilities in seven cities, has
begun construction on six additional facilities and has an additional 47
properties in pre-development planning.
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")
A-22
<PAGE>
allow it to better target markets where supply and demand factors permit high
occupancies at increasing rental rates. Homestead targets submarkets that
exhibit strong employment and demographic trends in selecting locations with
barriers to extensive competitive development. Homestead believes it brings a
strategic discipline to determining 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 real estate investment trusts ("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 April, 1996 the number of professional
A-23
<PAGE>
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 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 Transaction, 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 and
will enjoy the benefits of SCG's organization and service. See "--
Administrative Services Agreement."
THE FACILITIES
Homestead has developed, owns and operates 27 Homestead Village properties
representing in the aggregate 3,747 units in seven cities. Homestead currently
has six Homestead Village properties under construction totaling 833 units
within two of these cities as well as two additional cities. In addition,
Homestead owns or controls through contracts 47 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 six Homestead Village properties currently under
construction average 139 units at an average project cost of $5.7 million with
an average cost per unit of $41,350.
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 economic occupancy of 87% with an average weekly rate
of $217 per unit.
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.
A-24
<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 27 properties,
has begun construction of six additional properties and has an additional 47
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., John Patterson, Gary DeLapp and Donald Schultz. 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 $259 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
A-25
<PAGE>
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 May 20, 1996:
<TABLE>
<CAPTION>
UNDER IN PRE- PERCENTAGE OF
OPERA- CONSTRUC- DEVELOPMENT NUMBER OF ASSETS BASED
CITY TING TION PLANNING PROPERTIES ON COST(1)
---- ------ --------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Albuquerque, NM......... 1 1 2 2%
Atlanta, GA............. 1 5 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............. 2 2 4 5%
Portland, OR............ 1 1 2%
Raleigh, NC............. 3 3 4%
Richmond, VA............ 1 1 2%
Salt Lake City, UT...... 2 2 3%
San Antonio, TX......... 3 3 3%
San Diego, CA........... 2 2 3%
San Francisco, CA....... 2 5 7 11%
Seattle, WA............. 4 4 6%
Tampa, FL............... 3 3 4%
Washington, DC.......... 7 7 10%
--- --- --- --- ----
Total............... 27 6 47 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
A-26
<PAGE>
PTR and ATLANTIC. Certain employees of the PTR and ATLANTIC REIT Managers who
performed various services for the Homestead predecessor entities controlled by
PTR and ATLANTIC and who participated in various benefit plans maintained by
SCG will become employees of Homestead and perform similar services.
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 certain
administrative, office facility and other services with respect to certain
aspects of Homestead's business. These services will include, but are not
limited to, payroll and tax services, data processing and other computer
services, human resources, research, insurance administration services, cash
management, and legal support. 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, when approximately 500,000 rooms were added, 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
A-27
<PAGE>
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 44,000, or
1.4%, dedicated extended-stay rooms at approximately 380 separate properties.
More than 225 of these extended-stay properties were controlled by only two
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
A-28
<PAGE>
new market. A number of other extended-stay lodging facilities exist, many of
which are oriented toward the upscale segment; however, recent announcements
indicate a substantial number of competitors intend to enter the mid-priced or
economy extended-stay segment. Homestead may compete for development sites with
established entities which have greater financial resources than Homestead and
better relationships with lenders and sellers. These entities may generally be
able to accept more risk than Homestead can prudently manage. Further, there
can be no assurance that new or existing competitors will not significantly
reduce their rates or offer greater convenience, services, or amenities or
significantly expand, improve, or develop facilities in a market in which
Homestead competes, thereby adversely affecting Homestead's operations.
ENVIRONMENTAL MATTERS
Under various federal, state, and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of hazardous or toxic substances. Furthermore, a
person that arranges for the disposal or transports for disposal or treatment a
hazardous substance at a property owned by another may be liable for the costs
of removal or remediation of hazardous substances released into the environment
at that property. The costs of remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell
such real estate or to borrow using such real estate as collateral. In
connection with the ownership and operation of its properties, Homestead may be
potentially liable for any such costs.
Homestead has obtained recent Phase I Surveys on its existing properties and
intends to obtain Phase I Surveys prior to the purchase of any future
properties. The Phase I Surveys are intended to identify potential
environmental contamination and regulatory compliance concerns. Phase I Surveys
generally include historical reviews of the properties, reviews of certain
public records, preliminary investigations of the sites and surrounding
properties and the preparation and issuance of written reports. Phase I Surveys
generally do not include invasive procedures, such as soil sampling or ground
water analysis.
The Phase I Surveys have not revealed any environmental liability or
compliance concern that Homestead believes would have a material adverse effect
on Homestead's business, assets, results of operations, or liquidity, 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
A-29
<PAGE>
Homestead, which could result in a judicial order requiring compliance, and the
expenditure of substantial sums to achieve compliance, an imposition of fines,
or an award of damages to private litigants. These and other initiatives could
adversely affect Homestead as well as the lodging industry in general.
TRADEMARKS
The Homestead Village name has been registered with the United States Patent
and Trademark office.
INSURANCE
Homestead currently has the types and amounts of insurance coverage that it
considers appropriate for a company in its business. While management believes
that its insurance coverage is adequate, if Homestead were held liable for
amounts exceeding the limits of its insurance coverage or for claims outside of
the scope of its insurance coverage, Homestead's business, results of
operations, and financial condition could be materially and adversely affected.
EMPLOYEES
Upon consummation of the Distribution, 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 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
John P. Frazee, Jr. 51 Director
Mark G. Conroe 38 Senior Vice President
Jeffrey A. Klopf 47 Senior Vice President and Secretary
John R. Patterson 44 Senior Vice President
Donald J. Schultz 41 Senior Vice President
</TABLE>
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.
A-30
<PAGE>
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.
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.
MARK G. CONROE--38--Senior 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 ATLANTIC since February 1994; from October
1991 to February 1994, President of Classic Communities, Inc., a home building
company; prior thereto, General Partner and Executive Vice President of the
Mozart Development Company, a real estate development company.
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
A-31
<PAGE>
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.
JEFFREY A. KLOPF--47--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.
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 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.
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.
A-32
<PAGE>
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.
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).
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 SCIR, 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 Homestead's
development and acquisition personnel and evaluates all prospective
investments pursuant to
A-33
<PAGE>
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.
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.
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;
Mark G. Conroe, $150,000; and Donald J. Schultz, $160,000, (the "Named
Executive Officers"). Each Named Executive Officer will also be eligible for
discretionary bonuses.
STOCK OPTION PLAN
Long-Term Incentive Plan
Prior to consummation of the Mergers, Homestead anticipates adoption of the
Homestead Village Properties 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 5,000,000 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 options, stock appreciation rights ("SARs"), stock
grants (which may be subject to restrictions), performance stock and
performance units, 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. SARs may be granted in tandem or otherwise in connection with
options, or
A-34
<PAGE>
may be granted as free-standing awards. Exercise of an option will result in
the corresponding surrender of any tandem SAR. Options and SARs 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 and SARs 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
or disability, (iii) the third anniversary of the participant's termination of
employment by reason of retirement, or (iv) 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, or performance
units which entitle the participant to receive value for the units at the end
of a performance period to the extent provided under the award. In either
case, the number of shares or units and the performance measures and periods
shall be established by the Committee at the time the award is made.
RELATIONSHIP WITH SECURITY CAPITAL GROUP INCORPORATED
Prior to consummation of the Transaction, 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 Distribution, SCG is expected to
beneficially own 10,451,690 shares of Homestead Common Stock or approximately
58.9% of the outstanding shares of Homestead Common Stock, of which 2,243,038
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." SCG will also own
Homestead Warrants to acquire an additional 5,103,884 shares of Homestead
Common Stock. Through its beneficial ownership of Homestead Common Stock, SCG
will control 58.9% of the vote on all matters submitted for Homestead
shareholder action. In addition, pursuant to an investor agreement between SCG
and Homestead, SCG will agree to exercise at the request of Homestead all
Homestead Warrants it receives in the Transaction. In exchange for its
agreement to exercise Homestead Warrants, Homestead will grant SCG the right,
among other things, to nominate up to two directors to the Homestead Board,
depending upon SCG's level of ownership of shares of Homestead Common Stock,
and to be consulted on certain business decisions made by Homestead. In
addition, pursuant to investor agreements with ATLANTIC and PTR, each of
ATLANTIC and PTR will have the right to nominate one director to the Homestead
Board. See "Certain Relationships and Transactions--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 Transaction, Homestead obtained certain services from
affiliates of SCG and the SCG employees who performed services for Homestead
under the PTR and ATLANTIC REIT Management
A-35
<PAGE>
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 for a period of 10 years 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), 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 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 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
A-36
<PAGE>
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 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 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 fund up to the full amount of
its obligation with respect to such property. Homestead is required to
complete the development of such property consistent with the development
plans for such property. Each mortgage loan issued by Homestead pursuant to a
Funding Commitment Agreement will be convertible into shares of Homestead
Common Stock on the basis of one share of Homestead Common Stock for every
$11.50 of principal outstanding on the mortgage loan. The obligation of
Homestead to call for funding of, and the obligations of PTR and ATLANTIC to
provide funding for, the mortgage loans expires on March 31, 1998, except with
respect to properties for which Homestead has given notice that it intends to
develop. Interest on the mortgage loans accrues at the rate of 9% on the
unpaid principal balance, payable every six months. The mortgages are
scheduled to mature on October 31, 2006, and are not callable until five years
after the Closing Date. Homestead has pledged substantially all of its assets
as collateral for the mortgage loans.
Pursuant to each Funding Commitment Agreement, PTR and ATLANTIC will provide
Homestead aggregate funding on such developments in the amounts of up to
approximately $133 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 of the ATLANTIC Funding Commitment Agreement is
that ATLANTIC will fund $1,133,535 for each $1,000,000 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
A-37
<PAGE>
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 took into account the fact that as of July 1, 1996 PTR
will have 28 Homestead Village facilities in operation and generating income,
while ATLANTIC will 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, include the same person(s) nominated by SCG
pursuant to the SCG Investor Agreements. In addition, Homestead has granted to
each of ATLANTIC and PTR registration rights with respect to the issuance upon
conversion and the distribution of all of the shares of Homestead Common Stock
issuable upon conversion of the convertible mortgage notes. Prior to the one-
year anniversary of the date the Homestead Common Stock is registered under the
Exchange Act, each of ATLANTIC and PTR may request one registration of those
shares of Homestead Common Stock which are issued upon conversion of any or all
the convertible mortgage notes converted during such one-year period and which
it intends to distribute to its stockholders. After such one-year anniversary,
each of ATLANTIC and PTR may request three additional registrations pursuant to
Rule 415 promulgated under the Securities Act of all shares of Homestead Common
Stock issued or issuable upon conversion of the convertible mortgage notes.
Such registration, except for the fees and disbursements of counsel to ATLANTIC
or PTR, shall be at the expense of Homestead.
ESCROW AGREEMENT
Pursuant to an escrow agreement to be dated the Closing Date (the "Escrow
Agreement") among Homestead, SCG and State Street Bank and Trust Company
("Escrow Agent"), a portion of the shares of Homestead Common Stock issuable to
SCG in the Transaction will be placed in an escrow account maintained with the
Escrow Agent. In general, as PTR and ATLANTIC advance funds to Homestead in
accordance with the terms of their respective Funding Commitment Agreements, a
portion of the shares of Homestead Common Stock in the escrow account will be
released to SCG, together with a proportionate amount of accrued dividends, if
any. On January 1, 2000, unless all of the shares of Homestead Common Stock
placed in the escrow account have been released to SCG sooner in accordance
with the provisions of the Escrow Agreement, the Escrow Agent will release to
Homestead all of the shares of Homestead Common Stock remaining in the escrow
account. All 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 in
accordance with the written instructions of SCG. In the event that written
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
A-38
<PAGE>
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 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 received by
Homestead from the sale of such property; and (iv) upon the sale of any of the
other 35 properties to an unaffiliated third party, 10% of the net proceeds
received by Homestead from the sale of such property. 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.
A-39
<PAGE>
PRINCIPAL SHAREHOLDERS
As of May 20, 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 May 20, 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.......... 15,555,574(2) 68.1%
125 Lincoln Avenue
Santa Fe, New Mexico 87501
William D. Sanders (Corporate Ownership)... 15,555,574(3) 68.1%
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 *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
John P. Frazee, Jr........................... 3,143 *
9512 Bull Headley Road
Tallahassee, Florida 32312
Marc G. Conroe............................... 501 *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Robert W. Frost, Jr.......................... 0 *
Six Piedmont Center
Atlanta, Georgia 30305
John R. Patterson............................ 0 *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Donald J. Schultz............................ 199 *
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Directors and Executive Officers as a group
(7 persons)................................. 12,714 *
</TABLE>
- --------
* Less than 1%.
(1) Includes for SCG, Messrs. Sanders, Blankenship, Dressler, Frazee, Conroe
and Schultz and all directors and executive officers as a group, 5,103,884,
25,935, 3,197, 365, 1,262, 201, 80 and 5,105 shares of Homestead Common
Stock, respectively, that may be acquired upon exercise of Homestead
Warrants.
A-40
<PAGE>
(2) These shares of Homestead Common Stock will be 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 with a syndicate of
banks. As of May 20, 1996, there were $30 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, 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 $1.9 billion as of May 20, 1996. SCG was in compliance
with all covenants under the line of credit as of March 31, 1996. 2,243,038
of these shares of Homestead Common Stock with respect to which SCG has
sole voting power will be held in escrow. 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.
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 Appendix A 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," "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 non-
assessable. 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.
A-41
<PAGE>
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.
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 Distribution, 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 declared 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") or (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
(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 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.
A-42
<PAGE>
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 of $1 per
share but will be entitled to an aggregate distribution of 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. 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 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.
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
A-43
<PAGE>
"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 Appendix A 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 Appendix A 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. Wherever
particular sections or defined terms of the Warrant Agreement are referred to,
such sections or defined terms are incorporated by reference.
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.
Homestead Warrants may be exercised at any time by surrendering the Warrant
Certificate evidencing such Homestead Warrants 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 date on which the Transaction is consummated.
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.
A-44
<PAGE>
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 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.
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
capital 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 and
(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) 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, 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, the right to exercise a Homestead
Warrant for Homestead Common Stock may be changed into a right to receive
securities, cash or other assets of Homestead or another person.
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 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, 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 $133 million
and $111 million, respectively. PTR and ATLANTIC will receive convertible
mortgage notes in respect of such fundings in stated amounts of up to
$144,044,620 and $98,028,471, 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
A-45
<PAGE>
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 took into account the fact that as of July 1, 1996 PTR will
have 28 Homestead Village facilities in operation and generating income, while
ATLANTIC will 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.
Interest on the promissory notes accrues at the rate of 9% on the unpaid
principal balance payable every six months. The promissory notes are scheduled
to mature on October 31, 2006. Homestead has pledged substantially all of its
assets as collateral for the promissory notes. PTR and ATLANTIC have the right,
beginning on or after March 31, 1997, to convert all of the outstanding
principal amount of the promissory
notes into shares of Homestead Common Stock on the basis of one share of
Homestead Common Stock for each $11.50 aggregate principal amount outstanding
on the promissory notes being converted. This conversion rate is subject to
adjustment on substantially the same terms as the Homestead Warrants.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
HOMESTEAD'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law and the
Homestead Charter and Bylaws. The summary does not purport to be complete and
is subject to and qualified in its entirety by reference to Maryland law and
the Homestead Charter and Bylaws, copies of which have been filed as exhibits
to the Registration Statement of which this Appendix A 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. One class will hold office
initially for a term expiring at the annual meeting of shareholders to be held
in 1997, another class will hold office initially for a term expiring at the
annual meeting of shareholders to be held in 1998 and another class will hold
office initially for a term expiring at the annual meeting of shareholders to
be held in 1999. 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.
A-46
<PAGE>
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.
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: (i) one-fifth or more but less than one-
third, (ii) one-third or more but less than a majority, or (iii) a majority 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.
A-47
<PAGE>
Homestead's Bylaws contain a provision exempting SCG and its affiliates and
successors from the provisions of the Control Share acquisition statute.
ADVANCE NOTICE PROVISIONS
For nominations or other business to be properly brought before an annual
meeting of stockholders by a stockholder, the Homestead Bylaws require such
stockholder 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 Homestead common stock which are owned beneficially and of record by such
stockholder and such beneficial owner, if any.
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the Distribution, Homestead will have 17,749,735 shares of
Homestead Common Stock 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 10,451,690 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.
A-48
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS AND EXPERTS
The following financial statements have been included herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing:
(i) the combined balance sheets of the PTR-Homestead Village Group as of
December 31, 1994 and 1995, the related combined statements of
operations, owners' equity and cash flows for each of the years in the
three-year period ended December 31, 1995 and the related combined
schedule as of December 31, 1995;
(ii) the combined balance sheet of the Atlantic-Homestead Village Group as
of December 31, 1995, the related combined statements of operations,
owners' equity and cash flows for the period from April 3, 1995 (date
of formation) through December 31, 1995 and the related combined
schedule as of December 31, 1995;
(iii) the combined balance sheets of the SCG-Homestead Village Group as of
December 31, 1994 and 1995 and the related combined statements of
operations, shareholder's equity and cash flows for each of the years
in the three-year period ended December 31, 1995.
The balance sheet of Homestead Village Properties 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.
ADDITIONAL INFORMATION
Homestead has filed with the Commission a Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act with respect to the
Homestead Securities being distributed hereby. This Appendix A, 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 Distribution, 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.
A-49
<PAGE>
INDEX TO HOMESTEAD FINANCIAL STATEMENTS
<TABLE>
<S> <C>
HOMESTEAD VILLAGE PROPERTIES 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-7
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1995 ................................................. F-8
THE PTR--HOMESTEAD VILLAGE GROUP
HISTORICAL COMBINED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................................. F-9
Combined Balance Sheets as of December 31, 1994 and 1995 and the unaudited
Combined Balance Sheet as of March 31, 1996.............................. F-10
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-11
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-12
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-13
Notes to Combined Financial Statements.................................... F-14
Schedule III--Real Estate and Accumulated Depreciation as of December 31,
1995..................................................................... F-19
THE ATLANTIC--HOMESTEAD VILLAGE GROUP
HISTORICAL COMBINED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................................. F-21
Combined Balance Sheet as of December 31, 1995 and the unaudited Combined
Balance Sheet as of March 31, 1996....................................... F-22
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-23
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-24
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-25
Notes to Combined Financial Statements.................................... F-26
Schedule III--Real Estate and Accumulated Depreciation as of December 31,
1995..................................................................... F-29
THE SCG--HOMESTEAD VILLAGE GROUP
HISTORICAL COMBINED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................................. F-30
Combined Balance Sheets as of December 31, 1994 and 1995 and the unaudited
Combined Balance Sheet as of March 31, 1996.............................. F-31
</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-32
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-33
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-34
Notes to Combined Financial Statements.................................... F-35
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
BALANCE SHEET:
Report of Independent Auditors............................................ F-38
Balance Sheet as of April 30, 1996........................................ F-39
Notes to Balance Sheet.................................................... F-40
</TABLE>
F-2
<PAGE>
HOMESTEAD VILLAGE PROPERTIES 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 the 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
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 PROPERTIES INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FUNDING OF ACQUISITION
HOMESTEAD AND HOMESTEAD OF THE ACQUISITION
THE PTR- MERGER WITH VILLAGE ATLANTIC- OF THE SCG-
HOMESTEAD THE PTR- PROPERTIES 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)(j) $ 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 (j) 4,864
Trademark and other
intangible assets. -- -- -- -- -- 19,405 -- 19,405
-------- ------- ------- -------- ------- ------- -------- --------
Total assets.... $126,390 $11,789 $ 1 $138,180 $53,151 $20,207 $ -- $211,538
======== ======= ======= ======== ======= ======= ======== ========
<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 (i) 177
Additional paid
in
capital/Contributed
capital.......... 25,890 11,789 (c) 1 (e)
25,726 (b) 74,495 (f)
11,185 (d) (74,590)(f) 74,496 51,657 20,182 29,773 (i) 176,108
Shares in escrow.. -- -- -- -- -- -- (29,797)(i) (29,797)
Retained
earnings......... 5,284 -- -- 5,284 -- -- -- 5,284
-------- ------- ------- -------- ------- ------- -------- --------
Total
shareholders'
equity......... 31,174 48,700 1 79,875 51,699 20,198 -- 151,772
-------- ------- ------- -------- ------- ------- -------- --------
Total liabilities
and shareholders'
equity............ $126,390 $11,789 $ 1 $138,180 $53,151 $20,207 $ -- $211,538
======== ======= ======= ======== ======= ======= ======== ========
</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.
(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.
(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 funding of Homestead through the issuance of 1,000 shares of
common stock in exchange for $1.
(f) Reflects the issuance of 9,486 shares of $.01 par value common stock of
Homestead 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 6,364 warrants to purchase additional
shares of Homestead common stock at the exercise price of $10 per share.
(g) Reflects the acquisition of the Atlantic-Homestead Village Group's net
assets by Homestead at fair market value in exchange for 4,201 shares of
Homestead's $.01 par value common stock. Included in the net assets of the
Atlantic-Homestead Village Group are costs estimated to be $9,582 relating
to the acquisition of land under contract, subsequent to March 31, 1996
and prior to the date of the transaction. Also included is cash of $27,167
contributed by Atlantic as partial consideration for the Homestead stock
received (the $27,167 is expected to be reduced to approximately $18,600
at the Closing Date as a result of development costs incurred between
March 31, 1996 and the Closing Date). Additionally, the fair market value
of the net assets of the Atlantic-Homestead Village Group is estimated to
be $4,076 in excess of its historical cost basis. The excess has been
allocated to property and equipment.
Additionally, Atlantic would receive 2,818 warrants to purchase additional
shares of Homestead common stock at the exercise price of $10 per share.
(h) Reflects the acquisition of the net assets of SCG-Homestead Village Group
by Homestead at fair market value. The net assets acquired by Homestead
primarily consist of trademarks and 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 fair market value of the net assets, including trademarks
and other intangible assets is estimated by management to be $49,995. At
the transaction date, SCG would receive a pro rata portion of total
expected shares based on the ratio of actual funding provided by PTR and
Atlantic to the total expected funding to be provided. Accordingly, the
pro forma adjustment reflects that SCG would receive 1,641 shares of
Homestead $.01 par value common stock in exchange for net assets with a
total fair market value of $20,198, including trademark and other
intangible assets of $19,405. Additionally, SCG would receive 818 warrants
to purchase additional shares of Homestead common stock at the exercise
price of $10 per share.
(i) The remaining shares of Homestead common stock of 2,422 would be issued at
$10 per share to an escrow agent to be held for SCG. As the properties are
completed, the shares of Homestead common stock would be transferred to
SCG as discussed in (h) above.
For the shares of Homestead common stock issued to the escrow agent, a
corresponding reduction to shareholder's equity would be recorded.
(j) Reflects estimated expenses of consummating the merger transaction.
F-5
<PAGE>
HOMESTEAD VILLAGE PROPERTIES 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 Properties Incorporated ("Homestead") are presented as if:
I) Homestead was funded 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 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
the 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-6
<PAGE>
HOMESTEAD VILLAGE PROPERTIES 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.............. 3,446 -- -- (500)(b) 2,946 -- 2,946
Corporate operating
expenses.............. 563 18 3,038 (361)(b) 3,258 (1,339)(c)
81 (d) 2,000
Depreciation and
amortization.......... 859 -- 10 -- 869 243 (e) 1,112
Interest expense....... 961 -- 49 -- 1,010 (425)(f) 585
------ ---- ------- ----- ------- ------- ------
Total costs and
expenses............ 5,829 18 3,097 (861) 8,083 (1,440) 6,643
------ ---- ------- ----- ------- ------- ------
Income (loss) before
income tax expense.... 1,039 (12) (2,236) -- (1,209) 1,440 231
Income tax expense..... -- -- -- -- -- (183)(g) (183)
------ ---- ------- ----- ------- ------- ------
NET INCOME (LOSS)....... $1,039 $(12) $(2,236) $ -- $(1,209) $ 1,257 $ 48
====== ==== ======= ===== ======= ======= ======
PRO FORMA NET INCOME PER COMMON SHARE................................................................ $ .003
======
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING NOTE (H)............................................... 17,750
======
</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.
(f) Reflects the adjustment to reduce interest expense as a result of the
conversion of a portion of convertible mortgage notes and intercompany
debt 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................................. $231
Amortization of trademark and other intangible assets acquired
from the SCG-Homestead Village Group not deductible for tax
purposes......................................................... 243
----
474
Assumed federal and state income tax rate......................... 38.6%
----
Pro forma adjustment.............................................. $183
====
</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.
The conversion features associated with the convertible 9% mortgage notes
are assumed to be anti-dilutive to earnings per share since the conversion
price of $11.50 per share is greater than the assumed common stock price of
$10 per share. Similarly, the warrants, which are exercisable at $10 per
share were not considered since the strike price is equal to the assumed
price per common share of $10.
F-7
<PAGE>
HOMESTEAD VILLAGE PROPERTIES 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.............. 8,618 -- -- (1,018)(b) 7,600 -- 7,600
Corporate operating
expenses.............. 1,933 63 7,067 (989)(b) 8,074 (2,211)(c)
325 (d) 6,188
Depreciation and
amortization.......... 2,343 -- 39 -- 2,382 970 (e) 3,352
Interest expense....... 2,958 -- 70 -- 3,028 (530)(f) 2,498
------- ----- ------- ------- ------- ------- -------
Total costs and
expenses............ 15,852 63 7,176 (2,007) 21,084 (1,446) 19,638
------- ----- ------- ------- ------- ------- -------
Income (loss) before
income tax expense.... 2,851 (59) (5,155) -- (2,363) 1,446 (917)
Income tax expense..... -- -- -- -- -- (20)(g) (20)
------- ----- ------- ------- ------- ------- -------
NET INCOME (LOSS)....... $ 2,851 $ (59) $(5,155) $ -- $(2,363) $ 1,426 $ (937)
======= ===== ======= ======= ======= ======= =======
PRO FORMA NET LOSS PER COMMON SHARE.................................................................. $ (.053)
=======
PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING NOTE (H)............................................... 17,750
=======
</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.
(f) Reflects the adjustment to reduce interest expense as a result of the
conversion of a portion of convertible mortgage notes and intercompany
debt 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 (loss) before income tax expense......................... $(917)
Amortization of trademark and other intangible assets acquired
from the SCG-Homestead Village Group not deductible for tax
purposes....................................................... 970
-----
53
Assumed federal and state income tax rate....................... 38.6%
-----
Pro forma adjustment............................................ $ 20
=====
</TABLE>
(h) Reflects the assumed number of weighted average common shares outstanding
during the year ended December 31, 1995 based upon the assumed issuance of
17,750 total shares of common stock, including the shares in escrow, at
the beginning of the period.
The conversion features associated with the convertible 9% mortgage notes
are assumed to be anti-dilutive to earnings per share since the conversion
price of $11.50 per share is greater than the assumed common stock price of
$10 per share. Similarly, the warrants, which are exercisable at $10 per
share were not considered since the strike price is equal to the assumed
price per common share of $10.
F-8
<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-9
<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-10
<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.............. 1,302 3,606 8,618 1,458 3,446
Corporate operating expenses............. 413 1,158 1,933 371 563
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-11
<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-12
<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-13
<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 Properties
Incorporated will own and operate these properties subsequent to the merger
transaction. (See "The Transaction" included elsewhere in this 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-14
<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-15
<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 and provisions for possible losses 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-16
<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. 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 $148,164,832 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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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 Properties Incorporated will own and operate the
properties subsequent to the merger transaction (See "The Transaction,"
included elsewhere in 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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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............................ $ 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-32
<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-33
<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-34
<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 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 Properties Incorporated will operate and
manage properties subsequent to the merger transaction. (See "The
Transaction," included elsewhere in this 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-35
<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. 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.
4. REIT MANAGEMENT AND PROPERTY MANAGEMENT FEES
SCG, the parent of the entities comprising the SCG-Homestead Village Group
has entered into agreements with affiliated real estate investment trusts,
Security Capital Pacific Trust ("PTR") and Security Capital Atlantic,
Incorporated ("Atlantic") to provide REIT management services. The services
with respect to the Homestead Village Properties are provided by the employees
of the SCG-Homestead Village Group and, therefore, the fees earned from
providing such services have been included in the accompanying combined
financial statements.
The REIT management fees are generally based on 16% of cash flow, as defined
in the agreements. The fees earned by the SCG-Homestead Village Group which
were based on the cash flow (as defined) of the Homestead Village Properties
operated by PTR (no Atlantic properties were operational as of 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-36
<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-37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Homestead Village Properties Incorporated
We have audited the accompanying balance sheet of Homestead Village
Properties 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 Properties
Incorporated as of April 30, 1996, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Dallas, Texas
May 21, 1996
F-38
<PAGE>
HOMESTEAD VILLAGE PROPERTIES 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-39
<PAGE>
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
NOTES TO BALANCE SHEET
APRIL 30, 1996
1. ORGANIZATION AND BASIS OF FINANCIAL PRESENTATION
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 has 27
operating Homestead Village properties, 5 properties under construction and 22
in pre-development planning (as defined) as of May 20, 1996. Atlantic has 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.
The Company 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, the
Company 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-40
<PAGE>
HOMESTEAD VILLAGE PROPERTIES 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. All voting rights will be assigned to SCG with
respect to shares of Homestead common stock issued to the escrow agent.
In conjunction with the Merger and Distribution Agreement, described above,
Homestead, SCG, PTR and Atlantic entered into a Warrant 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 warrants may be used to
purchase common stock of Homestead for $10 per share, may be exercised at any
time and will expire twelve months from the date of the transaction. As
consideration for the 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 warrants issued by Homestead 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 such date of record of distribution. The remaining shares of
Homestead common stock and 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-41
<PAGE>
HOMESTEAD VILLAGE PROPERTIES 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-42
<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.
2
<PAGE>
"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.
3
<PAGE>
"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.
4
<PAGE>
(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
5
<PAGE>
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
6
<PAGE>
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,
7
<PAGE>
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.
8
<PAGE>
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
9
<PAGE>
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
10
<PAGE>
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
11
<PAGE>
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
12
<PAGE>
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.
13
<PAGE>
(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.
14
<PAGE>
(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.
15
<PAGE>
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
16
<PAGE>
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.
17
<PAGE>
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.
18
<PAGE>
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
19
<PAGE>
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
20
<PAGE>
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.
21
<PAGE>
(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
22
<PAGE>
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.
23
<PAGE>
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
24
<PAGE>
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,
25
<PAGE>
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
26
<PAGE>
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
27
<PAGE>
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
28
<PAGE>
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
29
<PAGE>
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
30
<PAGE>
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.
31
<PAGE>
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.
32
<PAGE>
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
33
<PAGE>
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;
34
<PAGE>
(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 a written 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;
35
<PAGE>
(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;
36
<PAGE>
(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
37
<PAGE>
(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.
38
<PAGE>
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.
TO BE FILED BY AMENDMENT
II-1
<PAGE>
ANNEX II
OPINION OF J.P. MORGAN SECURITIES INC.
TO BE FILED BY AMENDMENT
II-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seventh of the Registrant's Articles of Incorporation 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 Articles of Incorporation 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 By-laws of the
Corporation inconsistent with this Article ELEVENTH, shall apply to or
affect in any respect the applicability of the preceding sentence with
respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption."
Article XII of the Registrant's bylaws provides as follows with respect to
indemnification of its directors and officers:
"To the maximum extent permitted by Maryland law in effect from time to
time, the Corporation, without requiring a preliminary determination of the
ultimate entitlement to indemnification, shall indemnify and shall pay or
reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any individual who is a present or former director or
officer of the Corporation and who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
director of the Corporation and at the request of the Corporation, serves
or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer,
partner or trustee of such corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity. The Corporation may,
with the approval of its Board of Directors, provide such indemnification
and advance for expenses to a person who served a predecessor of the
Corporation in any of the capacities described in (a) or (b) above and to
any employee or agent of the Corporation or a predecessor of the
Corporation."
"Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or charter of the
Corporation inconsistent with this Article, shall apply to or affect in any
respect the applicability of the preceding paragraph with respect to any
act or failure to act which occurred prior to such amendment, repeal or
adoption."
II-1
<PAGE>
In addition, the Registrant has entered into indemnity agreements with each
of its officers and Directors which provide for reimbursement of all expenses
and liabilities of such officer or Director, arising out of any lawsuit or
claim against such officer or Director due to the fact that he was or is
serving as an officer or Director, except for such liabilities and expenses
(a) the payment of which is judicially determined to be unlawful, (b) relating
to claims under Section 16(b) of the Securities Exchange Act of 1934, or (c)
relating to judicially determined criminal violations.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Refer to Index to Exhibits.
(b) Refer to Index to Financial Statements included as part of the
Prospectus.
(c) Refer to Annex II and Annex III to the Prospectus.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes: (1) to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement: (i) to include any prospectus required by section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereto) which, individually or
in the aggregate, represent a fundamental change in the information set forth
in the registration statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement; (2) that, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and (3) to remove from registration
by means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities being offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The registrant undertakes that every prospectus: (1) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS DULY CAUSED THIS 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 24TH DAY OF MAY, 1996.
Homestead Village Properties
Incorporated
/s/ David C. Dressler, Jr.
By: _________________________________
David C. Dressler, Jr.
Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS DAVID C. DRESSLER, C. RONALD BLANKENSHIP,
JEFFREY A. KLOPF AND ARIEL AMIR, AND EACH OF THEM SINGLY, HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO, AND ANY AND ALL DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM ANY AND
ALL ACTS AND THINGS REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS, OR ANY OF THEM, OR HIS SUBSTITUTE OR NOMINEE, MAY LAWFULLY DO OR CAUSE
TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
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 May 24, 1996
____________________________________ Executive Officer)
David C. Dressler, Jr.
/s/ Robert E. Clark Vice President (Principal May 24, 1996
____________________________________ Financial and Accounting
Robert E. Clark Officer)
/s/ C. Ronald Blankenship Director May 24, 1996
____________________________________
C. Ronald Blankenship
/s/ John P. Frazee, Jr. Director May 24, 1996
____________________________________
John P. Frazee, Jr.
</TABLE>
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 Articles of Amendment and Restatement to the 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
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 Form of Amended and Restated Promissory Note
* 4.4 Form of Amended and Restated Promissory Note by Homestead
Village Properties Incorporated in favor of Security
Capital Pacific Trust
* 4.5 Form of Amended and Restated Promissory Note by Homestead
Village Limited Partnership in favor of Security Capital
Pacific Trust
* 4.6 Form of Amended and Restated Promissory Note by Homestead
Village Properties Incorporated in favor of Security
Capital Atlantic Incorporated
* 4.7 Form of Amended and Restated Promissory Note by Homestead
Village Limited Partnership in favor of Security Capital
Atlantic Incorporated
* 4.8 Form of Promissory Note
* 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 Properties Incorporated
10.2 Form of Investor Agreement by and between Homestead
Village Properties Incorporated and Security Capital
Group Incorporated
*10.3 Form of Funding Commitment Agreement between Homestead
Village Properties Incorporated and Security Capital
Pacific Trust
*10.4 Form of Funding Commitment Agreement between Homestead
Village Properties Incorporated and Security Capital
Atlantic Incorporated
*10.5 Form of Administrative Services Agreement by and between
Homestead Village Properties Incorporated and Security
Capital Group Incorporated
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 Properties 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 Properties Incorporated and
Security Capital Pacific Trust
10.9 Form of Escrow Agreement among Homestead Village
Properties Incorporated, Security Capital Group
Incorporated, and State Street Bank and Trust Company, as
escrow agent
*21 Subsidiaries of Homestead Village Properties Incorporated
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
24 Power of Attorney (included on signature page)
27 Financial Data Schedule
99.1 Security Capital Pacific Trust Form of Proxy
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
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 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 PROPERTIES 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 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 Properties 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 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 PROPERTIES 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>
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
ARTICLES OF AMENDMENT AND RESTATEMENT
THIS IS TO CERTIFY THAT:
1. The Corporation was formed under the general laws of the State of
Maryland on January 26, 1996.
2. The Corporation desires to amend and restate its Articles of
Incorporation as currently in effect and such Articles of Incorporation are
hereby amended and restated in their entirety as follows:
FIRST: The name of the corporation (the "Corporation") is:
Homestead Village Properties 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 (i) is not
affiliated with Security Capital Group Incorporated, a Maryland corporation
("SCG"), or any of its affiliates, directly or indirectly, whether by ownership
of, ownership interest in, employment by, any material business or professional
relationship with, or service as an officer or director of, SCG or any of its
affiliates, (ii) is not serving as a trustee or director for more than three
entities organized or controlled by SCG and (iii) performs no other services for
the Corporation, except as a director. 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.
3. These Articles of Amendment and Restatement have been advised by
the Board of Directors of the Corporation and have been approved by the
stockholders of the Corporation.
4. The undersigned Chairman acknowledges these Articles of Amendment
and Restatement to be the corporate act of the Corporation and as to all matters
or facts required to be verified under oath, the undersigned Chairman
acknowledges that to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and that this statement is
made under the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment and Restatement to be signed in its name and on its behalf by its
Chairman and attested to by its Secretary on this ____ day of May, 1996.
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
By: ___________________________ (SEAL)
David C. Dressler, Jr.
Chairman
ATTEST:
________________________
Jeffrey A. Klopf
Secretary
-4-
<PAGE>
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
AMENDED AND RESTATED
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation
shall be located at such place or places as the Board of Directors may
designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional
offices at such places as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
principal office of the Corporation or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for the
election of directors and the transaction of any business within the powers of
the Corporation shall be held on a date and at the time set by the Board of
Directors during the month of May in each year, except that the Corporation need
not hold an annual meeting of the stockholders during 1996.
Section 3. SPECIAL MEETINGS. The Chairman of the Board (or any Co-
Chairman if more than one), president, chief executive officer or Board of
Directors may call special meetings of the stockholders. On and prior to
September 30, 1996, special meetings of stockholders shall also be called by the
secretary of the Corporation upon the written request of the holders of shares
entitled to cast not less than 25% of all the votes entitled to be cast at such
meeting. On and after October 1, 1996, special meetings of stockholders shall
also be called by the secretary of the Corporation upon the written request of
the holders of shares entitled to cast not less than a majority of the votes
entitled to be cast at such meeting. Such request shall state the purpose of
such meeting and the matters proposed to be acted on at such meeting. The
secretary shall inform such stockholders of the reasonably estimated cost of
preparing and mailing notice of the meeting and, upon payment to the Corporation
by such stockholders of such costs, the secretary shall give notice to each
stockholder entitled to notice of the meeting. Unless requested by the
stockholders entitled to cast a majority of all the votes entitled to be cast at
such meeting, a special meeting need not be called to consider any matter which
is substantially the same as a matter voted on at any special meeting of the
stockholders held during the preceding twelve months.
<PAGE>
Section 4. NOTICE. Not less than ten nor more than 90 days before each
meeting of stockholders, the secretary shall give to each stockholder entitled
to vote at such meeting and to each stockholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as otherwise may
be required by any statute, the purpose for which the meeting is called, either
by mail or by presenting it to such stockholder personally or by leaving it at
his residence or usual place of business. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to the
stockholder at his post office address as it appears on the records of the
Corporation, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Corporation may be
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of stockholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of stockholders, the Chairman
of the Board, if there be one (or any Co-Chairman if there be more than one),
shall conduct the meeting or, in the case of vacancy in office or absence of the
Chairman of the Board (or all Co-Chairmen), one of the following officers
present shall conduct the meeting in the order stated: the Vice Chairman of the
Board, if there be one, the President, the Vice Presidents in their order of
rank and seniority, or a Chairman chosen by the stockholders entitled to cast a
majority of the votes which all stockholders present in person or by proxy are
entitled to cast, shall act as Chairman, and the Secretary, or, in his absence,
an assistant secretary, or in the absence of both the Secretary and assistant
secretaries, a person appointed by the Chairman shall act as Secretary.
Section 7. QUORUM. At any meeting of stockholders, the presence in person
or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter of the
Corporation for the vote necessary for the adoption of any measure. If,
however, such quorum shall not be present at any meeting of the stockholders,
the stockholders entitled to vote at such meeting, present in person or by
proxy, shall have the power to adjourn the meeting from time to time to a date
not more than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted. A majority of the votes cast at a meeting of stockholders duly called
and at which a quorum is present shall be sufficient to approve any other matter
which may properly come before the meeting, unless more than a majority of the
votes cast is required by statute or by the charter of the Corporation. Unless
otherwise provided in the charter, each
-2-
<PAGE>
outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote at a meeting of stockholders.
Section 9. PROXIES. A stockholder may vote the stock owned of record by
him, either in person or by proxy executed in writing by the stockholder or by
his duly authorized attorney in fact. Such proxy shall be filed with the
secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
Section 10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the Corporation
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners
of a partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such stock. Any director or other
fiduciary may vote stock registered in his name as such fiduciary, either in
person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it shall
not be voted at any meeting and shall not be counted in determining the total
number of outstanding shares entitled to be voted at any given time, unless they
are held by it in a fiduciary capacity, in which case they may be voted and
shall be counted in determining the total number of outstanding shares at any
given time.
The Board of Directors may adopt by resolution a procedure by which a
stockholder may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.
Notwithstanding any other provision of the charter of the Corporation or
these Bylaws, Title 3, Subtitle 7 of the Corporations and Associations Article
of the Annotated Code of Maryland (or any successor statute) shall not apply to
any acquisition by Security Capital Group Incorporated and its affiliates and
successors of shares of stock of the Corporation. This section may be repealed,
in whole or in part, at any time, whether before or after an acquisition of
control shares and, upon such repeal, may, to the extent provided by any
successor bylaw, apply to any prior or subsequent control share acquisition.
-3-
<PAGE>
Section 11. INSPECTORS. At any meeting of stockholders, the chairman of
the meeting may, or upon the request of any stockholder shall, appoint one or
more persons as inspectors for such meeting. Such inspectors shall ascertain
and report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the stockholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there is more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be prima
facie evidence thereof.
Section 12. NOMINATIONS AND STOCKHOLDER BUSINESS.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (i)
pursuant to the Corporation's notice of meeting, (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of
notice provided for in this Section 12(a), who is entitled to vote at
the meeting and who complied with the notice procedures set forth in
this Section 12(a).
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of
paragraph (a)(1) of this Section 12, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the
event that the date of the annual meeting is advanced by more than 30
days or delayed by more than 60 days from such anniversary date,
notice by the stockholder to be timely must be so delivered not
earlier than the 90th day prior to such annual meeting and not later
than the close of business on the later of the 60th day prior to such
annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such
stockholder's notice shall set 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 election of Directors, or
is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such
-4-
<PAGE>
person's written consent to being named in the proxy statement as a
nominee and to serving as a Director if elected); (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 the
Corporation's books, and of such beneficial owner and (y) the number
of shares of each class of stock of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial
owner.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 12 to the contrary, in the event that the
number of Directors to be elected to the Board of Directors is
increased and there is no public announcement naming all of the
nominees for Director or specifying the size of the increased Board of
Directors made by the Corporation at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's
notice required by this Section 12(a) shall also be considered timely,
but only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the
close of business on the tenth day following the day on which such
public announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made
at a special meeting of stockholders at which Directors are to be elected
(i) pursuant to the Corporation's notice of meeting, (ii) by or at the
direction of the Board of Directors or (iii) provided that the Board of
Directors has determined that Directors shall be elected at such special
meeting, by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice provided for in this Section 12(b),
who is entitled to vote at the meeting and who complied with the notice
procedures set forth in this Section 12(b). In the event the Corporation
calls a special meeting of stockholders for the purpose of electing one or
more Directors to the Board of Directors, any such stockholder may nominate
a person or persons (as the case may be) for election to such position as
specified in the Corporation's notice meeting, if the stockholder's notice
containing the information required by paragraph (a)(2) of this Section 12
shall be delivered to the Secretary at the principal executive offices of
the Corporation not earlier than the 90th day prior to such special meeting
and not later than the close of business on the later of the 60th day prior
to such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
-5-
<PAGE>
(c) General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 12 shall be eligible to serve as
Directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section 12. The
presiding officer of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought
before the meeting was made in accordance with the procedures set
forth in this Section 12 and, if any proposed nomination or business
is not in compliance with this Section 12, to declare that such
defective nomination or proposal be disregarded.
(2) For purposes of this Section 12, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable news service or in a document
publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 12,
a stockholder shall also comply with all applicable requirements of
Maryland law and of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section 12.
Nothing in this Section 12 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS; QUALIFICATIONS. The business and affairs of
the Corporation shall be managed under the direction of its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or
at any special meeting called for that purpose, a majority of the entire Board
of Directors may establish, increase or decrease the number of directors,
provided that the number thereof shall never be less than the minimum number
required by the Maryland General Corporation Law, nor more than 15, and further
provided that the tenure of office of a director shall not be affected by any
decrease in the number of directors.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Directors shall be held immediately after and at the same place as the annual
meeting of stockholders, no notice other than this Bylaw being necessary. The
Board of Directors may provide, by resolution, the time and place, either within
or without the State of Maryland, for
-6-
<PAGE>
the holding of regular meetings of the Board of Directors without other notice
than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the chairman of the board (or any co-
chairman of the board if more than one), president or by a majority of the
directors then in office. The person or persons authorized to call special
meetings of the Board of Directors may fix any place, either within or without
the State of Maryland, as the place for holding any special meeting of the Board
of Directors called by them.
Section 5. NOTICE. Notice of any special meeting of the Board of
Directors shall be delivered personally or by telephone, facsimile transmission,
United States mail or courier to each director at his business or residence
address. Notice by personal delivery, by telephone or a facsimile transmission
shall be given at least two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting and shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. Telephone notice shall be deemed to be given when the director
is personally given such notice in a telephone call to which he is a party.
Facsimile transmission notice shall be deemed to be given upon completion of the
transmission of the message to the number given to the Corporation by the
director and receipt of a completed answer-back indicating receipt. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the Board of Directors need be stated in the notice, unless
specifically required by statue or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a quorum
for transaction of business at any meeting of the Board of Directors, provided
that, if less than a majority of such directors are present at said meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice, and provided further that if, pursuant to the charter of
the Corporation or these Bylaws, the vote of a majority of a particular group of
directors is required for action, a quorum must also include a majority of such
group.
The directors present at a meeting which has been duly called and convened
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors present at
a meeting at which a quorum is present shall be the action of the Board of
Directors, unless the concurrence of a greater proportion is required for such
action by applicable statute.
Section 8. TELEPHONE MEETINGS. Directors may participate in a meeting by
means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting,
-7-
<PAGE>
if a consent in writing to such action is signed by each director and such
written consent is filed with the minutes of proceedings of the Board of
Directors.
Section 10. VACANCIES. If for any reason any or all the directors cease
to be directors, such event shall not terminate the Corporation or affect these
Bylaws or the powers of the remaining directors hereunder (even if fewer than
three directors remain). Any vacancy on the Board of Directors for any cause
other than an increase in the number of directors shall be filed by a majority
of the remaining directors, although such majority may be less than a quorum.
Any vacancy in the number of directors created by an increase in the number of
directors may be filed by a majority vote of the entire Board of Directors. Any
individual so elected as director shall hold office until the next annual
meeting of stockholders and until his successor is elected and qualifies.
Section 11. COMPENSATION. Directors shall not receive any stated salary
for their services as directors but, by resolution of the Board of Directors,
may receive fixed sums per year and/or per meeting and/or per visit to real
property owned or to be acquired by the Corporation and for any service or
activity they performed or engaged in as directors. Directors may be reimbursed
for expenses of attendance, if any, at each annual, regular or special meeting
of the Board of Directors or of any committee thereof and for their expenses, if
any, in connection with each property visit and any other service or activity
they performed or engaged in as directors; but nothing herein contained shall be
construed to preclude any directors from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 12. LOSS OF DEPOSITS. No director shall be liable for any loss
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or stock have been
deposited.
Section 13. SURETY BONDS. Unless required by law, no director shall be
obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 14. RELIANCE. Each director, officer, employee and agent of the
Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the adviser, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
Section 15. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
The directors shall have no responsibility to devote their full time to the
affairs of the Corporation. Any director or officer, employee or agent of the
Corporation, in his personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business
interests and engage in business activities similar to or in addition to or in
competition with those of or relating to the Corporation.
-8-
<PAGE>
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors
may appoint from among its members an Executive Committee, an Audit Committee,
an Executive Compensation Committee, an Investment Committee and other
committees, composed of two or more directors, to serve at the pleasure of the
Board of Directors.
Section 2. POWERS. The Board of Directors may delegate to committees
appointed under Section 1 of this Article any of the powers of the Board of
Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in
the same manner as notice for special meetings of the Board of Directors. A
majority of the members of the committee shall constitute a quorum for the
transaction of business at any meeting of the committee. The act of a majority
of the committee members present at a meeting shall be the act of such
committee. The Board of Directors may designate a chairman of any committee,
and such chairman or any two members of any committee may fix the time and place
of its meeting unless the Board shall otherwise provide. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint another director to act in
the place of such absent member. Each committee shall keep minutes of its
proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Board
of Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 1. ENUMERATION. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a Chairman of the Board (or one or
more Co-Chairmen of the Board), a President, a Treasurer and a Secretary. The
Board of Directors may also elect one
-9-
<PAGE>
or more Managing Directors, one or more Vice Presidents, one or more Assistant
Secretaries and such other officers and agents as it shall deem appropriate.
Any number of offices may be held by the same person.
Section 2. CHAIRMAN OF THE BOARD. The Chairman of the Board (or, if
there be one or more Co-Chairmen, in the order of their election), when elected,
shall be the President and Chief Executive Officer of the Corporation and, as
such, shall have general supervision, direction and control of the business and
affairs of the Corporation, subject to the control of the Board of Directors,
shall preside at meetings of stockholders and shall have such other functions,
authority and duties as customarily appertain to the office of the chief
executive of a business corporation or as may be prescribed by the Board of
Directors.
Section 3. PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation and, as such shall have general supervision,
direction and control of the business and affairs of the Corporation, subject to
the control of the Board of Directors shall preside at meetings of stockholders
and shall have such other functions, authority and duties as customarily
appertain to the office of the chief executive of a business corporation or as
may be prescribed by the Board of Directors.
Section 4. MANAGING DIRECTOR. The Managing Director, or if there be
more than one, the Managing Directors, shall have such functions, authority and
duties as may be prescribed by the Board of Directors or the Chairman of the
Board (or, if there be more than one, any Co-Chairman of the Board).
Section 5. SECRETARY. The Secretary shall keep a record of all
proceedings of the stockholders of the Corporation and of the Board of
Directors, and shall perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice, if any, of
all meetings of the stockholders and shall perform such other duties as may be
prescribed by the Board of Directors or the Chairman of the Board (or, if there
be more than one, any Co-Chairman of the Board). The Secretary shall have
custody of the corporate seal of the Corporation and the Secretary or, in the
absence of the Secretary, any Assistant Secretary shall have authority to affix
the same to any instrument requiring it, and when so affixed it may be attested
by the signature of the Secretary or any Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest such affixing of the seal.
Section 6. ASSISTANT SECRETARY. The Assistant Secretary, or if there
be more than one, the Assistant Secretaries in the order determined by the Board
of Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties as may from time to
time be prescribed by the Board of Directors, the Chairman of the Board (or, if
there be more than one, any Co-Chairman of the Board), or the Secretary.
-10-
<PAGE>
Section 7. TREASURER. The Treasurer shall have the custody of the
funds and securities of the Corporation and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors and shall perform such other duties as may be prescribed by the
Board of Directors or the Chairman of the Board (or, if there be more than one,
any Co-Chairman of the Board).
Section 8. OTHER OFFICERS. Any officer who is elected or appointed
from time to time by the Board of Directors and whose duties are not specified
in these By-Laws shall perform such duties and have such powers as may be
prescribed from time to time by the Board of Directors or the Chairman of the
Board (or, if there be more than one, any Co-Chairman of the Board).
Section 9. REMOVAL AND RESIGNATION. Any officer or agent of the
Corporation may be removed by the Board of Directors if in its judgment the best
interests of the Corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the Corporation may resign at any time by giving written notice of
his resignation to the Board of Directors, the chairman of the board (or any co-
chairman of the board if more than one), the president or the secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified therein,
immediately upon its receipt. The acceptance of a resignation shall not be
necessary to make it effective unless otherwise stated in the resignation. Such
resignation shall be without prejudice to the contract rights, if any, of the
Corporation.
Section 10. VACANCIES. A vacancy in any office may be filled by the Board
of Directors for the balance of the term.
Section 11. SALARIES. The salaries and other compensation of the
officers shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any
officer or agent to enter into any contract or to execute and deliver any
instrument in the name of and on behalf of the Corporation and such authority
may be general or confined to specific instances. Any agreement, deed,
mortgage, lease or other document executed by one or more of the directors or by
an authorized person shall be valid and binding upon the Board of Directors and
upon the Corporation when authorized or ratified by action of the Board of
Directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the
-11-
<PAGE>
Corporation shall be signed by such officer or agent of the Corporation in such
manner as shall from time to time be determined by the Board of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may designate.
ARTICLE VII
STOCK
Section 1. CERTIFICATES. Each stockholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him in the Corporation. Each certificate
shall be signed by the Chairman of the Board (or any co-chairman if more than
one), the chief executive officer, the president or a vice president and
countersigned by the secretary or an assistant secretary or the treasurer or an
assistant treasurer and may be sealed with the seal, if any, of the Corporation.
The signatures may be either manual or facsimile. Certificates shall be
consecutively numbered; and if the Corporation shall, from time to time, issue
several classes of stock, each class may have its own number series. A
certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. If the Corporation has authority to issue stock of more than one
class, the certificate shall contain on the face or back a full statement or
summary of the designations 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 each
class of stock and, if the Corporation is authorized 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. In lieu of such statement or summary, the certificate may
state that the Corporation will furnish a full statement of such information to
any stockholder upon request and without charge. If any class of stock is
restricted by the Corporation as to transferability, the certificate shall
contain a full statement of the restriction or state that the Corporation will
furnish information about the restrictions to the stockholder on request and
without charge.
Section 2. TRANSFERS. Upon surrender to the Corporation or the transfer
agent of the Corporation of a stock certificate duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the
Corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of record of any
share of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
on the part of any other person, whether or not it shall
-12-
<PAGE>
have express or other notice thereof, except as otherwise provided by the laws
of the State of Maryland.
Notwithstanding the foregoing, transfers of shares of any class of stock
will be subject in all respects to the charter of the Corporation and all of the
terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the Board
of Directors may direct a new certificate to be issued in place of any
certificate previously issued by the Corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing the
issuance of a new certificate, an officer designated by the Board of Directors
may, in his discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or the owner's
legal representative to advertise the same in such manner as he shall require
and/or to give bond, with sufficient surety, to the Corporation to indemnify it
against any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Board of Directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or determining stockholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a
determination of stockholders for any other proper purpose. Such date, in any
case, shall not be prior to the close of business on the day the record date is
fixed and shall be not more than 90 days and, in the case of a meeting of
stockholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of stockholders of record is to
be held or taken.
In lieu of fixing a record date, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not longer
than 20 days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.
If no record date is fixed and the stock transfer books are not closed
for the determination of stockholders, (a) the record date for the determination
of stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day on which the notice of meeting is
mailed or the 30th day before the meeting, whichever is the closer date to the
meeting; and (b) the record date for the determination of stockholders entitled
to receive a payment of a dividend or an allotment of any other rights shall be
the close of business on the day on which the resolution of the directors,
declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any meeting
of stockholders has been made as provided in this section, such determination
shall apply to any adjournment
-13-
<PAGE>
thereof, except when (i) the determination has been made through the closing of
the transfer books and the stated period of closing has expired or (ii) the
meeting is adjourned to a date more than 120 days after the record date fixed
for the original meeting, in either of which case a new record date shall be
determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its principal
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors
may issue fractional stock or provide for the issuance of scrip, all on such
terms and under such conditions as they may determine. Notwithstanding any other
provision of the charter or these Bylaws, the Board of Directors may issue units
consisting of different securities of the Corporation. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Corporation, except that the Board of Directors may provide that for a
specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix
the fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the
stock of the Corporation may be authorized and declared by the Board of
Directors, subject to the provisions of law and the charter of the Corporation.
Dividends and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other
distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
-14-
<PAGE>
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation, the Board
of Directors may from time to time adopt, amend, revise or terminate any policy
or policies with respect to investments by the Corporation as it shall deem
appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption
of a seal by the Corporation. The seal shall contain the name of the
Corporation and the year of its incorporation and the words "Incorporated
Maryland." The Board of Directors may authorize one or more duplicate seals and
provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the word
"(SEAL)" adjacent to the signature of the person authorized to execute the
document on behalf of the Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCES FOR EXPENSES
To the maximum extent permitted by Maryland law in effect from time to
time, the Corporation shall indemnify and, without requiring a preliminary
determination of the ultimate entitlement to indemnification, 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.
-15-
<PAGE>
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter of
the Corporation or these Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any meeting need be set forth in the waiver of notice, unless specifically
required by statute. The attendance of any person at any meeting shall
constitute a waiver of notice of such meeting, except where such person attends
a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power to adopt, alter
or repeal any provision of these Bylaws and to make new Bylaws.
-16-
<PAGE>
===============================================================================
WARRANT AGREEMENT
Dated as of __________, 1996
by and between
Homestead Village Properties Incorporated
and
The First National Bank of Boston
as Warrant Agent
===============================================================================
<PAGE>
WARRANT AGREEMENT
TABLE OF CONTENTS/1/
-
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. Appointment of Warrant Agent................................ 1
SECTION 2. Issuance of Warrants........................................ 1
SECTION 3. Warrant Certificates........................................ 2
SECTION 4. Execution of Warrant Certificates........................... 2
SECTION 5. Registration and Countersignature........................... 2
SECTION 6. Registration of Transfers and Exchanges..................... 3
SECTION 7. Terms of Warrants; Exercise of Warrants..................... 3
SECTION 8. Reports..................................................... 7
SECTION 9. Payment of Taxes............................................ 7
SECTION 10. Mutilated or Missing Warrant Certificates.................. 7
SECTION 11. Reservation of Warrant Shares.............................. 7
SECTION 12. Registration and Listing of Common Stock................... 8
SECTION 13. Adjustment of Exercise Rate................................ 9
SECTION 14. Fractional Interests....................................... 16
SECTION 15. Notices to Warrant Holders................................. 17
SECTION 16. Merger, Consolidation or Change of Name of Warrant Agent... 18
SECTION 17. Warrant Agent.............................................. 19
SECTION 18. Change of Warrant Agent.................................... 21
SECTION 19. Notices to the Company and Warrant Agent................... 21
SECTION 20. Supplements and Amendments................................. 22
SECTION 21. Successors................................................. 23
SECTION 22. Termination................................................ 23
SECTION 23. Governing Law; Jurisdiction................................ 23
SECTION 24. Benefits of This Agreement................................. 23
SECTION 25. Counterparts............................................... 23
SECTION 26. Further Assurances......................................... 23
</TABLE>
- ----------------
/1/ This Table of Contents does not constitute a part of this Agreement or have
- any bearing upon the interpretation of any of its terms or provisions.
i
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT ("Agreement"), dated as of _________, 1996, between
Homestead Village Properties Incorporated, a Maryland corporation (the
"Company"), and The First National Bank of Boston, a national banking
association, as Warrant Agent (the "Warrant Agent").
WHEREAS, the Company, Security Capital Group Incorporated, a Maryland
corporation ("SCG"), Security Capital Pacific Trust, a Maryland real estate
investment trust ("PTR"), and Security Capital Atlantic Incorporated, a Maryland
corporation ("Atlantic"), have entered into a Warrant Purchase Agreement (the
"Purchase Agreement"), dated May 21, 1996, pursuant to which, among other
things, Homestead has agreed to issue, on the terms and conditions set forth in
the Purchase Agreement, to each of SCG, PTR and Atlantic, Warrants, as
hereinafter described (collectively, the "Warrants" and the certificates
evidencing the Warrants hereinafter referred to as the "Warrant Certificates"),
to purchase up to an aggregate of 10,000,000 shares of Common Stock, par value
$.01 per share (the "Common Stock"), of the Company (the Common Stock issuable
on exercise of the Warrants being referred to herein as the "Warrant Shares"
and, where appropriate, such term shall also mean the other securities or
property purchasable and deliverable upon exercise of a Warrant as provided in
Section 13 hereof); each Warrant entitles the holder of the Warrant upon
exercise to receive from the Company, as adjusted as provided herein, one (1)
fully paid, registered and nonassessable Warrant Share at the Exercise Price (as
defined herein);
WHEREAS, the Warrants are being issued by the Company as part of a public
distribution registered under the Securities Act of 1933, as amended; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance of Warrant Certificates and other matters as provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. Issuance of Warrants. The Warrants shall be originally issued
by the Company at the time and in the manner specified in the Purchase
Agreement.
SECTION 3. Warrant Certificates. The Warrant Certificates to be delivered
pursuant to this Agreement shall be in registered form only and shall be
substantially in the form set forth in Exhibit A attached hereto.
<PAGE>
SECTION 4. Execution of Warrant Certificates. Warrant Certificates shall
be signed on behalf of the Company by its Chairman of the Board (or any Co-
Chairman of the Board), Chief Executive Officer, President, any Managing
Director or any Senior Vice President and by its Secretary or an Assistant
Secretary. Each such signature upon the Warrant Certificates may be in the form
of a facsimile signature of the present or any future Chairman of the Board,
Chief Executive Officer, President, Vice President, Secretary or Assistant
Secretary and may be imprinted or otherwise reproduced on the Warrant
Certificates and for that purpose the Company may adopt and use the facsimile
signature of any person who shall have been Chairman of the Board (or any Co-
Chairman of the Board), Chief Executive Officer, President, Managing Director,
Senior Vice President, Secretary or Assistant Secretary, notwithstanding the
fact that at the time the Warrant Certificates shall be countersigned and
delivered or disposed of such officer shall have ceased to hold such office.
The seal of the Company may be in the form of a facsimile thereof and may be
impressed, affixed, imprinted or otherwise reproduced on the Warrant
Certificates.
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer before the Warrant Certificates so
signed shall have been countersigned by the Warrant Agent pursuant to Section 5
hereof, or disposed of by the Company, such Warrant Certificates nevertheless
may be countersigned and delivered or disposed of as though such person had not
ceased to be such officer of the Company; and any Warrant Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Warrant Certificate, shall be a proper officer of the Company
to sign such Warrant Certificate, although at the date of the execution of this
Agreement any such person was not such officer.
Warrant Certificates shall be dated the date of countersignature by the
Warrant Agent pursuant to Section 5 hereof.
SECTION 5. Registration and Countersignature. The Warrant Agent, on
behalf of the Company, shall number and register the Warrant Certificates in a
register as they are issued by the Company.
Warrant Certificates shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. The Warrant
Agent shall, upon written instructions of the Chairman of the Board (or any Co-
Chairman of the Board), Chief Executive Officer, President, any Managing
Director, any Senior Vice President, the Chief Financial Officer or the
Secretary of the Company, initially countersign and deliver Warrants entitling
the holders thereof to purchase not more than the number of Warrant Shares
referred to above in the first recital hereof and shall countersign and deliver
Warrants as otherwise provided in this Agreement.
-2-
<PAGE>
The Company and the Warrant Agent may deem and treat the registered
holder(s) of the Warrant Certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone), for all purposes.
SECTION 6. Registration of Transfers and Exchanges. The Warrant Agent
shall from time to time register the transfer of any outstanding Warrant
Certificates upon the records to be maintained by it for that purpose, upon
surrender thereof accompanied by a written instrument or instruments of transfer
in form satisfactory to the Warrant Agent, duly executed by the registered
holder or holders thereof or by the duly appointed legal representative thereof
or by a duly authorized attorney. Upon any such registration of transfer, a new
Warrant Certificate shall be issued to the transferee(s) and the surrendered
Warrant Certificate shall be cancelled by the Warrant Agent. Cancelled Warrant
Certificates shall thereafter be disposed of by the Warrant Agent in a manner
satisfactory to the Company.
Warrant Certificates may be exchanged at the option of the holder(s)
thereof, when surrendered to the Warrant Agent at its corporate trust office in
the Borough of Manhattan, The City of New York or at such other location as it
may notify the holders of Warrants that it maintains as its principal office for
trust administration (the "Warrant Agent Office") for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate a like number of Warrants. Warrant Certificates surrendered for
exchange shall be cancelled by the Warrant Agent. Such cancelled Warrant
Certificates shall then be disposed of by the Warrant Agent in a manner
satisfactory to the Company.
No service charge shall be made for any exercise, exchange or registration
of transfer of Warrant Certificates or any issuance of Warrant Certificates, but
the Company may require payment of a sum sufficient to cover any stamp or other
governmental charge or tax that may be imposed in connection with any such
transfer or exchange.
The Warrant Agent is hereby authorized to countersign, in accordance with
the provisions of this Section 6, the new Warrant Certificates required pursuant
to the provisions of this Section 6.
SECTION 7. Terms of Warrants; Exercise of Warrants. (a) Subject to the
terms of this Agreement, the Warrants shall expire at 5:00 p.m., New York, New
York time on __________, 1997 (the "Expiration Date"). Each Warrant may be
exercised on any Business Day (as defined below) on or after the date of this
Warrant Agreement (the "Exercisability Date") and on or prior to the Expiration
Date. Each Warrant not exercised prior to 5:00 p.m., New York, New York time, on
the Expiration Date shall become void and all rights thereunder and all rights
in respect thereof under this Agreement shall cease as of such time.
(b) Subject to the provisions of this Agreement, the holder of each
Warrant shall have the right to purchase from the Company on or after the
Exercisability Date and on or prior to the Expiration Date, one (1) fully paid,
registered and nonassessable Warrant Share, subject to
-3-
<PAGE>
adjustment in accordance with Section 13 hereof, at the purchase price of ten
dollars ($10.00) for each Warrant exercised (the "Exercise Price"). The number
or amount of Warrant Shares for which a Warrant may be exercised, as adjusted
pursuant hereto, is referred to herein as the "Exercise Rate."
For purposes of this Section 7 and elsewhere in this Agreement, the
following terms shall have the meanings provided hereafter:
"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 Company.
"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.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock.
"Equity Interests" means Capital Stock or warrants, options or other rights
to acquire Capital Stock (but excluding any publicly traded debt security that
is convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" of any specified Person means (i) a corporation a majority of
whose outstanding Voting Stock is at the time, directly or indirectly, owned by
such Person or by such Person and a Subsidiary or Subsidiaries of such Person or
by a Subsidiary or Subsidiaries of such Person or (ii) any other Person (other
than a corporation) in which such Person or such Person and a Subsidiary or
Subsidiaries of such Person or a Subsidiary or Subsidiaries of such Person,
directly or indirectly, at the date of determination thereof, has at least
majority ownership interest.
-4-
<PAGE>
"Voting Stock" of any Person means Capital Stock of such Person with voting
power, under ordinary circumstances, to elect directors of such Person.
(c) Warrants may be exercised on and after the Exercisability Date and on
or prior to the Expiration Date by (i) surrendering at any office or agency
maintained by the Company for that purpose, which will initially be the Warrant
Agent Office (each a "Warrant Exercise Office"), the Warrant Certificate
evidencing such Warrants with the form of election to purchase Warrant Shares
set forth on the reverse side of the Warrant Certificate (the "Election to
Exercise") duly completed and signed by the registered holder or holders thereof
or by the duly appointed legal representative thereof or by a duly authorized
attorney, and in the case of a transfer, such signature shall be guaranteed by
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (each an "Eligible Guarantor Institution"), and (ii) paying in full
the Exercise Price for each such Warrant exercised and any other amounts
required to be paid pursuant to this Agreement. Each Warrant may be exercised
only in whole.
(d) Simultaneously with the exercise of each Warrant, payment in full of
the Exercise Price shall be made in cash, certified or official bank check or
wire transfer to be delivered to the office or agency where the Warrant
Certificate is being surrendered. No adjustment shall be made hereunder on
account of any Warrant Shares issued upon exercise of a Warrant under this
Agreement after the exercise of such Warrant. Except for certain adjustments as
set forth in Section 13, no payment shall be made on Warrant Shares on account
of any dividend or distribution declared on Common Stock to holders of such
Common Stock of record as of a date prior to the Exercise Date.
(e) Upon such surrender of a Warrant Certificate and payment and collection
of the Exercise Price at any Warrant Exercise Office, such Warrant Certificate
and payment shall be promptly delivered to the Warrant Agent. The "Exercise
Date" for a Warrant shall be the date when all of the items referred to in the
first sentence of each of paragraphs (c) and (d) of this Section 7 are received
by the Warrant Agent at or prior to 2:00 p.m., New York, New York time, on a
Business Day and the exercise of the Warrants will be effective as of such
Exercise Date. If any items referred to in the first sentence of paragraphs (c)
and (d) are received after 2:00 p.m., New York, New York time, on a Business
Day, the exercise of the Warrants to which such item relates will be effective
on the next succeeding Business Day. Notwithstanding the foregoing, in the case
of an exercise of Warrants on the Expiration Date, if all of the items referred
to in the first sentence of each of paragraphs (c) and (d) of this Section are
received by the Warrant Agent at or prior to 5:00 p.m. New York, New York time,
on such Expiration Date, the exercise of the Warrants to which such items relate
will be effective on the Expiration Date.
(f) Upon the exercise of a Warrant in accordance with the terms hereof, the
receipt of a Warrant Certificate and payment of the Exercise Price, the Warrant
Agent shall: (i) cause an amount equal to the Exercise Price to be paid to the
Company by crediting the same to the account designated by the Company in
writing to the Warrant Agent for that purpose; (ii) advise
-5-
<PAGE>
the Company immediately by telephone of the amount so deposited to the Company's
account and promptly confirm such telephonic advice in writing; and (iii) as
soon as practicable, advise the Company in writing of the number of Warrants
exercised in accordance with the terms and conditions of this Agreement and the
Warrant Certificates, the instructions of each exercising holder of the Warrant
Certificates with respect to delivery of the Warrant Shares to which such holder
is entitled upon such exercise, and such other information as the Company shall
reasonably request.
(g) Subject to the provisions of Section 14 hereof, upon such surrender of
Warrants and payment of the Exercise Price, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
registered holder of the Warrant Certificate evidencing such exercised Warrant
or Warrants, a certificate or certificates for the number of full Warrant Shares
issuable upon the exercise of such Warrants, in fully registered form,
registered in such name or names as may be directed by such holder pursuant to
the Election to Exercise, as set forth on the reverse of the Warrant Certificate
or on the Warrant Endorsement, together with cash as provided in Section 14
hereof; provided, however, that if any consolidation, merger or lease or sale of
assets is proposed to be effected by the Company as described in subsection (k)
of Section 13 hereof, or a tender offer or an exchange offer for shares of
Common Stock of the Company shall be made, upon such surrender of Warrants and
payment of the Exercise Price as aforesaid, the Company 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 Warrant Shares issuable upon the
exercise of such Warrant in the manner described in this sentence together with
cash as provided in Section 14 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 Warrant Shares as of
the date of the surrender of such Warrants and payment of the Exercise Price. No
fractional shares shall be issued upon exercise of any Warrants in accordance
with Section 14 hereof.
All Warrant Certificates surrendered upon exercise of Warrants shall be
cancelled by the Warrant Agent and be disposed of in a manner satisfactory to
the Company.
The Warrant Agent shall keep copies of this Agreement and any notices given
or received hereunder available for inspection by the holders during normal
business hours at its office. The Company shall supply the Warrant Agent from
time to time with such numbers of copies of this Agreement as the Warrant Agent
may request.
SECTION 8. Reports. Whether or not required by the rules and regulations
of the SEC, so long as any Warrants are outstanding, the Company will furnish to
the holders of Warrants all financial information that would be required to be
contained in an annual report prepared in compliance with Rule 14a-3 under the
Exchange Act, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and a report thereon by the Company's
independent certified public accountants. In addition, whether or not required
by
-6-
<PAGE>
the rules and regulations of the SEC, the Company will make such information
available to investors, securities analysts and broker-dealers who request it in
writing.
SECTION 9. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the initial issuance of Warrants and of Warrant Shares
upon the exercise of Warrants; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance of any Warrant Certificates or any certificates for
Warrant Shares in a name other than that of the registered holder of a Warrant
Certificate surrendered upon the exercise of a Warrant, and the Company shall
not be required to issue or deliver such Warrant Certificates unless or until
the person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
SECTION 10. Mutilated or Missing Warrant Certificates. If any of the
Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company
shall issue and the Warrant Agent shall countersign, in exchange and
substitution for and upon cancellation of the mutilated Warrant Certificate, or
in lieu of and substitution for the Warrant Certificate lost, stolen or
destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company and to the Warrant Agent of such loss, theft or destruction of such
Warrant Certificate and indemnity and security therefor, if requested, also
satisfactory to them. Applicants for such substitute Warrant Certificates shall
also comply with such other reasonable regulations and pay such other reasonable
charges as the Company or the Warrant Agent may prescribe.
SECTION 11. Reservation of Warrant Shares. The Company will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.
The Company or the transfer agent for the Common Stock (the "Transfer
Agent") and every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of any of the rights of purchase
aforesaid will be irrevocably authorized and directed at all times to reserve
such number of authorized shares as shall be required for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent and
with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrants. The Warrant Agent is hereby irrevocably authorized to requisition from
time to time from such Transfer Agent the stock certificates required to honor
outstanding Warrants upon exercise thereof in accordance with the terms of this
Agreement. The Company will supply such Transfer Agent with duly executed
certificates for such purposes and will provide or otherwise make available any
cash which may be payable as provided in Section 14 hereof. The Company will
furnish such Transfer Agent
-7-
<PAGE>
a copy of all notices of adjustments and certificates related thereto,
transmitted to each holder pursuant to Section 15 hereof.
Before taking any action which would cause an adjustment pursuant to
Section 13 hereof to reduce the Exercise Price below the then par value (if any)
of the Warrant Shares, the Company will take any corporate action which may, in
the opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at the Exercise Price as so adjusted.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon payment of the Exercise Price and issue, be
fully paid, nonassessable, free of preemptive rights and free from all taxes,
liens, charges and security interests with respect to the issue thereof.
SECTION 12. Registration and Listing of Common Stock. The Company hereby
represents and warrants that the Warrants and the Warrant Shares have been duly
registered or approved, as the case may be, with the appropriate governmental
authorities under applicable federal and state laws. The Warrants and the
Warrant Shares have been approved for listing or quotation on each national
securities exchange or inter-dealer quotation system on which the Common Stock
is listed or quoted, and the Company shall maintain the listing or quotation of
such Warrants and Warrant Shares; and the Company, upon official notice of
issuance, will list or quote on such national securities exchange, will register
under the Exchange Act and will maintain such listing or quotation of, any Other
Securities (as defined below) that at any time are issuable upon exercise of the
Warrants, 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 Company.
"Other Securities" means any stock (other than Common Stock) and other
securities of the Company or any other Person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, 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 13 hereof or otherwise.
SECTION 13. Adjustment of Exercise Rate. The Exercise Rate is subject to
adjustment from time to time upon the occurrence of the events enumerated in
this Section 13. For purposes of this Section 13, "Common Stock" means the
Common Stock and any other stock of the Company, however designated, for which
the Warrants may be exercisable.
(a) Adjustment for Change in Capital Stock.
If the Company:
-8-
<PAGE>
(1) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a greater
number of shares;
(3) combines its outstanding shares of Common Stock into a smaller
number of shares;
(4) makes a distribution on its Common Stock in shares of its capital
stock other than Common Stock; or
(5) 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 any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company which such holder would have owned immediately following such action if
such Warrant 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 a Warrant upon exercise may receive
shares of two or more classes of capital stock of the Company, 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 13.
Such adjustment shall be made successively whenever any event listed above
shall occur.
(b) Adjustment for Rights Issue or Sale of Common Stock Below Current
Market Value.
If the Company (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 Company a commission) of the Current Market
Value at the Time of Determination (each as defined in paragraph (d) of this
Section 13) 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 the Warrants, (2) 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 13 or (3) the
-9-
<PAGE>
conversion of any convertible notes issued or issuable in connection with the
transactions contemplated by the Merger Agreement) 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 paragraph (b) 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 paragraph (b) 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 paragraph (b) if the application of
the formula stated above in this paragraph (b) would result in a value of E'
that is lower than the value of E.
-10-
<PAGE>
(c) Adjustment for Other Distributions.
If the Company 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 paragraph (c) 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 paragraph (c) 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 (c) does not apply to cash dividends or cash distributions
paid out of consolidated retained earnings as shown on the books of the Company
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 Company'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, the Company shall give the Warrant
holders 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.
(d) Current Market Value at the Time of Determination.
-11-
<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.
"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 paragraphs (b) or (c) 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.
(e) Consideration Received.
For purposes of any computation respecting consideration received pursuant
to subsection (b) of this Section 13, the following shall apply:
(1) 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 Company for any underwriting of the issue or otherwise
in connection therewith;
(2) 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 Warrant Agent; and
(3) 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
-12-
<PAGE>
consideration received by the Company for the issuance of such securities plus
the additional minimum consideration, if any, to be received by the Company 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).
(f) 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 13 shall be made to the nearest 1/100th
of a share.
(g) When No Adjustment Required.
No adjustment need be made for a transaction referred to in subsections
(a), (b) or (c) of this Section 13 if Warrant holders are 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 the Warrants become convertible into cash, no adjustment need
be made thereafter as to the cash. Interest will not accrue on the cash.
(h) Notice of Adjustment.
Whenever the Exercise Rate is adjusted, the Company shall provide the
notices required by Section 15 hereof.
(i) Voluntary Adjustment.
The Company 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 Company shall mail to Warrant
holders a notice of the increase. The Company 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 13(i), other than
an increase which the Company has irrevocably committed will be in effect for so
long as any Warrants are outstanding, does not change or adjust the Exercise
Rate otherwise in effect for purposes of subsections (a), (b) or (c) of this
Section 13.
-13-
<PAGE>
(j) Notice of Certain Transactions.
If:
(1) The Company takes any action that would require an
adjustment in the Exercise Rate pursuant to subsections (a), (b) or (c) of this
Section 13 and if the Company does not arrange for Warrant holders to
participate pursuant to subsection (g) of this Section 13;
(2) The Company takes any action that would require a
supplemental Warrant Agreement pursuant to subsection (k) of this Section 13; or
(3) there is a liquidation or dissolution of the Company,
the Company shall mail to Warrant holders 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 Company 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.
(k) Reorganization of the Company.
If the Company consolidates or merges with or into, or transfers or leases
all or substantially all its assets to, any Person, upon consummation of such
transaction the Warrants shall automatically become exercisable for the kind and
amount of securities, cash or other assets which the holder of a Warrant would
have owned immediately after the consolidation, merger, transfer or lease if the
holder had exercised the Warrant 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 Company, or the Person to which such sale or conveyance shall have been
made (any such Person, the "Successor Guarantor"), shall enter into a
supplemental Warrant Agreement 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 13. The Successor Guarantor shall mail
to Warrant holders a notice describing the supplemental Warrant Agreement.
If the issuer of securities deliverable upon exercise of Warrants under the
supplemental Warrant Agreement is an Affiliate of the formed, surviving,
transferee or lessee corporation, that issuer shall join in the supplemental
Warrant Agreement.
If this subsection (k) applies, subsections (a), (b) or (c) of this Section
13 do not apply.
-14-
<PAGE>
(l) The Company Determination Final.
Any determination that the Company or the Board of Directors must make
pursuant to subsection (a), (b), (c), (d), (e) or (g) of this Section 13 is
conclusive.
(m) Warrant Agent's Disclaimer.
The Warrant Agent has no duty to determine when an adjustment under this
Section 13 should be made, how it should be made or what it should be. The
Warrant Agent has no duty to determine whether any provisions of a supplemental
Warrant Agreement under subsection (k) of this Section 13 are correct. The
Warrant Agent makes no representation as to the validity or value of any
securities or assets issued upon exercise of Warrants. The Warrant Agent shall
not be responsible for the Company's failure to comply with this Section 13.
(n) When Issuance or Payment May Be Deferred.
In any case in which this Section 13 shall require that an adjustment in
the Exercise Rate be made effective as of a record date for a specified event,
the Company may elect to defer until the occurrence of such event (i) issuing to
the holder of any Warrant exercised after such record date the Warrant Shares
and other capital stock of the Company, if any, issuable upon such exercise over
and above the Warrant Shares and other capital stock of the Company, if any,
issuable upon such exercise 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
14 hereof; provided, however, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional Warrant Shares, other capital stock and cash upon the
occurrence of the event requiring such adjustment.
(o) Form of Warrants.
Irrespective of any adjustments in the Exercise Rate, Warrants theretofore
or thereafter issued may continue to express the same price and number and kind
of shares as are stated in the Warrants initially issuable pursuant to this
Agreement.
(p) Adjustments to Par Value.
The Company 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 exercise of
the Warrants, the Warrant Shares will be fully paid and nonassessable.
(q) Priority of Adjustments. If this Section 13 requires adjustments
to the Exercise Rate under more than one of paragraphs (a), (b) or (c), and the
record dates for the distributions giving rise to such adjustments shall occur
on the same date, then such adjustments
-15-
<PAGE>
shall be made by applying, first, the provisions of paragraph (a), second, the
provisions of paragraph (c) and, third, the provisions of paragraph (b).
(r) Multiple Adjustments. After an adjustment to the Exercise Rate
under this Section 13, any subsequent event requiring an adjustment under this
Section 13 shall cause an adjustment to the Exercise Rate as so adjusted.
SECTION 14. Fractional Interests. The Company shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 14,
be issuable on the exercise of any Warrants (or specified portion thereof), the
Company shall notify the Warrant Agent in writing of the amount to be paid in
lieu of the fraction of a Warrant Share and concurrently pay or provide to the
Warrant Agent for payment to the Warrant holder an amount in cash equal to the
product of (i) such fraction of a Warrant Share and (ii) the difference of the
Current Market Value of a share of Common Stock as of the date of exercise of
the Warrants and the Exercise Price.
SECTION 15. Notices to Warrant Holders. Upon any adjustment of the
Exercise Rate pursuant to Section 13 hereof, the Company shall promptly
thereafter (i) cause to be filed with the Warrant Agent a certificate of a firm
of independent public accountants of recognized standing selected by the Company
(who may be the regular auditors of the Company) 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 Warrant Shares (or portion thereof) issuable after such
adjustment in the Exercise Rate, upon exercise of a Warrant and payment of the
Exercise Price, which certificate shall be conclusive evidence of the
correctness of the matters set forth therein, and (ii) cause to be given to each
of the registered holders of the Warrant Certificates at such registered
holder's address appearing on the Warrant 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 15.
In the event:
(a) the Company 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 Company commission) of the Current Market Value); or
-16-
<PAGE>
(b) the Company 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 (a) of Section 13 hereof); or
(c) of any consolidation or merger to which the Company is a party or
of the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of Common
Stock issuable upon exercise of the Warrants (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
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company proposes to take any action (other than actions of
the character described in Section 13(a)) which would require an adjustment of
the Exercise Rate pursuant to Section 13;
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be given to each of the registered holders of the Warrant Certificates at its
address appearing on the Warrant register, at least 20 days (or 15 days in any
case specified in clauses (a) or (b) 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 15 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 Agreement or in any of the Warrant Certificates
shall be construed as conferring upon the holders thereof 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 Company or any other matter, or
any rights whatsoever as shareholders of the Company.
SECTION 16. Merger, Consolidation or Change of Name of Warrant Agent. Any
corporation into which the Warrant Agent may be merged or with which it may be
consolidated,
-17-
<PAGE>
or any corporation resulting from any merger or consolidation to which the
Warrant Agent shall be a party, or any corporation succeeding to the business of
the Warrant Agent, shall be the successor to the Warrant Agent hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto, provided that such corporation would be eligible for
appointment as a successor warrant agent under the provisions of Section 18
hereof. In case at the time such successor to the Warrant Agent shall succeed
to the agency created by this Agreement, and in case at that time any of the
Warrant Certificates shall have been countersigned but not delivered, any such
successor to the Warrant Agent may adopt the countersignature of the original
Warrant Agent; and in case at that time any of the Warrant Certificates shall
not have been countersigned, any successor to the Warrant Agent may countersign
such Warrant Certificates either in the name of the predecessor Warrant Agent or
in the name of the successor to the Warrant Agent; and in all such cases such
Warrant Certificates shall have the full force and effect provided in the
Warrant Certificates and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrant Certificates shall have been countersigned but not
delivered, the Warrant Agent whose name has been changed may adopt the
countersignature under its prior name, and in case at that time any of the
Warrant Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name, and in all such cases such Warrant Certificates shall have the full force
and effect provided in the Warrant Certificates and in this Agreement.
SECTION 17. Warrant Agent. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Warrants, by their acceptance
thereof, shall be bound:
(a) The statements contained herein and in the Warrant Certificates
shall be taken as statements of the Company and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Warrant Agent or action taken or to be taken by it. The Warrant Agent
assumes no responsibility with respect to the distribution of the Warrant
Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant Certificate in respect of any action taken, suffered or omitted by
it hereunder in good faith and in accordance with the opinion or the advice of
such counsel.
-18-
<PAGE>
(d) The Warrant Agent shall incur no liability or responsibility to
the Company or to any holder of any Warrant Certificate for any action taken in
reliance on any Warrant Certificate, certificate of shares, notice, resolution,
waiver, consent, order, certificate, or other paper, document or instrument
believed by it to be genuine and to have been signed, sent or presented by the
proper party or parties. The Warrant Agent shall not be bound by any notice or
demand, or any waiver, modification, termination or revision of this Agreement
or any of the terms hereof, unless evidenced by a writing between the Company
and the Warrant Agent.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes
(including withholding taxes) and governmental charges and other charges of any
kind and nature incurred by the Warrant Agent in the execution, delivery and
performance of its responsibilities under this Agreement and to indemnify the
Warrant Agent and save it harmless against any and all liabilities, including
judgments, costs and reasonable counsel fees, for anything done or omitted by
the Warrant Agent in the execution, delivery and performance of its
responsibilities under this Agreement except as a result of its negligence or
bad faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrant
Certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such action as it may
consider proper, whether with or without any such security or indemnity. All
rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrant
Certificates or the production thereof at any trial or other proceeding relative
thereto, and any such action, suit or proceeding instituted by the Warrant Agent
shall be brought in its name as Warrant Agent and any recovery or judgment shall
be for the ratable benefit of the registered holders of the Warrants, as their
respective rights or interests may appear.
(g) Except as may be limited by applicable law, the Warrant Agent,
and any stockholder, director, officer or employee of it, may buy, sell or deal
in any of the Warrants or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or
contract with or lend money to the Company or otherwise act as fully and freely
as though it were not Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the Company or
for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent for the
Company, and its duties shall be determined solely by the provisions hereof.
The Warrant Agent shall not be liable for anything which it may do or refrain
from doing in connection with this Agreement except for its own negligence or
bad faith.
-19-
<PAGE>
(i) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of any Warrant Certificate to make or cause to be
made any adjustment of the Exercise Rate or other securities or property
deliverable as provided in this Agreement, or to determine whether any facts
exist which may require any of such adjustments, or with respect to the nature
or extent of any such adjustments, when made, or with respect to the method
employed in making the same. The Warrant Agent shall not be accountable with
respect to the validity or value or the kind or amount of any Warrant Shares or
of any securities or property which may at any time be issued or delivered upon
the exercise of any Warrant or with respect to whether any such Warrant Shares
or other securities will when issued be validly issued and fully paid and
nonassessable, and makes no representation with respect thereto.
SECTION 18. Change of Warrant Agent. If the Warrant Agent shall become
incapable of acting as Warrant Agent or shall resign as provided below, the
Company shall appoint a successor to such Warrant Agent. If the Company shall
fail to make such appointment within a period of 30 days after it has been
notified in writing of such incapacity or resignation by the Warrant Agent or by
the registered holders of a majority of Warrant Certificates, then the
registered holder of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Pending
appointment of a successor to such Warrant Agent, either by the Company or by
such a court, the duties of the Warrant Agent shall be carried out by the
Company. The holders of a majority of the unexercised Warrants shall be
entitled at any time to remove the Warrant Agent and appoint a successor to such
Warrant Agent. Such successor to the Warrant Agent need not be approved by the
Company or the former Warrant Agent. Any successor to the Warrant Agent,
whether appointed by the Company, the court or the holders of a majority of the
unexercised Warrants, shall be (a) a corporation or other entity organized and
doing business under the laws of the United States or any state of the United
States, in good standing, which is authorized under such laws to exercise
corporate trust or stock transfer powers and is subject to supervision or
examination by Federal or state authority and which has at the time of its
appointment as Warrant Agent a combined capital and surplus of at least
$25,000,000, or (b) an affiliate of a corporation or other entity described in
clause (a) of this sentence. After appointment the successor to the Warrant
Agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named as Warrant Agent without further act or deed;
but the former Warrant Agent shall deliver and transfer to the successor to the
Warrant Agent any property at the time held by it hereunder and execute and
deliver any further assurance, conveyance, act or deed necessary for the
purpose. Failure to give any notice provided for in this Section 18, however,
or any defect therein, shall not affect the legality or validity of the
appointment of a successor to the Warrant Agent.
The Warrant Agent may resign at any time and be discharged from the
obligations hereby created by so notifying the Company in writing at least 30
days in advance of the proposed effective date of its resignation. If no
successor Warrant Agent accepts the engagement hereunder by such time, the
Company shall act as Warrant Agent.
-20-
<PAGE>
SECTION 19. Notices to the Company and Warrant Agent. Any notice or
demand authorized by this Agreement to be given or made by the Warrant Agent or
by the registered holder of any Warrant Certificate to or on the Company shall
be sufficiently given or made when and if deposited in the mail, first class or
registered postage prepaid, addressed (until another address is filed in writing
by the Company with the Warrant Agent) as follows:
Homestead Village Properties Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: David C. Dressler, Jr.
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Edward J. Schneidman
Any notice pursuant to this Agreement to be given by the Company or by the
registered holder of any Warrant Certificate to the Warrant Agent shall be
sufficiently given when and if deposited in the mail, first-class or registered,
postage prepaid, addressed (until another address is filed in writing by the
Warrant Agent with the Company) to the Warrant Agent as follows:
The First National Bank of Boston
150 Royall Street
Canton, Massachusetts 02021
Attention: Corporate Trust Administration
Notice may also be given by facsimile transmission (effective when receipt
is acknowledged) (effective at the time of delivery) or by overnight delivery
service (effective the next business day).
SECTION 20. Supplements and Amendments. The Company and the Warrant Agent
may from time to time supplement or amend this Agreement and the terms of the
Warrants without the approval of any holders of Warrant Certificates in order to
cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Warrant Agent may deem necessary or desirable and
which shall not in any way adversely affect the interests of the holders of
Warrant Certificates. Any amendment or supplement to this Agreement that has an
adverse effect on the interests of holders shall require the written consent of
registered holders of a majority of the then outstanding Warrants; provided,
however, that the consent of each holder of a Warrant affected shall be required
for any amendment pursuant to which the Exercise Price would be
-21-
<PAGE>
increased, the number of Warrant Shares purchasable upon exercise of Warrants
would be decreased, the period of time during which the Warrants are exercisable
is reduced, the percentage required for modification is reduced, or any change
to this Section 20 is effected (other than in accordance with Section 13 or 14
hereof).
SECTION 21. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 22. Termination. This Agreement shall terminate at 5:00 p.m., New
York, New York time on ____________ __, 1997. Notwithstanding the foregoing,
this Agreement will terminate on such earlier date on which all Warrants have
been exercised. The provisions of Section 17 hereof shall survive such
termination.
SECTION 23. Governing Law; Jurisdiction. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Maryland and for all purposes shall be governed by and
construed in accordance with the internal laws of said State.
SECTION 24. Benefits of This Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrant Certificates any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and the registered holders of the Warrant Certificates.
SECTION 25. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
SECTION 26. Further Assurances. From time to time on and after the date
hereof, the Company shall deliver or cause to be delivered to the Warrant Agent
such further documents and instruments and shall do and cause to be done such
further acts as the Warrant Agent shall reasonably request (it being understood
that the Warrant Agent shall have no obligation to make such request) to carry
out more effectively the provisions and purposes of this Agreement, to evidence
compliance herewith or to assure itself that it is protected hereunder.
-22-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
By:_________________________________________________
David C. Dressler, Jr.
Chairman
THE FIRST NATIONAL BANK OF BOSTON
By:____________________________
Name:_______________________
Title:________________________
-23-
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
[FACE]
CUSIP #_______
No. ___ _____ Warrants
Warrant Certificate
Homestead Village Properties Incorporated
This Warrant Certificate certifies that ____________, or registered
assigns, is the registered holder of ____________ Warrants expiring
____________, 1997 (the "Warrants") to purchase shares of the Common Stock, par
value $.01 per share (the "Common Stock"), of Homestead Village Properties
Incorporated, a Maryland corporation (the "Company"). Each Warrant entitles the
holder upon exercise to receive from the Company at any time from 9:00 a.m.
__________, 1996 to 5:00 p.m., New York, New York time on ____________, 1997,
one fully paid, registered and nonassessable share of Common Stock (a "Warrant
Share", which may also include any other securities or property purchasable upon
exercise of a Warrant, such adjustment and inclusion each as provided in the
Warrant Agreement) at the initial exercise price (the "Exercise Price") of ten
dollars ($10.00) per share payable in United States dollars by certified or
official bank check to the order of the Company, upon surrender of this Warrant
Certificate and payment of the Exercise Price at the office or agency maintained
for that purpose by the Company (the "Warrant Agent Office"), subject to the
conditions set forth herein and in the Warrant Agreement referred to on the
reverse hereof. The Company has initially designated the corporate trust office
of the Warrant Agent in the Borough of Manhattan, the City of New York, as the
initial Warrant Agent Office. The number or amount of Warrant Shares for which
a Warrant may be exercised (the "Exercise Rate") is subject to adjustment upon
the occurrence of certain events set forth in the Warrant Agreement. All
capitalized terms not defined herein shall have the meanings assigned to such
terms in the Warrant Agreement.
No Warrant may be exercised after 5:00 p.m., New York, New York time
on ___________, 1997 and to the extent not exercised by such time Warrants shall
become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent, as such term is used in the Warrant Agreement.
<PAGE>
This Warrant Certificate shall be governed and construed in accordance
with the internal laws of the State of Maryland.
IN WITNESS WHEREOF, Homestead Village Properties Incorporated has caused
this Warrant Certificate to be signed by its Chairman and by its Secretary, each
by a facsimile of his signature, and has caused a facsimile of its corporate
seal to be affixed hereunto or imprinted hereon.
Dated: HOMESTEAD VILLAGE PROPERTIES INCORPORATED
By: ___________________________
David C. Dressler, Jr.
Chairman
By: ___________________________
Jeffrey A. Klopf
Secretary
Countersigned:
THE FIRST NATIONAL BANK OF BOSTON
as Warrant Agent
By:____________________________
Authorized Signatory
A-2
<PAGE>
Form of Warrant Certificate
[REVERSE]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring at 5:00 p.m., New York, New York time, on
_________, 1997 entitling the holder on exercise to receive shares of Common
Stock of the Company (the "Common Stock"), and are issued pursuant to a Warrant
Agreement dated as of _________, 1996 (the "Warrant Agreement"), duly executed
and delivered by the Company to The First National Bank of Boston, as warrant
agent (the "Warrant Agent"), which Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Warrant Agent, the Company and the holders (the
words "holders" or "holder" meaning the registered holders or registered holder)
of the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company.
Subject to the provisions of the Warrant Agreement, the holder of each
Warrant shall have the right to purchase from the Company (and the Company shall
issue and sell to such holder of the Warrant), at any time on any Business Day
from 9:00 a.m. on __________, 1996 until 5:00 p.m., New York, New York time, on
_____________, 1997, one (or such other number as may result from adjustments as
provided in the Warrant Agreement) fully paid, registered and nonassessable
share of Common Stock at the Exercise Price (and any other securities or
property purchasable upon exercise of such Warrant at the time of such exercise
as provided in the Warrant Agreement). Warrants may be exercised by (i)
surrendering at any Warrant Agent Office this Warrant Certificate with the form
of Election to Exercise set forth hereon duly completed and executed and (ii)
paying in full the Warrant Exercise Price for each such Warrant exercised and
any other amounts required to be paid pursuant to the Warrant Agreement in
United States dollars by certified or official bank check to the order of the
Company.
If all of the items referred to in the last sentence of the preceding
paragraph are received by the Warrant Agent at or prior to 2:00 p.m., New York,
New York time, on a Business Day, the exercise of the Warrant to which such
items relate will be effective on such Business Day. If any items referred to
in the last sentence of the preceding paragraph are received after 2:00 p.m.,
New York, New York time, on a Business Day, the exercise of the Warrants to
which such item relates will be effective on the next succeeding Business Day.
Notwithstanding the foregoing, in the case of an exercise of Warrants on
_____________, 1997, if all of the items referred to in the last sentence of the
preceding paragraph are received by the Warrant Agent at or prior to 5:00 p.m.,
New York, New York time, on such Expiration Date, the exercise of the Warrants
to which such items relate will be effective on the Expiration Date.
A-3
<PAGE>
As soon as practicable after the exercise of any Warrant or Warrants, the
Company shall issue or cause to be issued to or upon the written order of the
registered holder of this Warrant Certificate, a certificate or certificates
evidencing the Warrant Shares to which such holder is entitled, in fully
registered form, registered in such name or names as may be directed by such
holder pursuant to the Election to Exercise, as set forth on the reverse of this
Warrant Certificate. Such certificate or certificates evidencing the Warrant
Shares shall be deemed to have been issued and any persons who are designated to
be named therein shall be deemed to have become the holder of record of such
Warrant Shares as of the close of business on the exercise date.
The Warrant Agreement provides that upon the occurrence of certain events
the number and kind of Warrant Shares for which a Warrant may be exercised (the
"Exercise Rate") may, subject to certain conditions, be adjusted. No fractions
of a share of Common Stock will be issued upon the exercise of any Warrant, but
the Company will pay the cash value thereof determined as provided in the
Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Warrant Agent
by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any rights
of a stockholder of the Company.
A-4
<PAGE>
Form of Election to Purchase
(To Be Executed Upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ____ shares of Common Stock
and herewith (check item) tenders payment for such shares to the order of the
Company, in the amount of $____ per share of Common Stock in accordance with the
terms hereof, as follows:
[_] $____________ in cash; or
[_] $____________ by wire transfer of immediately available funds;
or
[_] $ ___________ by certified or official bank check to the order of
the Company.
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
__________________.
If said number of shares is less than all of the shares of Common Stock
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the remaining balance of such shares be registered in the name of
_________, whose address is ______________, and that such Warrant Certificate be
delivered to ___________________, whose address is _________________________.
Signature(s): ______________________________
Note: The above signature(s) must
correspond with the name written upon
the face of this Warrant Certificate
in every particular, without
alteration or enlargement or any
change whatsoever. If this Warrant is
held of record by two or more joint
owners, all such owners must sign.
Date: _______________
Signature Guaranteed*: _____________________________
*Note: The signature must be guaranteed by an institution which is a member of
one of the following recognized signature guarantee programs:
(1) The Securities Transfer Agent Medallion Program (STAMP);
(2) The New York Stock Exchange Medallion Program (MSP); or
(3) The Stock Exchange Medallion Program (SEMP).
A-5
<PAGE>
ASSIGNMENT FORM
To assign this Warrant, fill in the form below: (I) or (we) assign and
transfer this Warrant to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint __________________________ to transfer this Warrant on
the books of the Company. The agent may substitute another to act for him.
____________________________________________
Signature(s): ______________________________
Note: The above signature(s) must
correspond with the name written upon
the face of this Warrant Certificate
in every particular, without
alteration or enlargement or any
change whatsoever. If this Warrant is
held of record by two or more joint
owners, all such owners must sign.
Date: _______________
Signature Guaranteed*: ___________________________
*Note: The signature must be guaranteed by an institution which is a member of
one of the following recognized signature guarantee programs:
(1) The Securities Transfer Agent Medallion Program (STAMP);
(2) The New York Stock Exchange Medallion Program (MSP); or
(3) The Stock Exchange Medallion Program (SEMP).
A-6
<PAGE>
===============================================================================
RIGHTS AGREEMENT
between
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
and
THE FIRST NATIONAL BANK OF BOSTON
Rights Agent
Dated as of May 16, 1996
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Certain Definitions................................................. 1
Section 2. Appointment of Rights Agent......................................... 4
Section 3. Issuance of Right Certificates...................................... 5
Section 4. Form of Right Certificates.......................................... 7
Section 5. Countersignature and Registration................................... 7
Section 6. Transfer, Division, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost
or Stolen Right Certificates........................................ 8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights....... 9
Section 8. Cancellation and Destruction of Right Certificates.................. 11
Section 9. Availability of Preferred Shares.................................... 11
Section 10. Preferred Shares Record Date........................................ 12
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights.. 12
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.......... 19
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power 19
Section 14. Fractional Rights and Fractional Shares............................. 21
Section 15. Rights of Action.................................................... 22
Section 16 Agreement of Right Holders.......................................... 23
Section 17. Right Certificate Holder Not Deemed a Shareholder................... 23
Section 18. Concerning the Rights Agent......................................... 24
Section 19. Merger or Consolidation or Change of Name of Rights Agent........... 24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 20. Duties of Rights Agent.............................................. 25
Section 21. Change of Rights Agent.............................................. 27
Section 22. Issuance of New Right Certificates.................................. 28
Section 23. Redemption.......................................................... 28
Section 24. Exchange............................................................ 29
Section 25. Notice of Certain Events............................................ 30
Section 26. Notices............................................................. 31
Section 27. Supplements and Amendments.......................................... 31
Section 28. Successors.......................................................... 32
Section 29. Benefits of this Agreement.......................................... 32
Section 30. Severability........................................................ 32
Section 31. Governing Law....................................................... 32
Section 32. Counterparts........................................................ 32
Section 33. Descriptive Headings................................................ 32
Section 34. Notice as to Liability of Directors and Shareholders................ 33
Exhibit A - Form of Articles Supplementary of Homestead Village Properties
Incorporated
Exhibit B - Form of Right Certificate
</TABLE>
<PAGE>
RIGHTS AGREEMENT
----------------
Agreement, dated as of May 16, 1996 between Homestead Village Properties
Incorporated, a Maryland corporation (the "Corporation"), and The First National
Bank of Boston, a national banking association (the "Rights Agent").
The Board of Directors of the Corporation has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Corporation outstanding as of the close of
business on May 16, 1996 (the "Record Date"), each Right representing the right
to purchase one one-hundredth of a Preferred Share (as hereinafter defined),
upon the terms and subject to the conditions herein set forth, and has further
agreed to authorize and direct the issuance of one Right with respect to each
Common Share that shall become outstanding between the Record Date and the first
to occur of the Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
"Acquiring Person" shall mean any Person (as hereinafter defined) who
or which, together with all Affiliates and Associates (as such terms are
hereinafter defined) of such Person, shall be the Beneficial Owner (as
hereinafter defined) of 20% or more of the Common Shares of the Corporation
then outstanding, but shall not include the SCG Group, the Corporation, any
Affiliate or Subsidiary (as hereinafter defined) of the Corporation, any
employee benefit plan of the Corporation or of any Affiliate or Subsidiary
of the Corporation or any entity holding Common Shares for or pursuant to
the terms of any such plan. Notwithstanding the foregoing, no Person shall
become an "Acquiring Person" as the result of (i) an acquisition of Common
Shares by the Corporation which, by reducing the number of Common Shares
outstanding, increases the proportionate number of Common Shares
beneficially owned by such Person to 20% or more of the Common Shares of
the Corporation then outstanding, or (ii) the acquisition by such Person of
newly issued Common Shares directly from the Corporation (it being
understood that a purchase from an underwriter or other intermediary is not
directly from the Corporation); provided, however, that if a Person shall
become the Beneficial Owner of 20% or more of the Common Shares of the
Corporation then outstanding, by reason of Common Share purchases by the
Corporation or the receipt of newly issued Common Shares directly from the
Corporation and shall, after such Common Share purchases or direct issuance
by the Corporation, become the Beneficial Owner of any additional Common
Shares of the Corporation, then such Person shall be deemed to be an
"Acquiring Person"; provided further, however, that any
<PAGE>
transferee from such Person who becomes the Beneficial Owner of 20% or more
of the Common Shares of the Corporation then outstanding shall nevertheless
be deemed to be an "Acquiring Person." Notwithstanding the foregoing, if
the Board of Directors of the Corporation determines in good faith that a
Person who would otherwise be an "Acquiring Person," as defined pursuant to
the foregoing provisions of this paragraph, has become such inadvertently,
and such Person divests as promptly as practicable (and in any event within
ten Business Days after notification by the Corporation) a sufficient
number of Common Shares so that such Person would no longer be an Acquiring
Person, as defined pursuant to the foregoing provisions of this paragraph,
then such Person shall not be deemed to be an "Acquiring Person" for any
purposes of this Agreement.
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date of this Agreement.
A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (A) the right to acquire
(whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding, whether written or oral (other than customary
agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities), or upon
the exercise of conversion rights, exchange rights, rights (other than
the Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for purchase or exchange; (B) the sole or shared right to vote or
dispose (including any such right pursuant to any agreement,
arrangement or understanding, whether written or oral); provided,
however, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, any security if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act
and (2) is not also then reportable on Schedule 13D under the Exchange
Act (or any comparable or successor report); or (C) "beneficial
ownership" (as determined pursuant to Rule 13d-3 of the General Rules
and Regulations under the Exchange Act); or
2
<PAGE>
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which
such Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to clause (B) of subparagraph (ii) of this
definition) or disposing of any securities of the Corporation.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference to
the Beneficial Ownership of securities of the Corporation by any Person,
shall mean the number of such securities then issued and outstanding
together with the number of such securities not then actually issued and
outstanding which such Person would be deemed to own beneficially
hereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday, or
a day on which banking institutions in New York are authorized or obligated
by law or executive order to close.
"Close of business" on any given date shall mean 5:00 P.M., Eastern
time, on such date; provided, however, that if such date is not a Business
Day it shall mean 5:00 P.M., Eastern time, on the next succeeding Business
Day.
"Common Shares" when used with reference to the Corporation shall mean
the shares of common stock, par value $0.01 per share, of the Corporation.
"Common Shares" when used with reference to any Person other than the
Corporation shall mean the capital stock (or equity interest) with the
greatest voting power of such other Person or the equity securities or
other equity interest having power to control or direct the management of
such other Person.
"Distribution Date" shall have the meaning set forth in Section 3
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Final Expiration Date" shall have the meaning set forth in Section 7
hereof.
"Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
"Preferred Shares" shall mean the shares of Series A Junior
Participating Preferred Stock, par value $0.01 per share, of the
Corporation having the rights and
3
<PAGE>
preferences set forth in the form of Articles Supplementary attached to
this Agreement as Exhibit A.
"Purchase Price" shall have the meaning set forth in Section 4 hereof.
"Redemption Date" shall have the meaning set forth in Section 7
hereof.
"Right Certificate" shall have the meaning set forth in Section 3
hereof.
"SCG" shall mean Security Capital Group Incorporated, a Maryland
corporation.
"SCG Group" shall mean SCG, together with its wholly owned
subsidiaries, Affiliates and Associates.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) promulgated
under the Exchange Act) by the Corporation or an Acquiring Person that an
Acquiring Person has become such.
"Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
"Triggering Event" shall mean any event described in Section 11(a)(ii)
or Section 13(a).
Any determination or interpretation required in connection with any of the
definitions contained in this Section 1 shall be made by the Board of Directors
of the Corporation in their good faith judgment, which determination shall be
final and binding on the Rights Agent.
Section 2. Appointment of Rights Agent. The Corporation hereby appoints
the Rights Agent to act as agent for the Corporation and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Shares) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Corporation may from time to time appoint such co-Rights
Agents as it may deem necessary or desirable.
Section 3. Issuance of Right Certificates.
(a) Until the earlier of (i) the close of business on the tenth day after
the Shares Acquisition Date, (ii) the close of business on the fifteenth
Business Day (or such later date as
4
<PAGE>
may be determined by action of the Board of Directors prior to such time as any
Person becomes an Acquiring Person) after the date of the commencement by any
Person (other than the SCG Group, the Corporation, any Affiliate or Subsidiary
of the Corporation, any employee benefit plan of the Corporation or of any
Affiliate or Subsidiary of the Corporation or any entity holding Common Shares
for or pursuant to the terms of any such plan) of, or of the first public
announcement of, the intention of any Person (other than SCG Group, the
Corporation, any Affiliate or Subsidiary of the Corporation, any employee
benefit plan of the Corporation or of any Affiliate or Subsidiary of the
Corporation or any entity holding Common Shares for or pursuant to the terms of
any such plan) to commence, a tender or exchange offer the consummation of which
would result in any Person becoming the Beneficial Owner of Common Shares
aggregating 25% or more of the then outstanding Common Shares, or (iii) the
close of business on the tenth Business Day (or such later date as may be
determined by action of the Board of Directors 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 the consummation of which would result in
any Person (other than the SCG Group) becoming the Beneficial Owner of Common
Shares aggregating 25% or more of the then outstanding Common Shares, other than
a transaction in which newly issued Common Shares are issued directly by the
Corporation to such Person (including any such date which is after the date of
this Agreement and prior to the issuance of the Rights; the earlier of such
dates being herein referred to as the "Distribution Date"), (x) the Rights will
be evidenced (subject to the provisions of Section 3(b) hereof) by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be certificates for Rights) and not
by separate certificates, and (y) the Rights will be transferable only in
connection with the transfer of the underlying Common Shares (including a
transfer to the Corporation). As soon as practicable after the Distribution
Date, the Corporation will prepare and execute, the Rights Agent will
countersign, and the Corporation will send or cause to be sent (and the Rights
Agent will, if requested, send) by first-class, insured, postage-prepaid mail,
to each record holder of Common Shares as of the close of business on the
Distribution Date, at the address of such holder shown on the records of the
Corporation, a Right Certificate, in substantially the form of Exhibit B hereto
(a "Right Certificate"), evidencing one Right for each Common Share so held. As
of the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) With respect to certificates for Common Shares outstanding as of the
Record Date, until the Distribution Date, the Rights will be evidenced by such
certificates registered in the names of the holders thereof, and registered
holders of Common Shares shall also be the registered holders of the associated
Rights (regardless of whether such ownership is indicated on the Common Share
certificates). Until the earliest of the Distribution Date, the Redemption Date
or the Final Expiration Date, the transfer of any certificate for Common Shares
shall also constitute the transfer of the Rights associated with the Common
Shares represented thereby.
5
<PAGE>
(c) Rights shall be issued in respect of all Common Shares which are
issued (whether originally issued or delivered from the Corporation's treasury)
after the Record Date but prior to the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date. Certificates representing such
Common Shares shall also be deemed to be certificates for Rights. Certificates
representing both Common Shares and Rights in accordance with this Section 3
which are executed and delivered (whether the Common Shares represented thereby
are originally issued, delivered from the Corporation's treasury or are
presented for transfer) by the Corporation (including, without limitation,
certificates representing reacquired Common Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date shall
have impressed on, printed on, written on or otherwise affixed to them a legend
that by itself or together with prior legends is substantially to the following
effect:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in the Rights Agreement between Homestead
Village Properties Incorporated (the "Corporation") and The First
National Bank of Boston, dated as of May 16, 1996 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of
the Corporation. Under certain circumstances, as set forth in the
Rights Agreement, the Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. The
Corporation will mail to the holder of this certificate a copy of the
Rights Agreement, as in effect on the date of mailing, without charge
promptly after receipt of a written request therefor. Under certain
circumstances set forth in the Rights Agreement, Rights issued to, or
held by, any Person who is, was or becomes an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the
Rights Agreement), whether currently held by or on behalf of such
Person or by any subsequent holder, shall become null and void.
Until the Distribution Date, the Rights associated with the Common Shares shall
be evidenced by the certificates representing the associated Common Shares alone
(regardless of whether any such certificate contains the above legend), and the
transfer of any such certificate shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby. In the event that
the Corporation purchases or acquires any Common Shares after the Record Date
but prior to the Distribution Date, any Rights associated with such Common
Shares shall be deemed cancelled and retired so that the Corporation shall not
be entitled to exercise any Rights associated with the Common Shares which are
no longer outstanding.
Section 4. Form of Right Certificates.
(a) The Right Certificates (and the forms of election to purchase
Preferred Shares and of assignment to be printed on the reverse thereof) shall
be substantially the same as Exhibit B
6
<PAGE>
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Corporation may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 11 and Section 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-hundredths of a Preferred Share as shall be set forth therein at the price
per one one-hundredth of a Preferred Share set forth therein (the "Purchase
Price"), but the amount and type of securities purchasable upon the exercise of
each Right and the Purchase Price thereof shall be subject to adjustment as
provided herein.
(b) Any Right Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights beneficially owned by: (i) an Acquiring Person or
any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or any Associate or Affiliate) who becomes a transferee after
the Acquiring Person becomes an Acquiring Person, or (iii) a transferee of an
Acquiring Person (or any Associate or Affiliate) who becomes a transferee prior
to or concurrently with the Acquiring Person becoming such and receives such
Rights pursuant to either (A) a transfer (whether or not for consideration) from
the Acquiring Person to holders of equity interests in such Acquiring Person or
to any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding, whether written or oral, regarding the transferred
Rights or (B) a transfer which is part of a plan, arrangement or understanding,
whether written or oral, which has as a primary purpose or effect the avoidance
of Section 7(e) hereof, and any Right Certificate issued pursuant to Section 6
or Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Right Certificate referred to in this sentence, shall contain (to the
extent feasible and otherwise reasonably identifiable as such) the following
legend:
The Rights represented by this Right Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Right Certificate
and the Rights represented hereby may become void in the circumstances
specified in Section 7(e) of such Agreement.
The provisions of Section 7(e) shall apply whether or not any Right Certificate
actually contains the foregoing legend.
Section 5. Countersignature and Registration. The Right Certificates
shall be executed on behalf of the Corporation by any Co-Chairman of the Board,
any Managing Director, any of its Vice Presidents, or its Secretary, either
manually or by facsimile signature, shall have affixed thereto the Corporation's
seal or a facsimile thereof, and shall be attested by the Secretary or an
Assistant Secretary of the Corporation, either manually or by facsimile
signature.
7
<PAGE>
The Right Certificates shall be manually countersigned by the Rights Agent and
shall not be valid for any purpose unless countersigned. In case any officer of
the Corporation who shall have signed any of the Right Certificates shall cease
to be such officer of the Corporation before countersignature by the Rights
Agent and issuance and delivery by the Corporation, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Corporation with the same force and effect as though the person who
signed such Right Certificates had not ceased to be such officer of the
Corporation; and any Right Certificate may be signed on behalf of the
Corporation by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Corporation to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its office designated for such purpose, books for registration and
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Right Certificates, the
number of Rights evidenced on its face by each of the Right Certificates and the
date of each of the Right Certificates.
Section 6. Transfer, Division, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Sections 4(b), 7(e), 14 and 24 hereof, at any time after
the close of business on the Distribution Date, and at or prior to the close of
business on the earlier of the Redemption Date or the Final Expiration Date, any
Right Certificate or Right Certificates may be transferred, divided, combined or
exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of Preferred Shares (or, following a
Triggering Event, Common Shares or other securities or property, as the case may
be) as the Right Certificate or Right Certificates surrendered then entitled
such holder to purchase. Any registered holder desiring to transfer, divide,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, divided, combined or
exchanged at the office of the Rights Agent designated for such purpose.
Neither the Rights Agent nor the Corporation shall be obligated to take any
action whatsoever with respect to the transfer of any such surrendered Right
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Right Certificate and the Corporation shall have been provided with such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Corporation shall
reasonably request. Thereupon the Rights Agent shall, subject to Sections 4 and
7 hereof, countersign and deliver to the person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Corporation may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer,
division, combination or exchange of Right Certificates.
8
<PAGE>
Upon receipt by the Corporation and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Corporation's request,
reimbursement to the Corporation and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Corporation will make and deliver a new
Right Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) Subject to Section 7(e) hereof, the registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
on the reverse side thereof duly executed, to the Rights Agent at the office of
the Rights Agent designated for such purpose, together with payment of the
Purchase Price with respect to each surrendered Right for the total number of
Preferred Shares (or Common Shares or other securities or property, as the case
may be) as to which the Rights are exercised, at or prior to the earliest of (i)
the close of business on May 16, 2006 (the "Final Expiration Date"), (ii) the
time at which the Rights are redeemed as provided in Section 23 hereof (the
"Redemption Date") or (iii) the time at which such Rights are exchanged as
provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a Preferred Share
pursuant to the exercise of a Right shall initially be $50.00, shall be subject
to adjustment from time to time as provided in Sections 11 and 13 hereof and
shall be payable in lawful money of the United States of America in accordance
with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase and the certificate on the reverse side of
the Right Certificate duly executed, accompanied by payment of the Purchase
Price for the Preferred Shares (or Common Shares or other securities or
property, as the case may be) to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Corporation, the Rights Agent
shall thereupon promptly (i) (A) requisition from any transfer agent of the
Preferred Shares (or make available, if the Rights Agent is the transfer agent
of the Preferred Shares) certificates for the number of Preferred Shares to be
purchased and the Corporation hereby irrevocably authorizes its transfer agent
to comply with all such requests, or (B) if the Corporation shall have elected
to deposit the Preferred Shares issuable upon exercise of the Rights with a
depositary agent, requisition from the depositary agent depositary receipts
representing such number of one one-hundredths of a Preferred Share as are to be
purchased (in which case certificates for the Preferred Shares represented by
such receipts shall be deposited by the transfer agent with the depositary
agent) and the Corporation will direct
9
<PAGE>
the depositary agent to comply with such request, (ii) when appropriate,
requisition from the Corporation the amount of cash to be paid in lieu of
issuance of fractional shares in accordance with Section 14 hereof, (iii) after
receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Right Certificate. In the event that
the Corporation is obligated to issue other securities (including Common Shares)
of the Corporation, pay cash and/or distribute other property pursuant to
Section 11(a) hereof, the Corporation will make all arrangements necessary so
that such other securities, cash and/or property are available for distribution
by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent and delivered to the registered holder of such Right Certificate or
to his duly authorized assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from and
after the occurrence of a Triggering Event, any Rights beneficially owned by (i)
an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes an Acquiring Person or
(iii) a transferee of an Acquiring Person (or any Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
an Acquiring Person and receives such Rights pursuant to either (x) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or understanding,
whether written or oral, regarding the transferred Rights or (y) a transfer
which the Board of Directors otherwise concludes in good faith is part of a
plan, arrangement or understanding, whether written or oral, which has as a
primary purpose or effect the avoidance of this Section 7(e), shall become null
and void without any further action, and any holder of such Rights shall
thereupon have no rights whatsoever with respect to such Rights, whether under
any provision of this Agreement or otherwise, from and after the occurrence of a
Triggering Event. The Corporation shall use all reasonable efforts to insure
that the provisions of this Section 7(e) hereof are complied with, but shall
have no liability to any holder of Rights for the inability to make any
determinations with respect to an Acquiring Person or its Affiliates, Associates
or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary, neither the
Rights Agent nor the Corporation shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless the certificate contained in the form of
election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise shall have been completed and signed by the
registered
10
<PAGE>
holder thereof and the Corporation shall have been provided with such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Corporation shall reasonably request.
(g) The Corporation covenants and agrees that it will cause to be reserved
and kept available out of its authorized and unissued Preferred Shares (and,
following the occurrence of a Triggering Event, Common Shares and/or other
securities) or any Preferred Shares (and, following the occurrence of a
Triggering Event, Common Shares and/or other securities) held in its treasury,
the number of Preferred Shares (and, following the occurrence of a Triggering
Event, Common Shares and/or other securities) that will be sufficient to permit
the exercise in full of all outstanding Rights.
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, division,
combination or exchange shall, if surrendered to the Corporation or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Corporation shall
deliver to the Rights Agent for cancellation and retirement, and the Rights
Agent shall so cancel and retire, any other Right Certificate purchased or
acquired by the Corporation otherwise than upon the exercise thereof. The
Rights Agent shall deliver all cancelled Right Certificates to the Corporation,
or shall, at the written request of the Corporation, destroy such cancelled
Right Certificates, and in such case shall deliver a certificate of destruction
thereof to the Corporation.
Section 9. Availability of Preferred Shares. The Corporation covenants
and agrees that it will take all such action as may be necessary to ensure that
all Preferred Shares (and, following the occurrence of a Triggering Event,
Common Shares and/or other securities) delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such Preferred Shares (and,
following the occurrence of a Triggering Event, Common Shares and/or other
securities), subject to payment of the Purchase Price, be duly and validly
authorized and issued and fully paid and nonassessable.
The Corporation further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares (or Common Shares and/or other securities, as the case may
be) upon the exercise of Rights. The Corporation shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right Certificates to a person other than, or the issuance or
delivery of certificates or depositary receipts for the Preferred Shares (or
Common Shares and/or other securities, as the case may be) in a name other than
that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or to deliver any certificates or
depositary receipts for Preferred Shares (or Common Shares and/or other
securities, as the case may be) upon the exercise of any Rights until any such
tax shall have been paid (any such
11
<PAGE>
tax being payable by the holder of such Right Certificate at the time of
surrender) or until it has been established to the Corporation's reasonable
satisfaction that no such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose name any
certificate for Preferred Shares (or Common Shares and/or other securities, as
the case may be) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the shares or securities
represented thereby on, and such certificate shall be dated, the date upon which
the Right Certificate evidencing such Rights was duly surrendered and payment of
the Purchase Price (and any applicable transfer taxes) was made; provided,
however, that if the date of such surrender and payment is a date upon which the
Preferred Shares (or Common Shares and/or other securities, as the case may be)
transfer books of the Corporation are closed, such person shall be deemed to
have become the record holder of such shares or securities on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares (or Common Shares and/or other securities, as the case may be)
transfer books of the Corporation are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Right Certificate shall not be entitled to
any rights of a holder of Preferred Shares (or Common Shares and/or other
securities, as the case may be) for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Corporation, except as provided
herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of Preferred Shares covered by each
Right and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a) (i) In the event the Corporation shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C)
combine the outstanding Preferred Shares into a smaller number of Preferred
Shares or (D) issue any of its shares in a reclassification of the
Preferred Shares (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing or
surviving entity), except as otherwise provided in this Section 11(a) and
Section 7(e) hereof, the Purchase Price in effect at the time of the record
date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares issuable
on such date, shall be proportionately adjusted so that the holder of any
Right exercised after such time shall be entitled to receive the aggregate
number and kind of shares which, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Shares
transfer books of the Corporation were open, he would have owned upon such
exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of the Corporation issuable
upon exercise of one Right. If an event occurs which would require an
adjustment under both Section 11(a)(i) and Section
12
<PAGE>
11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be in
addition to, and shall be made prior to, any adjustment required pursuant
to Section 11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person, each holder of a Right, except as provided
below and in Section 7(e) hereof, shall thereafter have a right to receive,
upon exercise thereof at a price equal to the then current Purchase Price
multiplied by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of Preferred Shares, such number of Common Shares of
the Corporation as shall equal the result obtained by (A) multiplying the
then current Purchase Price by the number of one one-hundredths of a
Preferred Share for which a Right is then exercisable and dividing that
product by (B) 50% of the then current per share market price of the
Corporation's Common Shares (determined pursuant to Section 11(d) hereof)
on the date of the occurrence of such event. In the event that any Person
shall become an Acquiring Person and the Rights shall then be outstanding,
the Corporation shall not take any action which would eliminate or diminish
the benefits intended to be afforded by the Rights.
(iii) In lieu of issuing Common Shares of the Corporation in
accordance with Section 11(a)(ii) hereof, the Corporation may, in the sole
discretion of the Board of Directors, elect to (and, in the event that the
Board of Directors has not exercised the exchange right contained in
Section 24 hereof and there are not sufficient issued but not outstanding
and authorized but unissued Common Shares to permit the exercise in full of
the Rights in accordance with the foregoing subparagraph (ii), the
Corporation shall) take all such action as may be necessary to authorize,
issue or pay, upon the exercise of the Rights, cash (including by way of a
reduction of the Purchase Price), property, other securities or any
combination thereof having an aggregate value equal to the value of the
Common Shares of the Corporation which otherwise would have been issuable
pursuant to Section 11(a)(ii), which aggregate value shall be determined by
a majority of the Board of Directors. For purposes of the preceding
sentence, the value of the Common Shares shall be determined pursuant to
Section 11(d) hereof and the value of any equity securities which a
majority of the Board of Directors determines to be equivalent to a Common
Share (including the Preferred Shares, in such ratio as the Board of
Directors shall determine) shall be deemed to have the same value as the
Common Shares. Any such election by the Board of Directors must be made
and publicly announced within 60 days following the date on which the event
described in Section 11(a)(ii) shall have occurred. Following the
occurrence of the event described in Section 11(a)(ii), a majority of the
Board of Directors then in office may suspend the exercisability of the
Rights for a period of up to 60 days following the date on which the event
described in Section 11(a)(ii) shall have occurred to the extent that the
Board of Directors has not determined whether to exercise the Corporation's
right of election under this Section 11(a)(iii). In the event of any such
suspension, the Corporation shall issue a public
13
<PAGE>
announcement stating that the exercisability of the Rights has been
temporarily suspended.
(b) In case the Corporation shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent preferred
shares")) or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a security convertible into
Preferred Shares or equivalent preferred shares) less than the then current per
share market price of the Preferred Shares (as defined in Section 11(d)) on such
record date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of Preferred
Shares which the aggregate offering price of the total number of Preferred
Shares and/or equivalent preferred shares so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such current market price and the denominator of which shall be the
number of Preferred Shares outstanding on such record date plus the number of
additional Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of the Corporation issuable upon exercise of
one Right. In case such subscription price is paid in a consideration part or
all of which shall be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the
Corporation, whose determination shall be described in a statement filed with
the Rights Agent and shall be binding on the Rights Agent. Preferred Shares
owned by or held for the account of the Corporation shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed; and in the event that
such rights, options or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.
(c) In case the Corporation shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving entity) of evidences of indebtedness
or assets (other than a regular periodic cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Corporation, whose determination shall be described in
a statement filed with the Rights Agent) of the portion of the assets or
evidences of indebtedness so to be
14
<PAGE>
distributed or of such subscription rights or warrants attributable to one
Preferred Share and the denominator of which shall be such current per share
market price of the Preferred Shares; provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of the Corporation to be issued upon exercise
of one Right. Such adjustments shall be made successively whenever such a
record date is fixed; and in the event that such distribution is not so made,
the Purchase Price shall again be adjusted to be the Purchase Price which would
then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other than under
Section 11(a)(iii) hereof, the "current per share market price" of any security
(a "Security" for the purpose of this Section 11(d)(i)) on any date shall be
deemed to be the average of the daily closing prices per share of such Security
for the 30 consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date, and for the purpose of any computation under
Section 11(a)(iii) hereof, the "current per share market price" of a Security on
any date shall be deemed to be the average of the daily closing prices per share
of such Security for thirty (30) consecutive Trading Days immediately following
such date; provided, however, that in the event that the current per share
market price of the Security is determined during a period following the
announcement by the issuer of such Security of (A) a dividend or distribution on
such Security payable in shares of such Security or securities convertible into
such shares (other than the Rights), or (B) any subdivision, combination or
reclassification of such Security and prior to the expiration of 30 Trading Days
after the ex-dividend date for such dividend or distribution, or the record date
for such subdivision, combination or reclassification, then, and in each such
case, the "current per share market price" shall be appropriately adjusted to
reflect the current market price per share equivalent (ex-dividend) of such
Security. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Security
is not listed or admitted to trading on the New York Stock Exchange, as reported
in the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Security is listed or admitted to trading or, if the Security is not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in
use, or, if on any such date the Security is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Security selected by the Board
of Directors of the Corporation. If on any such date no market maker is making
a market in the Security, the fair value of such Security on such date (as
determined in good faith by the Board of Directors of the Corporation) shall be
used. The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
15
<PAGE>
open for the transaction of business or, if the Security is not listed or
admitted to trading on any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current per
share market price" of the Preferred Shares shall be determined in accordance
with the method set forth in Section 11(d)(i). If the Preferred Shares are not
publicly traded, the "current per share market price" of the Preferred Shares
shall be conclusively deemed to be the current per share market price of the
Common Shares of the Corporation as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any share split, share dividend or similar
transaction occurring after the date hereof), multiplied by one hundred. If
neither the Common Shares of the Corporation nor the Preferred Shares are
publicly held or so listed or traded, "current per share market price" shall
mean the fair value per share as determined in good faith by the Board of
Directors of the Corporation, whose determination shall be described in a
statement filed with the Rights Agent.
(e) Anything herein to the contrary notwithstanding, no adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments which by reason of this Section 11(e) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest one one-millionth of a Preferred Share or one ten-
thousandth of any other share or security, as the case may be. Notwithstanding
the first sentence of this Section 11(e), any adjustment required by this
Section 11 shall be made no later than the earlier of (i) three years from the
date of the transaction which requires such adjustment or (ii) the date of the
expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of the Corporation other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in this Section 11, and the provisions of Sections 7,
9, 10, 13 and 14 with respect to the Preferred Shares shall apply on like terms
to any such other shares.
(g) All Rights originally issued by the Corporation subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Corporation shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-
16
<PAGE>
hundredths of a Preferred Share (calculated to the nearest one one-millionth of
a Preferred Share) obtained by (i) multiplying (A) the number of one one-
hundredths of a Preferred Share covered by a Right immediately prior to such
adjustment by (B) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Corporation may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price.
The Corporation shall make a public announcement of its election to adjust the
number of Rights, indicating the record date for the adjustment, and, if known
at the time, the amount of the adjustment to be made. This record date may be
the date on which the Purchase Price is adjusted or any day thereafter, but, if
the Right Certificates have been issued, shall be at least 10 days later than
the date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section 11(i), the
Corporation shall, as promptly as practicable, cause to be distributed to
holders of record of Right Certificates on such record date Right Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Corporation, shall cause to be distributed to such holders of record in
substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Corporation, new Right Certificates evidencing all the Rights to which such
holders shall be entitled after such adjustment. Right Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-hundredths of a Preferred Share issuable upon the exercise of
the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed in the initial Right Certificates issued
hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Corporation shall
take any action which may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue fully paid and nonassessable
Preferred Shares at such adjusted Purchase Price.
17
<PAGE>
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Corporation may elect to defer until the occurrence of such event the
issuance to the holder of any Right exercised after such record date of the
Preferred Shares and other securities of the Corporation, if any, issuable upon
such exercise over and above the Preferred Shares and other securities of the
Corporation, if any, issuable upon such exercise on the basis of the Purchase
Price in effect prior to such adjustment; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares upon
the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Corporation shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the
Corporation to holders of its Preferred Shares shall not be taxable to such
shareholders.
(n) In the event that at any time after the date of this Agreement and
prior to the Distribution Date, the Corporation shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (x) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (y) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.
(o) So long as the shares issuable upon the exercise of the Rights may be
listed on any national securities exchange, the Corporation shall use its best
efforts to cause, from and after such time as the Rights become exercisable, all
shares reserved for such issuance to be listed on such exchange upon official
notice of issuance upon such exercise.
18
<PAGE>
(p) The Corporation shall use its best efforts to (i) file, as soon as
practicable following the first occurrence of a Triggering Event, a registration
statement under the Securities Act with respect to the securities purchasable
upon exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing, and
(iii) cause such registration statement to remain effective (with a prospectus
at all times meeting the requirements of the Securities Act) until the date of
the expiration of the Rights. The Corporation will also take such action as may
be appropriate under the blue sky laws of the various states. The Corporation
may temporarily suspend, for a period of time not to exceed 90 days, the
exercisability of the Rights in order to prepare and file such registration
statement or in order to comply with such blue sky laws. Upon any such
suspension, the Corporation shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Corporation shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and may assume that no
adjustment has been made unless and until it shall have received such
certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power.
(a) If after the Shares Acquisition Date, directly or indirectly, (x) the
Corporation shall consolidate with, or merge with and into, any other Person,
(y) any Person shall consolidate with the Corporation, or merge with and into
the Corporation and the Corporation shall be the continuing or surviving entity
of such merger and, in connection with such merger, all or part of the Common
Shares shall be changed into or exchanged for stock or other securities of any
other Person (or the Corporation) or cash or any other property, or (z) the
Corporation shall sell or otherwise transfer (or one or more of its Subsidiaries
shall sell or otherwise transfer), in one or more transactions, assets or
earning power aggregating 50% or more of the assets or earning power of the
Corporation and its Subsidiaries (taken as a whole) to any Person or Persons
other than the Corporation or one or more of its wholly-owned Subsidiaries,
then, and in each such case, proper provision shall be made so that (i) each
holder of a Right (except as otherwise provided herein) shall thereafter have
the right to receive, upon the exercise thereof at a price equal to the then
current Purchase Price multiplied by the number of one one-hundredths of a
Preferred Share for which a Right is then exercisable, in accordance with the
terms of this Agreement and in lieu of Preferred Shares, such number of validly
authorized and issued, fully paid, non-assessable and freely tradeable common
shares of the Principal Party (as hereinafter defined), free and clear of all
liens, rights of call or first refusal, encumbrances or other adverse claims, as
shall equal the result obtained by (A) multiplying the then current Purchase
Price by
19
<PAGE>
the number of one one-hundredths of a Preferred Share for which a Right is then
exercisable (or, if such Right is not then exercisable for a number of one one-
hundredths of a Preferred Share, the number of such fractional shares for which
it was exercisable immediately prior to an event described under Section
11(a)(ii) hereof) and dividing that product by (B) 50% of the then current per
share market price of the common shares of such Principal Party (determined
pursuant to Section 11(d) hereof) on the date of consummation of such
consolidation, merger, sale or transfer; (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, or otherwise, all the obligations and duties of the
Corporation pursuant to this Agreement; (iii) the term "Corporation" shall
thereafter be deemed to refer to such Principal Party and (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation of a
sufficient number of its common shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to its common shares thereafter deliverable upon the exercise of
the Rights.
(b) "Principal Party" shall mean:
(i) In the case of any transaction described in (x) or (y) of the
first sentence of Section 13(a), the Person that is the issuer of any
securities into which Common Shares of the Corporation are converted in
such merger or consolidation, and if no securities are so issued, the
Person that is the surviving entity of such merger or consolidation
(including the Corporation if applicable); and
(ii) in the case of any transaction described in (z) of the first
sentence in Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to
such transaction or transactions;
provided, however, that in any such case described in clauses (b)(i) and
(b)(ii): (1) if the common shares of such Person are not at such time and have
not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the common shares of which are and have been so
registered, "Principal Party" shall refer to such other Person; (2) in case such
Person is a Subsidiary, directly or indirectly, of more than one Person, the
common shares of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
common shares having the greatest aggregate market value; and (3) in case such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly, by the same Person, the
rules set forth in (1) and (2) above shall apply to each of the chains of
ownership having an interest in such joint venture as if such party were a
"Subsidiary" of both or all of such joint venturers and the Principal Parties in
each such chain shall bear the obligations set forth in this Section 13 in the
same ratio as their direct or indirect interests in such Person bear to the
total of such interests.
20
<PAGE>
(c) The Corporation shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have sufficient common shares
authorized to permit the full exercise of the Rights and prior thereto the
Corporation and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing for the terms set forth in
paragraphs (a) and (b) of this Section 13 and further providing that, as soon as
practicable after the date of any consolidation, merger or sale of assets
mentioned in paragraph (a) of this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the Securities
Act, with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, and will use its best
efforts to cause such registration statement to (A) become effective as
soon as practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date;
(ii) deliver to holders of the Rights historical financial statements
for the Principal Party and each of its Affiliates which comply in all
respects with the requirements for registration on Form 10 under the
Exchange Act; and
(iii) take such actions as may be necessary or appropriate under the
blue sky laws of the various states.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that one of the
transactions described in this Section 13(a) shall occur at any time after the
occurrence of a transaction described in Section 11(a)(ii) hereof, the Rights
which have not theretofore been exercised shall thereafter become exercisable in
the manner described in Section 13(a).
Section 14. Fractional Rights and Fractional Shares.
(a) The Corporation shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there may be paid to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities
21
<PAGE>
exchange on which the Rights are listed or admitted to trading or, if the Rights
are not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Corporation. If on any such date no such market maker is
making a market in the Rights, the fair value of the Rights on such date as
determined in good faith by the Board of Directors of the Corporation shall be
used.
(b) The Corporation shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred Share
may, at the election of the Corporation, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Corporation and a depositary
selected by it; provided, that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts. In lieu of fractional Preferred Shares
that are not integral multiples of one one-hundredth of a Preferred Share, the
Corporation may, to the extent necessary to reduce such fraction to an integral
multiple of one one-hundredth, pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one one-
hundredth of a Preferred Share. For the purposes of this Section 14(b), the
current market value of one one-hundredth of a Preferred Share shall be one one-
hundredth of the closing price of a Preferred Share (as determined pursuant to
the second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the Corporation shall
not be required to issue fractions of Common Shares upon exercise of the Rights
or to distribute certificates which evidence fractional Common Shares. In lieu
of fractional Common Shares, the Corporation may pay to the registered holders
of Right Certificates at the time such Rights are exercised as herein provided
an amount in cash equal to the same fraction of the current market value of one
Common Share. For purposes of this Section 14(c), the current market value of
one Common Share shall be the closing price of one Common Share (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
22
<PAGE>
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Corporation to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Corporation and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered
at the principal office of the Rights Agent, duly endorsed or accompanied
by a proper instrument of transfer;
(c) the Corporation and the Rights Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the Distribution
Date, the associated Common Shares certificate) is registered as the
absolute owner thereof and of the Rights evidenced thereby (notwithstanding
any notations of ownership or writing on the Right Certificates or the
associated Common Shares certificate made by anyone other than the
Corporation or the Rights Agent) for all purposes whatsoever, and neither
the Corporation nor the Rights Agent shall be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Corporation nor the Rights Agent shall have any liability to
any holder of a Right or any other Person as a result of its inability to
perform any of its obligations under this Agreement by reason of any
preliminary or permanent injunction or other order, decree or ruling issued
by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority
prohibiting or otherwise restraining performance of such obligation.
23
<PAGE>
Section 17. Right Certificate Holder Not Deemed a Shareholder. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Corporation which may at any time be issuable on the exercise
of the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a shareholder of the Corporation or
any right to vote for the election of trustees or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any trust
action, or to receive notice of meetings or other actions affecting shareholders
(except as provided in Section 25 hereof), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised in accordance with the provisions
hereof.
Section 18. Concerning the Rights Agent. The Corporation agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Corporation also agrees to indemnify the Rights Agent for, and
to hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of
the Corporation, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
Any corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto; provided, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered; any such successor Rights Agent may adopt the
countersignature
24
<PAGE>
of the predecessor Rights Agent and deliver such Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall not
have been countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Corporation and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Corporation), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Corporation prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman or one of any Co-Chairman of
the Board, any Managing Director, any Vice President, or the Secretary of the
Corporation and delivered to the Rights Agent; and such certificate shall be
full authorization to the Rights Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the Corporation and any
other Person only for any and all losses, liabilities, costs, damages and
expenses (including attorneys' fees) arising out of or in connection with the
Rights Agent's negligence, bad faith or willful misconduct. Anything in this
Agreement to the contrary notwithstanding, in no event shall the Rights Agent be
liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Rights Agent
has been advised of the likelihood of such loss or damage and regardless of the
form of the action.
25
<PAGE>
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Corporation only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Corporation of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 7(e) hereof) or any adjustment in the
terms of the Rights (including the manner, method or amount thereof) provided
for in Section 3, 11, 13, 23 or 24, or the ascertaining of the existence of
facts that would require any such change or adjustment (except with respect to
the exercise of Rights evidenced by Right Certificates after receipt of a
certificate furnished pursuant to Section 12 describing a change or adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Preferred Shares or
Common Shares to be issued pursuant to this Agreement or any Right Certificate
or as to whether any Preferred Shares or Common Shares will, when issued, be
validly authorized and issued, fully paid and nonassessable.
(f) The Corporation agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman or any one of any Co-Chairman of the Board, any Managing Director, any
Vice President, the Secretary or the Treasurer of the Corporation, and to apply
to such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions. Any application by the Rights Agent for
written instructions from the Corporation may, at the option of the Rights
Agent, set forth in writing any action proposed to be taken or omitted by the
Rights Agent under this Agreement and the date on and/or after which such action
shall be taken or such omission shall be effective. The Rights Agent shall not
be liable for any action taken by, or omission of, the Rights Agent in
accordance with a proposal included in any such application on or after the date
specified in such application (which date shall not be less than five Business
Days after the date any officer of the Corporation actually receives such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken
or omitted.
26
<PAGE>
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Corporation or its Subsidiaries or become pecuniarily interested in any
transaction in which the Corporation or its Subsidiaries may be interested, or
contract with or lend money to the Corporation or its Subsidiaries or otherwise
act as fully and freely as though it were not Rights Agent under this Agreement.
Nothing herein shall preclude the Rights Agent from acting in any other capacity
for the Corporation or its Subsidiaries or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Corporation resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) If, with respect to any Rights Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise of transfer without first consulting with the Corporation.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Corporation and to each transfer
agent of the Common Shares or Preferred Shares by registered or certified mail,
and to the holders of the Right Certificates by first-class mail. The
Corporation may remove the Rights Agent or any successor Rights Agent upon 30
days' notice in writing, mailed to the Rights Agent or successor Rights Agent,
as the case may be, and to each transfer agent of the Common Shares or Preferred
Shares by registered or certified mail, and to the holders of the Right
Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Corporation shall
appoint a successor to the Rights Agent. If the Corporation shall fail to make
such appointment within a period of 30 days after giving notice of such removal
or after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a Right
Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Corporation), then the registered holder of any Right
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Corporation or by such a court, shall be a corporation or bank organized and
doing business under the laws of the United States or of any other state of the
United States, which is authorized under such laws to exercise corporate trust
or stock transfer powers and is subject to supervision or examination by federal
or state authority and which has at the time of its appointment as Rights Agent
a combined capital and surplus of at least $100 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as
27
<PAGE>
Rights Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any
such appointment the Corporation shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares or
Preferred Shares, and mail a notice thereof in writing to the registered holders
of the Right Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the
Corporation may, at its option, issue new Right Certificates evidencing Rights
in such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement.
Section 23. Redemption.
(a) The Board of Directors of the Corporation may, at its option, at any
time prior to such time as any Person becomes an Acquiring Person, redeem all
but not less than all the then outstanding Rights at a redemption price of $.01
per Right, appropriately adjusted to reflect any share split, share dividend or
similar transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"). The redemption of the
Rights by the Board of Directors may be made effective at such time on such
basis and with such conditions as the Board of Directors in its sole discretion
may establish. The Corporation may, at its option, pay the Redemption Price in
cash, Common Shares (based on the current per share market price of the Common
Shares at the time of redemption) or any other form of consideration deemed
appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of the
Corporation ordering the redemption of the Rights (or at the effective time of
such redemption established by the Board of Directors of the Corporation
pursuant to the last sentence of paragraph (a) of this Section 23), and without
any further action and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights shall be to
receive the Redemption Price. The Corporation shall promptly give public notice
of any such redemption; provided, however, that the failure to give, or any
defect in, any such notice shall not affect the validity of such redemption.
Within 10 days after such action of the Board of Directors ordering the
redemption of the Rights or, if later, the effectiveness of the redemption of
the Rights pursuant to the last sentence of paragraph (a), the Corporation shall
mail a notice of redemption to all the holders of the then outstanding Rights at
their last addresses as they appear upon the registry books of the Rights Agent
or, prior to the Distribution Date, on the registry books of the transfer agent
for the Common Shares. Any notice which is mailed in the
28
<PAGE>
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. The Corporation may, at its
option, discharge all of its obligations with respect to the Rights by (i)
issuing a press release announcing the manner of redemption of the Rights, (ii)
depositing with a bank or trust company having a capital and surplus of at least
$100,000,000, funds necessary for such redemption, in trust, to be applied to
the redemption of the Rights so called for redemption and (iii) arranging for
the mailing of the Redemption Price to the registered holders of the Rights;
then, and upon such action, all outstanding Rights Certificates shall be null
and void without further action by the Corporation. Neither the Corporation nor
any of its Affiliates or Associates may redeem, acquire or purchase for value
any Rights at any time in any manner other than that specifically set forth in
this Section 23, in Section 24 hereof, or in connection with the purchase of
Common Shares prior to the Distribution Date.
Section 24. Exchange.
(a) The Board of Directors of the Corporation may, at its option, at any
time after a Triggering Event, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 7(e) hereof) for Common Shares at an
exchange ratio of one Common Share per Right, appropriately adjusted to reflect
any share split, share dividend or similar transaction occurring after the date
hereof (such exchange ratio being hereinafter referred to as the "Exchange
Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be
empowered to effect such exchange at any time after any Person (other than the
SCG Group, the Corporation, any Affiliate or Subsidiary of the Corporation, any
employee benefit plan of the Corporation or of any Affiliate or Subsidiary of
the Corporation or any entity holding Common Shares for or pursuant to the terms
of any such plan), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors of the
Corporation ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of Common Shares equal to
the number of such Rights held by such holder multiplied by the Exchange Ratio.
The Corporation shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Corporation promptly shall mail a
notice of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
will state the method by which the exchange of the Common Shares for Rights will
be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be
29
<PAGE>
effected pro rata based on the number of Rights (other than Rights which have
become void pursuant to the provisions of Section 7(e) hereof) held by each
holder of Rights.
(c) In any exchange pursuant to this Section 24, the Corporation, at its
option, may substitute Preferred Shares (or equivalent preferred shares, as such
term is defined in Section 11(b) hereof) for Common Shares exchangeable for
Rights, at the initial rate of one one-hundredth of a Preferred Share (or
equivalent preferred share) for each Common Share, as appropriately adjusted to
reflect adjustments in the voting rights of the Preferred Shares pursuant to the
terms thereof, so that the fraction of a Preferred Share delivered in lieu of
each Common Share shall have the same voting rights as one Common Share.
(d) In the event that there shall not be sufficient Common Shares or
Preferred Shares issued but not outstanding or authorized but unissued to permit
any exchange of Rights as contemplated in accordance with this Section 24, the
Corporation shall take all such action as may be necessary to authorize
additional Common Shares or Preferred Shares for issuance upon exchange of the
Rights.
(e) The Corporation shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares.
In lieu of such fractional Common Shares, the Corporation shall pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a whole Common Share. For the
purposes of this paragraph (e), the current market value of a whole Common Share
shall be the closing price of a Common Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Corporation shall propose at any time after the
Distribution Date (i) to pay any dividend payable in shares of any class to the
holders of its Preferred Shares or to make any other distribution to the holders
of its Preferred Shares (other than a regular quarterly cash dividend), (ii) to
offer to the holders of its Preferred Shares rights or warrants to subscribe for
or to purchase any additional Preferred Shares or shares of any class or any
other securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Corporation
and its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Corporation, or (vi) to declare or
pay any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the
30
<PAGE>
Corporation shall give to each holder of a Right Certificate, in accordance with
Section 26 hereof, a notice of such proposed action, which shall specify the
record date for the purposes of such share dividend, or distribution of rights
or warrants, or the date on which such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution, or winding up is to take place and the
date of participation therein by the holders of the Common Shares and/or
Preferred Shares, if any such date is to be fixed, and such notice shall be so
given in the case of any action covered by clause (i) or (ii) above at least 10
days prior to the record date for determining holders of the Preferred Shares
for purposes of such action, and in the case of any such other action, at least
10 days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, whichever shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii) hereof shall
occur, then the Corporation shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Corporation shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Homestead Village Properties Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: Secretary
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Corporation or by the
holder of any Right Certificate to or on the Rights Agent shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Corporation) as follows:
The First National Bank of Boston
150 Royall Street
Mail Stop 45-02-62
Canton, Massachusetts 02021
Attention: Shareholders Services Division
Notices or demands authorized by this Agreement to be given or made by the
Corporation or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Corporation.
31
<PAGE>
Section 27. Supplements and Amendments. The Corporation may from time to
time supplement or amend this Agreement without the approval of any holders of
Right Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
(including, without limitation, changes to the Purchase Price) which the
Corporation may deem necessary or desirable, any such supplement or amendment to
be evidenced by a writing signed by the Corporation and the Rights Agent;
provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Corporation or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Corporation, the Rights Agent
and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of the Corporation, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares).
Section 30. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Maryland and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State, except that those provisions of this
Agreement affecting the rights, duties and responsibilities of the Rights Agent
shall be governed by and construed in accordance with the law of the State of
New York.
Section 32. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
32
<PAGE>
Section 34. Determinations and Actions by the Board of Directors. The
Board of Directors of the Corporation shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Directors or the Corporation or as may be necessary
or advisable in the administration of this Agreement, including, without
limitation, the right and power to (a) interpret the provisions of this
Agreement, and (b) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend this Agreement). All such actions,
interpretations and determinations (including, for purpose of clause (b) above,
all omissions with respect to the foregoing) which are done or made by the
Directors in good faith, shall (x) be final, conclusive and binding on the
Corporation, the Rights Agent, the holders of the Right Certificates and all
other parties, and (y) not subject the Directors to any liability to the holders
of the Right Certificates.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
By /s/ David C. Dressler, Jr.
-----------------------------
David C. Dressler, Jr.
Chairman
Attest:
By /s/ Jeffrey A. Klopf
---------------------
Jeffrey A. Klopf
Secretary
THE FIRST NATIONAL BANK OF BOSTON
By /s/ David Dixon
-----------------------------
Name: David Dixon
Title: Vice President
Attest:
By
---------------------
Name:
---------------
Title:
--------------
34
<PAGE>
Exhibit A
---------
FORM OF
ARTICLES SUPPLEMENTARY
RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
of
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
The undersigned, being a duly authorized officer of Homestead Village
Properties Incorporated, a Maryland corporation (the "Corporation"), do hereby
certify to the State Department of Assessments and Taxation of Maryland pursuant
to Section 8-203(b) of the Annotated Code of Maryland that:
FIRST: The Board of Directors has classified _________ unissued shares of
the Corporation as shares of Series A Junior Participating Preferred Stock.
SECOND: The following is a description of the Series A Preferred Shares
(as defined below), including the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption thereof:
Section 1. Designation and Amount. There shall be a series of preferred
stock of the Corporation, $0.01 par value per share, which shall be designated
"Series A Junior Participating Preferred Stock," $0.01 par value per share (the
"Series A Preferred Shares"), and the number of shares constituting that series
shall be __________. Such number of shares may be increased or decreased by
resolution of the Board of Directors and by the filing of articles supplementary
in accordance with the provisions of the General Corporation Law of the State of
Maryland stating that such increase or reduction has been so authorized;
provided, however, that no decrease shall reduce the number of Series A
Preferred Shares to a number less than the number of Series A Preferred Shares
then outstanding plus the number of Series A Preferred Shares issuable upon
exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any class or series of preferred shares of the Corporation ranking prior and
superior to the Series A Preferred Shares with respect to dividends, the holders
of Series A Preferred Shares shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash to holders of record on the last
Business Day of January, April, July and October in each year (each such date
being referred
<PAGE>
to herein as a "Quarterly Dividend Payment Date"), (commencing on the first
Quarterly Dividend Payment Date after the first issuance of a Series A Preferred
Share or fraction thereof) in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend payable in
Common Shares (hereinafter defined) or a subdivision of the outstanding Common
Shares (by a reclassification or otherwise), declared on the shares of common
stock, par value $0.01 per share, of the Corporation (the "Common Shares") since
the immediately preceding Quarterly Dividend Payment Date, or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
Series A Preferred Share or fraction thereof. In the event the Corporation
shall at any time following May 16, 1996 (i) declare any dividend on Common
Shares payable in Common Shares, (ii) subdivide the outstanding Common Shares or
(iii) combine the outstanding Common Shares into a smaller number of shares,
then in each such case the amount to which holders of Series A Preferred Shares
were entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying each such amount by a fraction the
numerator of which is the number of Common Shares outstanding immediately after
such event and the denominator of which is the number of Common Shares that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Shares as provided in paragraph (A) above at the time it declares a
dividend or distribution on the Common Shares (other than a dividend payable in
Common Shares).
(C) No dividend or distribution (other than a dividend or distribution
payable in Common Shares) shall be paid or payable to the holders of Common
Shares unless, prior thereto, all accrued but unpaid dividends to the date of
that dividend or distribution shall have been paid to the holders of Series A
Preferred Shares.
(D) Dividends shall begin to accrue and be cumulative on outstanding Series
A Preferred Shares from the Quarterly Dividend Payment Date next preceding the
date of issuance of such Series A Preferred Shares, unless the date of issuance
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue and
be cumulative from the date of issuance of such shares, or unless the date of
issuance is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of Series A Preferred Shares entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the Series A Preferred Shares in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date
for the determination of holders of Series A Preferred Shares entitled to
receive payment of a dividend or distribution declared
2
<PAGE>
thereon, which record date shall be no more than 30 days prior to the date fixed
for the payment thereof.
Section 3. Voting Rights. The holders of Series A Preferred Shares shall
have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each one
one-hundredth of a Series A Preferred Share shall entitle the holder thereof to
one vote on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time following May 16,
1996 (i) declare any dividend on Common Shares payable in Common Shares, (ii)
subdivide the outstanding Common Shares or (iii) combine the outstanding Common
Shares into a smaller number of shares, then in each such case the number of
votes per share to which holders of Series A Preferred Shares were entitled
immediately prior to such event shall be adjusted by multiplying such number by
a fraction the numerator of which is the number of Common Shares outstanding
immediately after such event and the denominator of which is the number of
Common Shares that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or required by law, the holders of
Series A Preferred Shares and the holders of Common Shares and any other capital
shares of the Corporation having general voting rights shall vote together as
one class on all matters submitted to a vote of shareholders of the Corporation.
(C) (i) Whenever, at any time or times, dividends payable on any Series A
Preferred Shares shall be 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 Series A Preferred
Shares shall have the exclusive right, voting separately as a single class,
to elect two directors of the Corporation at a special meeting of
shareholders of the Corporation or at the Corporation's next annual meeting
of shareholders, and at each subsequent annual meeting of shareholders, as
provided below. At elections for such directors, the holders of Series A
Preferred Shares shall be entitled to cast one vote for each one one-
hundredth of a Series A Preferred Share held, subject to adjustment.
(ii) Upon the vesting of such right of the holders of the Series A
Preferred Shares, the maximum authorized number of members of the Board of
Directors shall automatically be increased by two and the two vacancies so
created shall be filled by vote of the holders of the outstanding Series A
Preferred Shares as hereinafter set forth. A special meeting of the
shareholders of the Corporation then entitled to vote shall be called by
any Co-Chairman, Managing Director, Senior Vice President or the Secretary
of the Corporation, if requested in writing by the holders of record of not
less than 10% of the Series A Preferred Shares then outstanding. At such
special meeting, or, if no such special meeting shall have been called,
then at the next annual meeting of shareholders of the Corporation, the
holders of the Series A Preferred Shares shall elect, voting as
3
<PAGE>
above provided, two directors of the Corporation to fill the aforesaid
vacancies created by the automatic increase in the number of members of the
Board of Directors. At any and all such meetings for such election, the
holders of a majority of the outstanding Series A Preferred Shares shall be
necessary to constitute a quorum for such election, whether present in
person or by proxy, and such two directors shall be elected by the vote of
at least a plurality of shares held by such shareholders present or
represented at the meeting. Any director elected by holders of Series A
Preferred Shares pursuant to this Section may be removed at any annual or
special meeting, by vote of a majority of the shareholders voting as a
class who elected such director, with or without cause. In case any
vacancy shall occur among the directors elected by the holders of the
Series A Preferred Shares pursuant to this Section, such vacancy may be
filled by the remaining director so elected, or his successor then in
office, and the director so elected to fill such vacancy shall serve until
the next meeting of shareholders for the election of directors. After the
holders of the Series A Preferred Shares shall have exercised their right
to elect directors in any default period and during the continuance of such
period, the number of directors shall not be further increased or decreased
except by vote of the holders of Series A Preferred Shares as herein
provided or pursuant to the rights of any equity securities ranking senior
to or pari passu with the Series A Preferred Shares.
(iii) The right of the holders of the Series A Preferred Shares,
voting separately as a class, to elect two members of the Board of
Directors of the Corporation as aforesaid shall continue until, and only
until, such time as all arrears in dividends (whether or not declared) on
the Series A Preferred Shares shall have been paid or declared and set
apart for payment, at which time such right shall terminate, except as
herein or by law expressly provided, subject to revesting in the event of
each and every subsequent default of the character above-mentioned. Upon
any termination of the right of the holders of the Series A Preferred
Shares as a class to vote for directors as herein provided, the term of
office of all directors then in office elected by the holders of Series A
Preferred Shares pursuant to this Section shall terminate immediately.
Whenever the term of office of the directors elected by the holders of the
Series A Preferred Shares pursuant to this Section shall terminate and the
special voting powers vested in the holders of the Series A Preferred
Shares pursuant to this Section shall have expired, the maximum number of
members of the Board of Directors of the Corporation shall be such number
as may be provided for in the Bylaws of the Corporation irrespective of any
increase made pursuant to the provisions of this Section.
(D) Except as otherwise provided herein or required by law, holders of
Series A Preferred Shares shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Shares as provided herein) for taking any corporate action.
4
<PAGE>
Section 4. Certain Restrictions.
(A) Whenever any quarterly dividends or other dividends or distributions
payable on the Series A Preferred Shares as provided in Section 2 are in
arrears, then, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on Series A Preferred Shares outstanding
shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Shares, other than dividends paid or
payable in such junior shares;
(ii) declare or pay dividends on or make any other distributions on
any shares ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares, except
dividends paid ratably on the Series A Preferred Shares and all such parity
shares on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Shares, provided
that the Corporation may at any time redeem, purchase or otherwise acquire
any such parity shares in exchange for shares of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding
up) to the Series A Preferred Shares; or
(iv) purchase or otherwise acquire for consideration any Series A
Preferred Shares, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of the Corporation
unless the Corporation could, under paragraph (A) of this Section, purchase or
otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any Series A Preferred Shares purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall
upon their cancellation become authorized but unissued preferred shares and may
be reissued as part of a new series of preferred shares
5
<PAGE>
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
voluntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Shares unless, prior thereto, the holders of Series A Preferred Shares
shall have received $1.00 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment (the "Series A Liquidation Preference"). Following the payment of
the full amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of Series A Preferred Shares unless,
prior thereto, the holders of Common Shares shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subparagraph C below to reflect such events as share splits, share
dividends and recapitalizations with respect to the Common Shares) (such number
in clause (ii), the "Adjustment Number"). Following the payment of the full
amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding Series A Preferred Shares and Common Shares,
respectively, holders of Series A Preferred Shares and holders of Common Shares
shall receive their ratable and proportionate share of the remaining assets to
be distributed in the ratio, on a per share basis, of the Adjustment Number to 1
with respect to such Series A Preferred Shares and Common Shares, on a per share
basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series A Liquidation Preference and the
liquidation preferences of all other series of preferred shares, if any, which
rank on a parity with the Series A Preferred Shares, then such remaining assets
shall be distributed ratably to the holders of the Series A Preferred Shares and
such parity shares in proportion to their respective liquidation preferences.
(C) In the event the Corporation shall at any time following May 16, 1996
(i) declare any dividend on Common Shares payable in Common Shares, (ii)
subdivide the outstanding Common Shares or (iii) combine the outstanding Common
Shares into a smaller number of shares, then in each such case the Adjustment
Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of which is the
number of Common Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that were outstanding
immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the Common Shares are exchanged for or changed into other shares or securities,
cash and/or any other property, then in any such case, the Series A Preferred
Shares shall at the same time be similarly exchanged or changed in an amount per
share (subject to the provision for adjustment hereinafter set forth)
6
<PAGE>
equal to 100 times the aggregate amount of shares, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each Common Share is exchanged or changed. In the event the Corporation shall
at any time (i) declare any dividend on Common Shares payable in Common Shares,
(ii) subdivide the outstanding Common Shares or (iii) combine the outstanding
Common Shares into a smaller number of shares, then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change of
Series A Preferred Shares shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of Common Shares outstanding
immediately after such event and the denominator of which is the number of
Common Shares that were outstanding immediately prior to such event.
Section 8. Redemption. The Series A Preferred Shares shall not be
redeemable by the Corporation. The preceding sentence shall not limit the
ability of the Corporation to purchase or otherwise deal in such shares to the
extent permitted by law.
Section 9. Ranking. The Series A Preferred Shares shall rank junior to
all other series of the Corporation's preferred stock (whether with or without
par value) as to the payment of dividends and the distribution of assets, unless
the terms of any such series shall provide otherwise.
Section 10. Amendment. Neither the Corporation's Amended and Restated
Articles of Incorporation, nor any Articles Supplementary relating to the Series
A Preferred Shares shall be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series A Preferred
Shares so as to affect the holders of Series A Preferred Shares adversely
without the affirmative vote of the holders of a majority or more of the
outstanding Series A Preferred Shares, voting separately as a class.
Section 11. Fractional Shares. Series A Preferred Shares may be issued in
fractions of a share that are integral multiples of one-one hundredth of a
share, which shall entitle the holder, in proportion to such holder's fractional
shares, to exercise voting rights, receive dividends and participate in
distributions and to have the benefit of all other rights of holders of Series A
Preferred Shares.
FOURTH: The undersigned officer acknowledges these Articles Supplementary
to be the act of the Corporation and further, as to all matters or facts
required to be verified under oath, such officer acknowledges that to the best
of his or her knowledge, information and belief, these matters and facts are
true in all material respects and that this statement is made under the
penalties of perjury.
7
<PAGE>
IN WITNESS WHEREOF, these Articles Supplementary have been duly executed by
the undersigned officer this ___ day of __________, 19__.
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
By:________________________________________________________
Name:______________________________________________________
Title:_____________________________________________________
8
<PAGE>
Exhibit B
---------
[Form of Right Certificate]
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER MAY 16, 2006 OR EARLIER IF THE RIGHTS EXPIRE UNDER
CERTAIN CIRCUMSTANCES OR ARE EXCHANGED OR REDEEMED BY THE CORPORATION. THE
RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE CORPORATION, AT $.01
PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH
TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH
RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS
CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN
ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHT
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID IN THE
CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]*
Right Certificate
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
This certifies that , or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of May 16, 1996 (the "Rights Agreement"), between
Homestead Village Properties Incorporated, a Maryland corporation (the
"Corporation"), and The First National Bank of Boston (the "Rights Agent") to
purchase from the Corporation at any time after the Distribution Date (as such
term is defined in the Rights Agreement) and prior to 5:00 p.m. (Eastern time)
on May 16, 2006 or notice of redemption or exchange at the office of the Rights
Agent (or its successors as Rights Agent) designated for such purpose, one one-
hundredth of a fully paid, non-assessable Series A Junior
- ----------------
* The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
<PAGE>
Participating Preferred Share (a "Preferred Share") of the Corporation, at a
purchase price of $_____ per one one-hundredth of a Preferred Share (the
"Purchase Price"), upon presentation and surrender of this Right Certificate
with the appropriate Form of Election to Purchase and related Certificate duly
executed. The number of Rights evidenced by this Right Certificate (and the
number of Preferred Shares which may be purchased upon exercise thereof) set
forth above, and the Purchase Price per Preferred Share set forth above, are the
number and Purchase Price as of May __, 1996, based on the Preferred Shares as
constituted at such date. Capitalized terms not defined in this Right
Certificate that are defined in the Rights Agreement shall have the meanings
ascribed to them in the Rights Agreement.
Upon the occurrence of a Triggering Event, if the Rights evidenced by this
Right Certificate are beneficially owned by (i) an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person, (ii) under certain
circumstances specified in the Rights Agreement, a transferee of any such
Acquiring Person, Associate or Affiliate, or (iii) under certain circumstances
specified in the Rights Agreement, a transferee of a person who, after such
transfer, became an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, such Rights shall become null and void and no holder hereof
shall have any right with respect to such Rights from and after the occurrence
of any such Triggering Event.
As provided in the Rights Agreement, the Purchase Price and the number and
kind of Preferred Shares or other securities, which may be purchased upon the
exercise of the Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Corporation and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under certain circumstances specified in such Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of the
Rights Agent and are also available upon written request to the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal corporate trust office of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
2
<PAGE>
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Corporation at its option at a
redemption price of $.01 per Right at any time prior to the earlier of (i) such
time as any Person becomes an Acquiring Person or (ii) the close of business on
the Final Expiration Date.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Corporation, be evidenced by depositary receipts), but in lieu thereof a
cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Preferred Shares or
of any other securities of the Corporation which may at any time be issuable on
the exercise hereof, nor shall anything contained in the Rights Agreement or
herein be construed to confer upon the holder hereof, as such, any of the rights
of a shareholder of the Corporation or any right to vote for the election of
trustees or upon any matter submitted to shareholders at any meeting thereof, or
to give or withhold consent to any trust action, or, to receive notice of
meetings or other actions affecting shareholders (except as provided in the
Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Corporation
and its seal.
Dated as of _______________ __, 19__
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
By: _____________________________
Name:
Title:
Attest: (SEAL)
_________________________________
Name:
Title:
3
<PAGE>
Countersigned:
THE FIRST NATIONAL BANK OF BOSTON
By: _____________________________
Authorized Signature
4
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such holder desires to transfer
the Right Certificate.)
FOR VALUE RECEIVED _____________________________________________________________
hereby sells, assigns and transfers unto _______________________________________
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ______________________ Attorney,
to transfer the within Right Certificate on the books of the within-named
Corporation, with full power of substitution.
Date: ____________________, 19___ ______________________________________
Signature
Signature Guaranteed:
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [_] is [_] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [_] did [_] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Date: ____________________, 19___ ______________________________________
Signature
NOTICE
------
The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change whatsoever.
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise Rights represented by the
Right Certificate.)
To: HOMESTEAD VILLAGE PROPERTIES INCORPORATED
The undersigned hereby irrevocably elects to exercise _______ Rights
represented by this Right Certificate to purchase the Preferred Shares issuable
upon the exercise of the Rights (or such other securities of the Corporation or
of any other person which may be issuable upon the exercise of the Rights) and
requests that certificates for such shares be issued in the name of:
Please insert social security
or other identifying number: ___________________________________________________
________________________________________________________________________________
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance of such Rights shall
be registered in the name of and delivered to:
Please insert social security
or other identifying number: ___________________________________________________
________________________________________________________________________________
(Please print name and address)
Date: ____________________, 19__ _________________________________
Signature
<PAGE>
Signature Guaranteed:
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [_] are [_] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [_] did [_] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: ___________________, 19___ ________________________________
Signature
NOTICE
------
The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
<PAGE>
PROTECTION OF BUSINESS AGREEMENT
--------------------------------
THIS PROTECTION OF BUSINESS AGREEMENT (this "Agreement") is entered into as
of __________, 1996, by and among Security Capital Atlantic Incorporated, a
Maryland corporation ("Atlantic"), Security Capital Pacific Trust, a Maryland
real estate investment trust ("PTR"), and Security Capital Group Incorporated, a
Maryland corporation ("SCG"), and Homestead Village Properties Incorporated, a
Maryland corporation ("Homestead").
WHEREAS, on the date hereof the parties are entering into a series of
related transactions as described in that certain Merger and Distribution
Agreement, dated as of May 21, 1996, among Atlantic, PTR, SCG and Homestead (the
"Merger Agreement"), pursuant to which, among other things, PTR, Atlantic and
SCG will cause their respective subsidiaries engaged in the conduct of the
extended-stay lodging business to be merged with and into Homestead;
WHEREAS, Atlantic, PTR and SCG and their respective affiliates will
continue to engage in certain businesses after the date hereof;
WHEREAS, as a condition to the consummation of the transactions
contemplated by the Merger Agreement, the parties hereto desire to enter into
certain agreements restricting the activities of Atlantic, PTR and SCG and their
respective affiliates; and
WHEREAS, pursuant to the Merger Agreement, it is contemplated that
securities of Homestead will be distributed by PTR and Atlantic in a public
distribution to their respective shareholders.
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:
Section 1. Definitions. Capitalized terms used herein shall have the
meanings set forth below:
"Affiliate" with regard to any Person, means (a) any Person directly or
indirectly controlling, controlled by or under common control with such Person,
(b) any Person owning or controlling 10% or more of the outstanding voting
interests of such Person or (c) any Person of which such Person owns or controls
10% or more of the voting interests. The term "Affiliates" and "Affiliated"
shall have correlative meanings. For purposes of this Agreement, the term
"Affiliate" shall not include Security Capital U.S. Realty, a Luxembourg
corporation, or any Person controlled by Security Capital U.S. Realty and no
party hereto shall be deemed to be an Affiliate of any other party hereto.
<PAGE>
"Extended-Stay Property" means real property that is or is planned to be
used primarily for lodging facilities generally offering studio apartments,
including cooking facilities, which are generally rented for incremental periods
of one week but shall not include any real property that is or is planned to be
used primarily as corporate apartments.
"Interest" means any kind of right, title or interest (whether legal or
beneficial), whether such right, title or interest is held directly or
indirectly through an interest in a Person that either directly or indirectly
owns such interest, but excluding any interests in Homestead.
"Multifamily Property" means real property that is or is planned to be used
primarily for garden style multifamily dwellings which are generally leased for
six-month to twelve-month periods and require security deposits and also
includes real property that is or is planned to be used primarily for master-
planned apartment neighborhoods.
"Person" means an individual or any corporation, partnership, trust,
unincorporated association or any other legal entity; provided, however that,
for purposes of Sections 2, 3 and 4 hereof, the term "Person" shall not include
an individual.
"Restricted Area" means the continental United States.
Section 2. Agreement not to Engage in Certain Activities.
(a) During the term provided in Section 6 hereof, none of Atlantic,
PTR or SCG nor any of their respective Affiliates shall, anywhere within
the Restricted Area, directly or indirectly, engage in the ownership,
operation, development, management or leasing of any Extended-Stay
Property.
(b) During the term provided in Section 6 hereof, neither Homestead
nor any of its Affiliates shall, anywhere within the Restricted Area,
directly or indirectly, engage in the ownership, operation, development,
management or leasing of any Multifamily Property.
Section 3. Atlantic, PTR and SCG Limitations on Non-Competition.
Notwithstanding anything to the contrary contained in this Agreement, each of
Atlantic, PTR and SCG and their respective Affiliates may:
(a) be an owner of securities of any class of Homestead;
(b) be an owner of up to 5% of the outstanding shares of stock of any
class of securities of a Person (public or private) primarily engaged in
owning, operating, developing, managing or leasing Extended-Stay
Properties, so long as Atlantic, PTR and SCG and their Affiliates have no
active participation (except to the extent permitted by clauses (c) and (d)
below) in the business of such Person;
-2-
<PAGE>
(c) be an owner of any amount of the outstanding shares of stock of
any class of securities of a Person (public or private), a majority owned
subsidiary, division, group, franchise or segment of which is engaged in
owning, operating, developing, managing or leasing Extended-Stay
Properties, so long as not more than 5% of such Person's consolidated
revenues are derived from the ownership, operation, development, management
or leasing of Extended-Stay Properties; and
(d) be an owner of the outstanding shares of stock of any class of
securities of a Person (public or private) primarily engaged in a business
other than owning, operating, developing, managing or leasing Extended-Stay
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 any Extended-Stay Properties.
Section 4. Homestead Limitations on Non-Competition. Notwithstanding
anything to the contrary contained in this Agreement, Homestead and its
Affiliates may:
(a) be an owner of securities of any class of any of Atlantic, PTR or
SCG;
(b) be an owner of up to 5% of the outstanding shares of stock of any
class of securities of a Person (public or private) primarily engaged in
owning, operating, developing, managing or leasing Multifamily Properties,
so long as Homestead and its Affiliates have no active participation
(except to the extent permitted by clause (c) below) in the business of
such Person; and
(c) be an owner of any amount of the outstanding shares of stock of
any class of securities of a Person (public or private), a majority owned
subsidiary, division, group, franchise or segment of which is engaged in
owning, operating, developing, managing or leasing Multifamily Properties,
so long as not more than 5% of such Person's consolidated revenues are
derived from the ownership, operation, development, management or leasing
of Multifamily Properties.
Section 5. Reasonable and Necessary Restrictions. Each of the parties
hereto acknowledges that the restrictions, prohibitions and other provisions
hereof are reasonable, fair and equitable in scope, terms and duration, are
necessary to protect the legitimate business interests of each of the other
parties hereto, and are a material inducement to such party to enter into the
transactions contemplated by the Merger Agreement.
-3-
<PAGE>
Section 6. Term.
6.1 General. Subject to earlier termination pursuant to Section 6.2, this
Agreement shall be effective from and after the date hereof and shall continue
in effect until the tenth anniversary of the date hereof.
6.2 Change in Control. Notwithstanding anything to the contrary contained
herein, the provisions of Section 2 of this Agreement shall terminate and be of
no further force or effect upon the occurrence of a Change in Control. As used
herein, "Change in Control" means the acquisition, directly or indirectly (other
than by purchase from PTR, Atlantic or SCG, or any of their respective
Affiliates), 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 Board of Directors of Homestead.
Section 7. Specific Performance. Each of the parties hereto acknowledges
that the obligations undertaken by it pursuant to this Agreement are unique and
that the other parties hereto will not have an adequate remedy at law if it
shall fail to perform any of its obligations hereunder, and each of the parties
hereto therefore confirms that the right of each other party hereto to specific
performance of the terms of this Agreement is essential to protect the rights
and interests of such party. Accordingly, in addition to any other remedies
that any party hereto may have at law or in equity, each such party shall have
the right to have all obligations, covenants, agreements and other provisions of
this Agreement specifically performed by each other party, and each party shall
have the right to obtain preliminary and permanent injunctive relief to secure
specific performance and to prevent a breach or contemplated breach of this
Agreement by each other party hereto.
Section 8. Operations of Affiliated Parties. Each of the parties hereto
agrees that it will refrain from authorizing or permitting any Affiliated party
to perform any activities that would be prohibited by the terms of this
Agreement if such activities were performed by it.
Section 9. Ancillary Agreements. Nothing contained in this Agreement
shall in any way restrict or impair the obligations and rights of any party
under the terms of any agreement entered into in connection with the
transactions contemplated by the Merger Agreement, including, without
limitation, the foreclosure by PTR or Atlantic under any mortgages secured by
the properties of Homestead and the operation of such properties subsequent to
such foreclosure.
Section 10. Miscellaneous Provisions.
10.1 Interpretation. The parties hereto acknowledge that the fundamental
policies of this Agreement are to protect each other party's interest in its
respective business and to eliminate potential conflicts of interest that may
exist as a result of actions taken or proposed to
-4-
<PAGE>
be taken by the other parties hereto, and this Agreement shall be construed and
enforced in a manner consistent with and in furtherance of these policies.
10.2 Binding Effect. Subject to any provisions hereof restricting
assignment, all covenants and agreements in this Agreement by or on behalf of
any of the parties hereto shall bind and inure to the benefit of their
respective successors, assigns, heirs, and personal representatives.
10.3 Assignment. None of the parties hereto may assign any of its rights
under this Agreement, or attempt to have any other entity or individual assume
any of its obligations hereunder.
10.4 Severability. If performance of any provision of this Agreement, at
the time such performance shall be due, shall transcend the limit of validity
prescribed by law, then the obligation to be performed shall be reduced to the
limit of such validity; and if any clause or provision contained in this
Agreement operates or would operate to invalidate this Agreement, in whole or in
part, then such clause or provision only shall be held ineffective, as though
not herein contained, and the remainder of this Agreement shall remain operative
and in full force and effect. The parties shall negotiate in good faith a
replacement clause or provision as consistent with the ineffective clause or
provision as is practicable under law.
10.5 Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto shall be governed by
and construed in accordance with the laws of the State of Maryland, not
including the choice-of-law rules thereof.
10.6 Amendment. Except as otherwise expressly provided in this Agreement,
no amendment, modification or discharge of this Agreement shall be valid or
binding unless set forth in writing and duly executed by each of the parties
hereto.
10.7 Waiver. Any waiver by any party or consent by any party to any
variation from any provision of this Agreement shall be valid only if in writing
and only in the specific instance in which it is given, and such waiver or
consent shall not be construed as a waiver of any other provision or as a
consent with respect to any similar instance or circumstance.
10.8 Headings. Section and subsection headings contained in this Agreement
are inserted for convenience of reference only, shall not be deemed to be a part
of this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
10.9 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
-5-
<PAGE>
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.
10.10 Execution in Counterparts. This Agreement may be executed in one or
more counterparts, none of which need contain the signatures of each of the
parties hereto and each of which shall be deemed an original.
10.11 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.
-6-
<PAGE>
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.
SECURITY CAPITAL ATLANTIC INCORPORATED
By:
--------------------------------
James C. Potts
Co-Chairman
SECURITY CAPITAL PACIFIC TRUST
By:
--------------------------------
C. Ronald Blankenship
Chairman
SECURITY CAPITAL GROUP INCORPORATED
By:
--------------------------------
Jeffrey A. Klopf
Senior Vice President
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
By:
--------------------------------
David C. Dressler, Jr.
Chairman
-7-
<PAGE>
INVESTOR AGREEMENT
THIS INVESTOR AGREEMENT (this "Agreement"), dated as of __________, 1996,
is by and between Homestead Village Properties Incorporated, a Maryland
corporation (the "Company") and Security Capital Group Incorporated, a Maryland
corporation ("SCG").
W I T N E S S E T H
-------------------
WHEREAS, the Company and SCG have entered into that certain Merger and
Distribution Agreement, dated as of May 21, 1996, among Security Capital
Atlantic Incorporated ("Atlantic"), Security Capital Pacific Trust ("PTR"), SCG
and the Company (the "Merger Agreement");
WHEREAS, pursuant to a Warrant Purchase Agreement dated as of May 21, 1996
(the "Warrant Purchase Agreement"), each of SCG, PTR and Atlantic will be issued
warrants (the "Warrants") to acquire Common Stock (as hereinafter defined);
WHEREAS, pursuant to the Merger Agreement, SCG will be issued, through a
distribution from Atlantic and PTR, Warrants and shares of common stock, $0.01
par value per share ("Common Stock"), of the Company; and
WHEREAS, concurrently herewith, each of PTR and Atlantic are entering into
an Investor Agreement (as applicable, the "PTR Investor Agreement" and the
"Atlantic Investor Agreement"), with Homestead, pursuant to which, among other
things, each of PTR and Atlantic will be entitled to nominate one person to the
Board (as hereafter defined).
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. In addition to the terms defined elsewhere herein, the
following terms shall have the following meanings:
"Articles of Incorporation" shall mean the Company's Articles of
Incorporation, as now in effect or as amended from time to time.
"Beneficial Owner" shall mean any Person deemed to be a "Beneficial Owner"
of or to "Beneficially Own" any Common Stock in accordance with the term
"beneficial ownership" as defined in Rule 13d-3 under the Exchange Act.
"Board" shall mean the Board of Directors of the Company.
<PAGE>
"Commission" shall mean the Securities and Exchange Commission or any
successor agency or entity thereto.
"Common Stock" shall have the meaning set forth in the preamble of this
Agreement.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
A "group" shall have the meaning assigned thereto in Section 13(d)(3) of
the Exchange Act.
"Nominee" shall have the meaning set forth in Section 6(a) of this
Agreement.
A "Person" shall mean any individual, firm, corporation, partnership or
other entity.
"SCG" shall have the meaning set forth in the first paragraph of this
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
2. Exercise of Warrants. Subject to the terms and conditions hereafter
set forth, from and after the date hereof, at any time and from time to time,
upon not less than 10 business days' prior written notice, SCG shall exercise
such number of Warrants then owned by SCG as requested by the Company.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to SCG as follows:
(a) Organization and Standing. The Company has been duly organized
and is validly existing as a corporation in good standing under the laws of
the State of Maryland, with full power and authority to own its properties
and conduct its business as now conducted and as proposed by it to be
conducted. The Company is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the business
conducted by it or the location of the properties owned or leased 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 properties of the
Company.
(b) No Defaults. The Company is not in violation of its Articles of
Incorporation, Bylaws or other governing documents, nor is it in default in
the performance of any obligation, agreement or condition contained in any
license, contract, indenture, mortgage, deed of trust, lease or loan
agreement or in any bond, debenture,
-2-
<PAGE>
note or any other evidence of indebtedness to which it is a party or by
which it is bound, except where such default does not materially adversely
affect the condition (financial or other), properties or business of the
Company. The performance of this Agreement and the consummation of the
transactions herein contemplated will not conflict with the Articles of
Incorporation, Bylaws or other governing documents of the Company, or
result in a breach of, or default under, any agreement, indenture,
mortgage, deed of trust, lease or other instrument to which the Company is
a party or by which it is bound, or any law, rule, administrative
regulation or decree of any court, or governmental agency or body having
jurisdiction over the Company or its properties or result in the creation
or imposition of any lien, charge, claim or encumbrance upon any property
or asset of the Company, except as any of the foregoing 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 Company.
(c) Issuance. The Common Stock, when issued and delivered by the
Company to SCG upon exercise of Warrants, will be duly authorized, validly
issued and, when paid for, will be fully paid and non-assessable, free and
clear of any security interest, lien, charge or encumbrance whatsoever and
will have the voting powers, preferences and other rights, and will be
subject to qualifications and restrictions, as set forth in the Articles of
Incorporation.
(d) Authority. The Company has full right, power and authority to
enter into this Agreement and to carry out its obligations hereunder. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding agreement of the Company enforceable
against it in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally and judicial limitations on the right of specific performance or
by general equitable principles, and except as enforceability of
indemnification provisions hereof may be limited by federal securities
laws.
(e) No Violation. The Company is not in violation of any law,
ordinance, governmental rule or regulation or court decree to which it may
be subject nor has it failed to obtain any license, permit, franchise or
other governmental authorization necessary to the ownership of its property
or to the conduct of its business, which violation or failure to obtain is
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 Company.
(f) Investment Company Act. The Company is not required to be
registered under the Investment Company Act of 1940, as amended.
-3-
<PAGE>
4. Representations and Warranties of SCG. SCG hereby represents and
warrants to the Company as follows:
(a) Organization and Standing. SCG has been duly organized and is
validly existing as a corporation in good standing under the laws of the
State of Maryland, with corporate power and authority to own its properties
and conduct its business as now conducted.
(b) Authorization. SCG has full right, power and authority to enter
into this Agreement and to carry out its obligations hereunder. This
Agreement has been duly authorized, executed and delivered by SCG and
constitutes a valid and binding agreement of SCG enforceable against it in
accordance with its terms, except to the extent that its enforceability may
be limited by applicable bankruptcy, insolvency, reorganization or other
laws affecting the enforcement of creditors' rights generally and judicial
limitations on the right of specific performance or by general equitable
principles. The performance by SCG of all of its obligations under this
Agreement and the consummation of the transactions herein contemplated will
not conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other material agreement or instrument to which SCG is a
party or by which SCG is bound or to which any of the property or assets of
SCG is subject, nor will any such action result in any violation of the
provisions of the Articles of Incorporation or the By-Laws of SCG or any
applicable law or statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over SCG or any of its
properties.
(c) Investment Company Act. SCG is not required to be registered
under the Investment Company Act of 1940, as amended.
5. Conditions to the Obligations of SCG. The obligations of SCG to
exercise any Warrants under this Agreement are subject to the fulfillment at
each time of exercise of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties in this Agreement made by the Company shall have been true in
all material respects when made, and shall be true in all material respects
on the date of exercise of the Warrants as though such representations and
warranties were made at such date.
(b) Performance. The Company shall have performed and complied in
all material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with by
it.
(c) Casualty and Other Calamity. The Company shall not have
sustained any loss on account of fire, explosion, flood, accident, calamity
or any other cause, of such
-4-
<PAGE>
character as materially adversely affects its business or property
considered as an entire entity, whether or not such loss is covered by
insurance.
(d) Litigation and Other Proceedings. There shall be no litigation
instituted or threatened against the Company and there shall be no
proceeding instituted or threatened against the Company before or by any
federal or state commission, regulatory body or administrative agency or
other governmental body, domestic or foreign, wherein an unfavorable
ruling, decision or finding would materially adversely affect the business,
franchise, licenses, patents, operations or financial condition or income
of the Company.
(e) Lack of Material Change. The Company shall not have experienced
any event (other than changes in 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 Company.
6. Covenants of the Company. The Company covenants and agrees with SCG
as follows:
(a) Board Representation. From and after the date hereof and for so
long thereafter as SCG Beneficially Owns 10% or more of the outstanding
shares of Common Stock, the Company shall not increase the number of
members of its Board to more than seven (7), and SCG shall be entitled to
designate one or more Persons for nomination to the Board (such Person, a
"Nominee") as follows and the Company will use its best efforts to cause
the election of such Nominee or Nominees:
(i) So long as SCG Beneficially Owns at least 10% but less than
30% of the outstanding shares of Common Stock, one (1) Nominee;
(ii) So long as SCG Beneficially Owns 30% or more of the
outstanding shares of Common Stock, that number of Nominees as shall
bear approximately the same ratio (rounded down to the nearest whole
number) to the total number of members of the Board as the number of
shares of Common Stock Beneficially Owned by SCG bears to the total
number of outstanding shares of Common Stock, provided, that (A) SCG
shall be entitled to designate not more than two (2) Nominees so long
as the Board consists of not more than seven (7) members; and (B) 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 the Company) shall be deemed to be a designee of SCG.
The Nominee or Nominees of SCG may, but need not, include the same person
or persons nominated by either PTR or Atlantic pursuant to the PTR Investor
Agreement or the Atlantic Investor Agreement.
-5-
<PAGE>
(b) File Reports. For as long as SCG shall continue to Beneficially
Own any shares of Common Stock, the Company shall file on a timely basis
all annual, quarterly and other reports required to be filed by it under
Sections 13 and 15(d) of the Exchange Act, and the Rules and Regulations of
the Commission thereunder, as amended from time to time.
(c) Advice of Actions. Without first having consulted with the
Nominee or Nominees of SCG designated by SCG in writing, the Company will
not seek approval by the Board of any proposal relating to:
(i) Budget. The Company's annual budget.
(ii) Expenses. 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) Assets. The acquisition or sale of any assets in any
single transaction or any series of related transactions where the
aggregate purchase price paid or received by the Company exceeds
$5,000,000.
(iv) Contracts. Entering into any new contract with a service
provider (A) for investment management, property management, or
leasing services or (B) that reasonably contemplates annual contract
payments by the Company in excess of $200,000.
(v) Dividends. The declaration or payment of any dividend or
other distribution.
(vi) Benefit Plans. The adoption of any employee benefit plan
pursuant to which shares of stock of the Company or any securities
convertible into shares of stock of the Company may be issued.
(vii) Equity Securities. The offer or sale of any shares of
stock of the Company or any securities convertible into shares of
stock of the Company (other than the sale or grant of any stock of the
Company or options to purchase stock of the Company pursuant to the
provisions of any benefit plan approved by the stockholders of the
Company and the exercise of any options so granted); provided,
however, that nothing contained in this clause (vii) shall in any way
restrict or impair the obligations and rights of any party under the
terms of any agreement entered into in connection with the
transactions contemplated by the Merger Agreement.
-6-
<PAGE>
(viii) The incurrence, restructuring, renegotiation or repayment
of indebtedness for borrowed money (including guarantees thereof) in
which the aggregate amount involved exceeds $5,000,000; provided,
however, that nothing contained in this clause (viii) shall in any way
restrict or impair the obligations and rights of any party under the
terms of any agreement entered into in connection with the
transactions contemplated by the Merger Agreement.
Notwithstanding the foregoing, the Company shall have no obligation to
accept or comply with any advice offered by SCG or its designated Nominees
in any consultation pursuant to this Section 6(c).
(d) Inspection. At any time during regular business hours and as
often as reasonably requested of the Company's officers, permit SCG or any
authorized employee, agent or representative of SCG to examine and make
copies and abstracts from the records and books of account of, and to visit
the properties of, the Company and to discuss the affairs, finances, and
accounts of the Company with any of its officers or directors; provided,
that all costs and expenses of such inspection shall be borne by SCG.
7. Registration Rights.
(a) Demand. At any time after the first anniversary of the date on
which the Common Stock is registered under Section 12(b) or 12(g) of the
Exchange Act, SCG may request, on not more than three (3) separate
occasions, registration of all or any part of its Registrable Securities
(as defined in subsection (g) below) pursuant to Rule 415 under the
Securities Act by delivering written notice to the Company specifying the
number of Registrable Securities that SCG desires to sell and the Company
shall use its reasonable efforts to effect the registration of such
Registrable Securities under the Securities Act.
(b) Registration Procedures. If and whenever the Company is required
by any of the provisions of this Section 7 to use its reasonable efforts to
effect the registration of any of the Registrable Securities under the
Securities Act, the Company shall:
(i) prepare and file with the Commission a registration
statement with respect to such securities and use its reasonable
efforts to cause such registration statement to become effective and
remain effective for as long as shall be necessary to complete the
distribution of at least 90% of the Registrable Securities so
registered;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for so
-7-
<PAGE>
long as shall be necessary to complete the distribution of at least
90% of the Registrable Securities so registered and to comply with the
provisions of the Securities Act with respect to the sale or other
disposition of all securities covered by such registration statement
whenever SCG shall desire to sell or otherwise dispose of the same
within such period;
(iii) furnish to SCG such numbers of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement, including any preliminary
prospectus, and any amendment or supplement thereto, and such other
documents, as may be reasonably requested in order to facilitate the
sale or other disposition of the Registrable Securities owned by SCG;
(iv) use its reasonable efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as SCG shall
reasonably request, and do any and all other acts and things
reasonably requested by SCG to assist the public sale or other
disposition by SCG in such jurisdictions of the securities owned by
SCG except that the Company shall not for any such purpose be required
to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified or to file therein any general consent
to service of process;
(v) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months,
beginning with the first fiscal quarter beginning after the effective
date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act;
(vi) use its reasonable efforts to list such securities on any
securities exchange or quotation system on which any securities of the
Company are then listed, if the listing of such securities is then
permitted under the rules of such exchange or quotation system; and
(vii) notify SCG, at any time when a prospectus relating to the
Registrable Securities is required to be delivered under the
Securities Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in such
registration statement, as then in effect, contains an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.
-8-
<PAGE>
(c) Company's Ability to Postpone. The Company shall have the right
to postpone the filing of a registration statement under this Section 7 for
a reasonable period of time (not exceeding 60 days) if the Company
furnishes SCG with a certificate signed by the Chairman of the Board or the
President of the Company stating that, in its good faith judgment, the
Board has determined that effecting the registration at such time would
adversely affect a material financing, acquisition, disposition of assets
or stock, merger or other comparable transaction or would require the
Company to make public disclosure of information the public disclosure of
which would have a material adverse effect upon the Company.
(d) Expenses. All expenses incurred in the registration of
Registrable Securities under this Agreement shall be paid by the Company.
The expenses shall include, without limitation, the expenses of preparing
the registration statement and the prospectus used in connection therewith
and any amendment or supplement thereto, printing and photocopying
expenses, all registration and filing fees under Federal and state
securities laws, and expenses of complying with the securities or blue sky
laws of any jurisdictions; provided, however, that SCG shall be responsible
for paying the fees and disbursements of its own counsel.
(e) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 7:
(i) Indemnity by Company. Without limitation of any other
indemnity provided to SCG, to the extent permitted by law, the Company
will indemnify and hold harmless SCG and its officers, directors and
each Person, if any, who controls SCG (within the meaning of the
Securities Act or the Exchange Act), against any losses, claims,
damages, liabilities and expenses (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) arise out of
or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in any
registration statement (including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements
thereto), (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading, or (iii) any violation or alleged violation
by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law, and the
Company will reimburse SCG and its officers, directors and any
controlling person thereof for any reasonable legal or other expenses
incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, expense or action; provided,
however, that the
-9-
<PAGE>
Company shall not be liable in any such case for any such loss, claim,
damage, liability, expense or action to the extent that it arises out
of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by SCG or any officer, director or
controlling person thereof.
(ii) Indemnity by SCG. In connection with any registration
statement in which SCG is participating, SCG will furnish to the
Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will
indemnify the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act or
Exchange Act) against any losses, claims, damages, liabilities and
expenses resulting from any Violation, but only to the extent that
such Violation is contained in any information or affidavit so
furnished in writing by SCG; provided, that the obligation to
indemnify will be several and not joint and several with any other
Person and will be limited to the net amount received by SCG from the
sale of Registrable Securities pursuant to such registration
statement.
(iii) Notice; Right to Defend. Promptly after receipt by an
indemnified party under this Section 7(e) of notice of the
commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 7(e), deliver to the
indemnifying party a written notice of the commencement thereof and
the indemnifying party shall have the right to participate in, and, if
the indemnifying party agrees in writing that it will be responsible
for any costs, expenses, judgments, damages and losses incurred by the
indemnified party with respect to such claim, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying
party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party
under this Section 7(e) only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission so
to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party other
than under this Section 7(e).
-10-
<PAGE>
(iv) Contribution. If the indemnification provided for in this
Section 7(e) is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss,
liability, claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage
or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other hand in connection with the statements
or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The
relevant fault of the indemnifying party and the indemnified party
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Notwithstanding the
foregoing, the amount SCG shall be obligated to contribute pursuant to
this Section 7(e)(iv) shall be limited to an amount equal to the
proceeds to SCG of the Registrable Securities sold pursuant to the
registration statement which gives rise to such obligation to
contribute (less the aggregate amount of any damages which SCG has
otherwise been required to pay in respect of such loss, claim, damage,
liability or action or any substantially similar loss, claim, damage,
liability or action arising from the sale of such Registrable
Securities).
(v) Survival of Indemnity. The indemnification provided by this
Section 7(e) shall be a continuing right to indemnification and shall
survive the registration and sale of any securities by any Person
entitled to indemnification hereunder and the expiration or
termination of this Agreement.
(f) Limitations on Registration Rights.
(i) The Company shall not, without the prior written consent of
SCG, include in any registration in which SCG has a right to
participate pursuant to this Agreement any securities of any Person
other than SCG.
(ii) SCG shall not, without the prior written consent of the
Company, effect any public sale or distribution (including sales
pursuant to Rule 144 under the Securities Act) of securities of the
Company during any period commencing 30 days prior to and ending 60
days after the effective date any registration statement filed by the
Company on behalf of any Person (including the Company), other than a
registration statement on Form S-8 or any successor form.
-11-
<PAGE>
(g) Registrable Security. The term Registrable Security means (i)
any shares of Common Stock issuable to SCG upon exercise of Warrants, (ii)
any other shares of Common Stock owned by SCG and (iii) any shares of
Common Stock or other securities that may subsequently be issued with
respect to such shares of Common Stock as a result of a stock split or
dividend or any sale, transfer, assignment or other transaction by the
Company involving the shares of Common Stock and any securities into which
the shares of Common Stock may thereafter be changed as a result of merger,
consolidation, recapitalization or otherwise. As to any particular
Registrable Securities, such securities will cease to be Registrable
Securities when they have been distributed to the public pursuant to an
offering registered under the Securities Act. All Registrable Securities
shall cease to be Registrable Securities when all such securities may be
sold in any three-month period pursuant to Rule 144, or any successor to
such rule, under the Securities Act.
(h) Assignment. SCG may assign without the consent of the Company
its rights under this Section 7 with respect to any Registrable Securities
to any party (a "Lender") to whom it provides a bona fide pledge,
assignment or hypothecation of such Registrable Securities. If (i) SCG
assigns its rights under this Section 7 with respect to Registrable
Securities having an aggregate offering value of at least $10,000,000 to a
Lender, (ii) any Event of Default occurs and is continuing under the
related loan agreement between SCG and the Lender and (iii) the Common
Stock is not registered under Section 12(b) or 12(g) of the Exchange Act,
the Lender may request one registration of all or part of its Registrable
Securities having an aggregate offering value of at least $10,000,000 on
Form S-1 (or any successor form) under the Securities Act by delivering
written notice to the Company specifying the number of Registrable
Securities that the Lender desires to sell and the Company shall use its
reasonable efforts to effect the registration of such Registrable
Securities under the Securities Act in accordance with and subject to the
provisions of this Section 7.
8. Reports. For so long as SCG owns any Registrable Securities, the
Company shall file on a timely basis all annual, quarterly and other reports
required to be filed by it under Section 13 and 15(d) of the Exchange Act, and
the rules and regulations of the Commission thereunder, as amended from time to
time.
9. Rule 144. From and after the time the Company has securities
registered under Section 12(b) or 12(g) of the Exchange Act, in order to permit
SCG to sell the Registrable Securities it holds, if it so desires, from time to
time pursuant to Rule 144 under the Securities Act, or any successor to such
rule, the Company shall make available adequate current public information and
file with the Commission in a timely manner all reports and other documents
required of the Company under the Exchange Act.
-12-
<PAGE>
10. Miscellaneous.
(a) Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants contained herein shall survive the
execution of this Agreement and shall remain in full force and effect following
the exercise by SCG of all Warrants required by it to be exercised hereunder;
provided, that Sections 2 and 6 of this Agreement shall terminate and be of no
further force or effect if SCG Beneficially Owns less than 10% of the shares of
Common Stock then outstanding.
(b) 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.
(c) 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 such other address for a party as
shall be specified by like notice):
If to the Company:
Homestead Village Properties Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: David C. Dressler, Jr.
Facsimile: (505) 982-2925
If to SCG:
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
Facsimile: (505) 988-8920
(d) 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.
(e) Amendment. This Agreement may be amended only by a writing duly
executed by both the Company and SCG.
(f) 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
-13-
<PAGE>
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.
(g) 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.
(h) 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.
(i) Captions. The 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.
(j) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
(k) Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Maryland.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
By: _________________________
David C. Dressler, Jr.
Chairman
SECURITY CAPITAL GROUP INCORPORATED
By: _________________________
Jeffrey A. Klopf
Senior Vice President
<PAGE>
WARRANT PURCHASE AGREEMENT
This WARRANT PURCHASE AGREEMENT (this "Agreement"), is entered into as of
May 21, 1996, among Homestead Village Properties Incorporated, a Maryland
corporation ("Homestead"), Security Capital Atlantic Incorporated, a Maryland
corporation ("Atlantic"), Security Capital Pacific Trust, a Maryland real estate
investment trust ("PTR"), and Security Capital Group Incorporated, a Maryland
corporation ("SCG"; Atlantic, PTR and SCG are collectively referred to herein as
"Buyers").
WHEREAS, Homestead desires to issue and sell to Buyers warrants
("Warrants") to purchase shares of common stock, $0.01 par value per share
("Homestead Stock"), of Homestead to be issued pursuant to a Warrant Agreement
substantially in the form of Exhibit A hereto (the "Warrant Agreement");
WHEREAS, concurrently with the execution of this Agreement, the parties are
entering into that certain Merger and Distribution Agreement (the "Merger
Agreement"), pursuant to which, among other things, the parties will enter into
certain transactions with respect their respective extended-stay lodging
businesses;
WHEREAS, in consideration of the Warrants to be issued pursuant to this
Agreement, PTR and Atlantic will each enter into a Funding Commitment Agreement
(the "Funding Commitment Agreement") with Homestead providing the terms and
conditions on which PTR and Atlantic will advance funds to Homestead for the
development of certain of its properties;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE OF WARRANTS
1.1 Issuance of Warrants. Upon the terms and subject to the conditions
contained herein, on the Closing Date, Homestead will issue 2,828,517 Warrants
to Atlantic, 6,363,789 Warrants to PTR and 817,694 Warrants to SCG, and each of
Atlantic, PTR and SCG will acquire the Warrants from Homestead.
1.2 Consideration for the Warrants. Upon the terms and subject to the
conditions contained herein, as consideration for the Warrants, (i) Atlantic
shall execute and deliver to Homestead the Funding Commitment Agreement, (ii)
PTR shall execute and deliver to Homestead the Funding Commitment Agreement and
(iii) SCG shall agree to make loans to Homestead after the date hereof, and
prior to the Closing Date (as defined herein) or earlier termination of this
Agreement, on the terms provided in Section 7.2(c) of the Merger Agreement and
shall provide Homestead with such office facilities as Homestead shall
reasonably request for a period of one year without charge.
<PAGE>
ARTICLE 2
CLOSING
2.1 Closing. The closing of the transactions contemplated herein
(the "Closing") shall occur simultaneously with the closing of the merger
transactions contemplated by Section 2.1 of the Merger Agreement (the "Closing
Date").
2.2 Deliveries at Closing. To effect the issuance referred to in
Section 1.1 hereof and the delivery of the consideration described in Section
1.2, the following shall occur on the Closing Date:
(a) Homestead shall deliver to Buyers fully executed copies of the
Warrant Agreement.
(b) Homestead shall deliver to Buyers certificates evidencing the
Warrants; provided, however, that the Warrants issuable to Atlantic and PTR
hereunder shall be delivered by Homestead to the Atlantic Distribution
Agent and the PTR Distribution Agent, respectively (as such terms are
defined in the Merger Agreement).
(c) Each of Atlantic and PTR shall execute and deliver to Homestead a
Funding Commitment Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF HOMESTEAD
Homestead hereby represents and warrants to each of the Buyers as follows:
3.1 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. 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
hereto.
3.2 Capitalization.
(a) The authorized shares 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
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, the Merger Agreement and
the Related Agreements (as such term is defined in the Merger Agreement),
as of the date hereof, there are no outstanding subscriptions, options,
calls, contracts, commitments,
-2-
<PAGE>
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
Homestead to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of Homestead 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
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.
3.3 Issuance of Securities. The Warrants issuable to Buyers hereunder,
when issued in accordance with the provisions of this Agreement, will be duly
and validly authorized and issued and will be fully paid and nonassessable. The
Homestead Stock issuable upon conversion of outstanding Warrants, when issued in
accordance with the terms of the Warrant Agreement, will be duly and validly
authorized and issued and will be fully paid and nonassessable.
3.4 Authority; Non-Contravention; Approvals.
(a) Homestead has full power, corporate or otherwise, and authority to
enter into this Agreement and, subject to obtaining any approvals described
in the Merger Agreement and the Related Agreements, to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement, and the consummation by Homestead of the transactions
contemplated hereby, have been duly authorized by the Board of Directors of
Homestead and no other corporate proceedings on the part of Homestead are
necessary to authorize the execution and delivery of this Agreement and the
consummation by Homestead of the transactions contemplated hereby, except
for the obtaining of any approvals described in the Merger Agreement and
the Related Agreements. 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 and
(ii) general equitable principles.
(b) Subject to obtaining any approvals described in the Merger
Agreement and the Related Agreements, the execution and delivery of this
Agreement by Homestead do not, and the consummation by Homestead of the
transactions contemplated hereby 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
-3-
<PAGE>
terms, conditions or provisions of (i) Homestead's charter or Bylaws, (ii)
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.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYERS
Each Buyer hereby severally represents and warrants to Homestead as
follows:
4.1 Organization and Qualification. Buyer 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.
4.2 Authority; Non-Contravention; Approvals.
(a) Buyer has full power, corporate or otherwise, and authority to
enter into this Agreement and, subject to obtaining any approvals described
in the Merger Agreement and the Related Agreements, to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement, and the consummation by Buyer of the transactions contemplated
hereby, have been duly authorized by the board or other governing body of
Buyer and no other proceedings on the part of Buyer are necessary to
authorize the execution and delivery of this Agreement and the consummation
by Buyer of the transactions contemplated hereby, except for the obtaining
of any approvals described in the Merger Agreement and the Related
Agreements. This Agreement has been duly and validly executed and
delivered by Buyer and, assuming the due authorization, execution and
delivery hereof by each other party hereto, constitutes a valid and binding
agreement of Buyer enforceable against Buyer 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 and (ii) general equitable
principles.
(b) Subject to obtaining any approvals described in the Merger
Agreement and the Related Agreements, the execution and delivery of this
Agreement by Buyer do not, and the consummation by Buyer of the
transactions contemplated hereby 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
-4-
<PAGE>
in the termination of, or accelerate the performance required by, or result
in a right of termination or acceleration under, any of the terms,
conditions or provisions of (i) Buyer's charter and bylaws, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to Buyer, (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 Buyer is now a
party or by which Buyer may be bound, excluding from the foregoing clauses
(ii) and (iii) such violations, conflicts, breaches, defaults, terminations
or accelerations 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 Buyer.
ARTICLE 5
CONDITIONS TO HOMESTEAD'S OBLIGATIONS
The obligations of Homestead to issue the Warrants to Buyers on the Closing
Date are subject to the satisfaction, on or prior to the Closing Date, of each
of the following conditions:
5.1 Representations, Warranties and Covenants. All representations and
warranties of Buyers contained in this Agreement shall be true and correct in
all material respects at and as of the Closing Date as if such representations
and warranties were made at and as of the Closing Date, and Buyers shall have
performed in all material respects all agreements and covenants required hereby
to be performed by them prior to or at the Closing Date.
5.2 Consents. All consents, approvals and waivers from governmental
authorities and other parties necessary to permit Homestead to issue the
Warrants to Buyers as contemplated hereby shall have been obtained.
5.3 Merger Agreement. The Merger Closing under the Merger Agreement shall
have occurred.
ARTICLE 6
CONDITIONS TO BUYERS' OBLIGATIONS
The obligations of Buyers to purchase the Warrants as provided hereby are
subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions:
6.1 Representations, Warranties and Covenants. All representations and
warranties of Homestead contained in this Agreement shall be true and correct in
all material respects at and as of the Closing Date as if such representations
and warranties were made at and as of the Closing Date, and Homestead shall have
performed in all material respects all agreements and covenants required hereby
to be performed by it prior to or at the Closing Date.
-5-
<PAGE>
6.2 Consents. All consents, approvals and waivers from governmental
authorities and other parties necessary to permit Buyers to purchase the
Warrants from Homestead as contemplated hereby shall have been obtained.
6.3 Merger Agreement. The Merger Closing under the Merger Agreement shall
have occurred.
6.4 Warrant Agreement. Homestead shall have entered into the Warrant
Agreement on or prior to the Closing Date.
ARTICLE 7
MISCELLANEOUS
7.1 Assignment. Neither Homestead nor any of the Buyers shall transfer,
assign or encumber any of its rights, privileges, duties or obligations under
this Agreement without the prior written consent of each other party, and any
attempt to so transfer, assign or encumber shall be void. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors and assigns (treating
for this purpose permitted transferees of all or any of the Warrants as a
permitted assign), and no other person shall have any right, benefit or
obligation hereunder.
7.2 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 such other address for a party as
shall be specified by like notice):
(a) If to Homestead, addressed 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
-6-
<PAGE>
(b) If to Atlantic, addressed to:
Security Capital Atlantic Incorporated
Six Piedmont Center, Sixth Floor
Atlanta, Georgia 30305
Attention: James C. Potts
Fax: (404) 233-2379
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Alan J. Prince
Fax: (404) 572-5046
(c) If to PTR, addressed 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
(d) If to SCG, addressed to:
Security Capital Group Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
Fax: (505) 988-8920
-7-
<PAGE>
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Edward J. Schneidman
Fax: (312) 701-7711
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
7.3 Choice of Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the internal laws of the
State of Maryland.
7.4 Entire Agreement; Amendments and Waivers. This Agreement, together
with all exhibits hereto, constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties. No supplement, modification or waiver of this Agreement shall be
binding unless executed in writing. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provision
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
7.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
7.7 Headings. The headings of the Articles and Sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
7.8 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.
-8-
<PAGE>
7.9 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.
* * * * *
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
By: /s/ David C. Dressler, Jr.
--------------------------------
David C. Dressler, Jr.
Chairman
SECURITY CAPITAL ATLANTIC INCORPORATED
By: /s/ James C. Potts
--------------------------------
James C. Potts
Co-Chairman
SECURITY CAPITAL PACIFIC TRUST
By: /s/ C. Ronald Blankenship
--------------------------------
C. Ronald Blankenship
Chairman
SECURITY CAPITAL GROUP INCORPORATED
By: /s/ Jeffrey A. Klopf
--------------------------------
Jeffrey A. Klopf
Senior Vice President
-10-
<PAGE>
EXHIBIT A
WARRANT AGREEMENT
<PAGE>
INVESTOR AND REGISTRATION RIGHTS AGREEMENT
THIS INVESTOR AND REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is
entered into as of __________, 1996, between Homestead Village Properties
Incorporated, a Maryland corporation ("Homestead"), and Security Capital
Atlantic Incorporated, a Maryland corporation ("Atlantic").
WHEREAS, 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 21, 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 will acquire all
of Atlantic's assets relating to its operation of extended-stay lodging
facilities;
WHEREAS, pursuant to the Merger Agreement, Atlantic and Homestead are
entering into a Funding Commitment Agreement (the "Funding Commitment
Agreement"), pursuant to which Atlantic will agree to make certain loans to
Homestead, which loans will be secured by mortgages, and the notes evidencing
such loans will be convertible into shares of Common Stock, $0.01 par value per
share ("Common Stock"), of Homestead on the terms and conditions described
therein;
WHEREAS, pursuant to a Warrant Purchase Agreement (the "Warrant
Purchase Agreement"), dated as of May 21, 1996, among Homestead, SCG, Atlantic
and PTR, Homestead has agreed to issue to Atlantic warrants to acquire Common
Stock; and
WHEREAS, the execution of this Agreement is a condition to the
consummation of the transactions contemplated by the Merger Agreement, the
Funding Commitment Agreement and the Warrant Purchase 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:
Section 1. Board Representation. Until March 31, 1998 and for so
long thereafter as Atlantic shall continue to have the right to convert in
excess of $20 million in principal amount of loans made pursuant to the Funding
Commitment Agreement, Homestead shall not increase the number of members of its
Board of Directors to more than seven (7) members and Atlantic shall be entitled
to designate one person for nomination to the Homestead Board of Directors (such
person, a "Nominee") and Homestead will use its best efforts to cause the
election of such Nominee. The Nominee of Atlantic may, but need not, include
the same person or persons nominated by SCG pursuant to the Investor Agreement
of even date herewith between SCG and Homestead or the person nominated by PTR
pursuant to the Investor and Registration Rights Agreement of even date herewith
between PTR and Homestead.
<PAGE>
Section 2. Inspection. Until March 31, 1998 and for so long
thereafter as Atlantic shall continue to have the right to convert any principal
amount of loans made, pursuant to the Funding Commitment Agreement, at any time
during regular business hours and as often as reasonably requested of
Homestead's officers, Homestead shall permit Atlantic or any authorized
employee, agent or representative of Atlantic to examine and make copies and
abstracts from the records and books of account of, and to visit the properties
of, Homestead and to discuss the affairs, finances, and accounts of Homestead
with any of its officers of directors; provided, that all costs and expenses of
such inspection shall be borne by Atlantic.
Section 3. Registration Rights.
(a) Demand. At any time prior to the first anniversary of the date
on which the Common Stock is registered under Section 12(b) or 12(g) of the
Exchange Act of 1934, as amended (the "Exchange Act"), Atlantic may request
one registration of all or any part of its Registrable Securities (as
defined in sub-section (h) below) under the Securities Act of 1933, as
amended (the "Securities Act"), by delivering written notice (which notice
shall state that Atlantic intends to dispose of such securities through a
public distribution thereof) to Homestead specifying the number of
Registrable Securities that Atlantic desires to distribute and Homestead
shall use its reasonable efforts to effect the registration of such
Registrable Securities under the Securities Act in accordance with the
further provisions of this Section 3.
(b) Shelf Registration. At any time after the first anniversary of
the date on which the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, Atlantic may request, on up to three separate
occasions, registration of all or any part of its Registrable Securities
pursuant to Rule 415 under the Securities Act by delivering written notice
(which notice shall state that Atlantic intends to dispose of such
securities through a public distribution thereof) to Homestead and
Homestead shall use its reasonable efforts to effect the registration of
such Registrable Securities under the Securities Act in accordance with the
further provisions of this Section 3.
(c) Registration Procedures. If and whenever Homestead is required
by any of the provisions of this Section 3 to use its reasonable efforts to
effect the registration of any of the Registrable Securities under the
Securities Act, Homestead shall:
(i) prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement with respect to such
securities and use its reasonable efforts to cause such registration
statement to become effective and remain effective for as long as
shall be necessary to complete the distribution of the Registrable
Securities so registered;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection
-2-
<PAGE>
therewith as may be necessary to keep such registration statement
effective for so long as shall be necessary to complete the
distribution of the Registrable Securities so registered and to comply
with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration
statement whenever Atlantic shall desire to sell or otherwise dispose
of the same within such period;
(iii) furnish to Atlantic such numbers of copies of such
registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement, including any
preliminary prospectus, and any amendment or supplement thereto, and
such other documents, as Atlantic may reasonably request in order to
facilitate the sale or other disposition of the Registrable
Securities;
(iv) use its reasonable efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as Atlantic shall
reasonably request, and do any and all other acts and things
reasonably requested by Atlantic to assist it to consummate the public
sale or other disposition in such jurisdictions of the securities
owned by Atlantic, except that Homestead shall not for any such
purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified or to file therein
any general consent to service of process;
(v) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months,
beginning with the first fiscal quarter beginning after the effective
date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act;
(vi) use its reasonable efforts to list such securities on any
securities exchange or quotation system on which any securities of
Homestead are then listed, if the listing of such securities is then
permitted under the rules of such exchange or quotation system; and
(vii) notify Atlantic, at any time when a prospectus relating to
the Registrable Securities is required to be delivered under the
Securities Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in such
registration statement, as then in effect, contains an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.
-3-
<PAGE>
(d) Homestead's Ability to Postpone. Homestead shall have the right
to postpone the filing of a registration statement under this Section 3 for
a reasonable period of time (not exceeding 60 days) if Homestead furnishes
Atlantic with a certificate signed by the Chairman of the Board or the
President of Homestead stating that, in its good faith judgment,
Homestead's Board of Directors has determined that effecting the
registration at such time would adversely affect a material financing,
acquisition, disposition of assets or stock, merger or other comparable
transaction or would require Homestead to make public disclosure of
information the public disclosure of that would have a material adverse
effect upon Homestead.
(e) Expenses. All expenses incurred in the registration of
Registrable Securities under this Agreement shall be paid by Homestead.
The expenses shall include, without limitation, the expenses of preparing
the registration statement and the prospectus used in connection therewith
and any amendment or supplement thereto, printing and photocopying
expenses, all registration and filing fees under Federal and state
securities laws, and expenses of complying with the securities or blue sky
laws of any jurisdictions, provided, however, that Atlantic shall be
responsible for the fees and disbursements of its own counsel.
(f) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 3:
(i) Indemnity by Homestead. Without limitation of any other
indemnity provided to Atlantic, to the extent permitted by law,
Homestead will indemnify and hold harmless Atlantic and its officers,
directors and any individual, partnership, corporation, trust,
unincorporated organization or other entity (a "Person") if any, who
controls Atlantic (within the meaning of the Securities Act or the
Exchange Act), against any losses, claims, damages, liabilities and
expenses (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, liabilities and expenses (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of
a material fact contained in any registration statement (including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto), (ii) the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (iii) any
violation or alleged violation by Homestead of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state
securities law, and Homestead will reimburse Atlantic and its
officers, directors and any controlling person thereof for any
reasonable legal or other expenses
-4-
<PAGE>
incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, expense or action; provided,
however, that Homestead shall not be liable in any such case for any
such loss, claim, damage, liability, expense or action to the extent
that it arises out of or is based upon a Violation that occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by Atlantic or
any officer, director or controlling person thereof.
(ii) Indemnity by Atlantic. In connection with any registration
statement in which Atlantic is participating, Atlantic will furnish to
Homestead in writing such information and affidavits as Homestead
reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will
indemnify Homestead, its directors and officers and each Person who
controls Homestead (within the meaning of the Securities Act or
Exchange Act) against any losses, claims, damages, liabilities and
expenses resulting from any Violation, but only to the extent that
such Violation is contained in any information or affidavit so
furnished in writing by Atlantic; provided, that the obligation to
indemnify will be several and not joint and several with any other
Person and will be limited to the net amount received by Atlantic from
the sale of Registrable Securities pursuant to such registration
statement.
(iii) Notice; Right to Defend. Promptly after receipt by an
indemnified party under this Section 3(f) of notice of the
commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 3(f), deliver to the
indemnifying party a written notice of the commencement thereof and
the indemnifying party shall have the right to participate in, and, if
the indemnifying party agrees in writing that it will be responsible
for any costs, expenses, judgments, damages and losses incurred by the
indemnified party with respect to such claim, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying
party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party
under this Section 3(f) only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission so
to deliver written notice to the indemnifying party will not relieve
it
-5-
<PAGE>
of any liability that it may have to any indemnified party other than
under this Section 3(f).
(iv) Contribution. If the indemnification provided for in this
Section 3(f) is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss,
liability, claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage
or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other hand in connection with the statements
or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The
relevant fault of the indemnifying party and the indemnified party
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Notwithstanding the
foregoing, the amount Atlantic shall be obligated to contribute
pursuant to this Section 3(f)(iv) shall be limited to an amount equal
to the aggregate value of the Registrable Securities distributed by
Atlantic pursuant to the registration statement which gives rise to
such obligation to contribute (less the aggregate amount of any
damages which Atlantic has otherwise been required to pay in respect
of such loss, claim, damage, liability or action or any substantially
similar loss, claim, damage, liability or action arising from the
distribution of such Registrable Securities).
(v) Survival of Indemnity. The indemnification provided by this
Section 3(f) shall be a continuing right to indemnification and shall
survive the registration and sale of any securities by any Person
entitled to indemnification hereunder and the expiration or
termination of this Agreement.
(g) Limitations on Registration Rights.
(i) Homestead shall not, without the prior written consent of
Atlantic, include in any registration in which Atlantic has a right to
participate pursuant to this Agreement any securities of any Person
other than Atlantic and PTR.
(ii) Atlantic shall not, without the prior written consent of
Homestead, effect any public sale or distribution (including sales
pursuant to Rule 144 under the Securities Act) of securities of
Homestead during any period commencing 30 days prior to and ending 60
days after the effective date any registration statement
-6-
<PAGE>
filed by Homestead on behalf of any Person (including Homestead),
other than a registration statement on Form S-8 or any successor form.
(h) Registrable Security. The term Registerable Security means (i)
any shares of Common Stock issuable to Atlantic pursuant to the conversion
of notes issuable pursuant to the terms of the Funding Commitment Agreement
or otherwise held by Atlantic, (ii) any other shares of Common Stock owned
by Atlantic and (iii) any shares of Common Stock or other securities that
may subsequently be issued with respect to such shares of Common Stock as a
result of a stock split or dividend or any sale, transfer, assignment or
other transaction by Homestead involving the shares of Common Stock and any
securities into which the shares of Common Stock may thereafter be changed
as a result of merger, consolidation, recapitalization or otherwise. As to
any particular Registrable Securities, such securities will cease to be
Registrable Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act. All
Registrable Securities shall cease to be Registrable Securities when all
such securities may be sold in any three-month period pursuant to Rule 144,
or any successor to such rule, under the Securities Act.
Section 4. File Reports. For so long as Atlantic owns any Registrable
Securities, Homestead shall file on a timely basis all annual, quarterly and
other reports required to be filed by it under Section 13 and 15(d) of the
Exchange Act, and the rules and regulations of the Commission thereunder, as
amended from time to time.
Section 5. Miscellaneous.
(a) Survival of Covenants. All covenants contained herein shall survive
the execution of this Agreement and shall remain in full force and effect until
terminated in accordance with this Agreement.
(b) 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.
(c) 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):
-7-
<PAGE>
If to Homestead:
Homestead Village Properties 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
Six Piedmont Center, Sixth Floor
Atlanta, Georgia 30385
Attention: James C. Potts
Facsimile: (404) 233-2379
(d) 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.
(e) Amendment. This Agreement may be amended only by a writing duly
executed by both Homestead and Atlantic.
(f) 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.
(g) Entire Agreement. This Agreement constitutes the entire agreement,
and supersedes all other prior agreements and understandings, both written and
oral, between the parties hereto and their affiliates, with respect to the
subject matter hereof.
(h) 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.
(i) Captions. The 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.
-8-
<PAGE>
(j) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
(k) Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Maryland.
* * * * *
-9-
<PAGE>
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 PROPERTIES
INCORPORATED
By: ___________________________
David C. Dressler, Jr.
Chairman
SECURITY CAPITAL ATLANTIC INCORPORATED
By: ___________________________
James C. Potts
Chairman
-10-
<PAGE>
INVESTOR AND REGISTRATION RIGHTS AGREEMENT
THIS INVESTOR AND REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is
entered into as of __________, 1996, between Homestead Village Properties
Incorporated, a Maryland corporation ("Homestead"), and Security Capital Pacific
Trust, a Maryland real estate investment trust ("PTR").
WHEREAS, 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 21, 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 will
acquire all of PTR's assets relating to its operation of extended-stay lodging
facilities;
WHEREAS, pursuant to the Merger Agreement, PTR and Homestead are
entering to a Funding Commitment Agreement (the "Funding Commitment Agreement"),
pursuant to which PTR will agree to make certain loans to Homestead, which loans
will be secured by mortgages, and the notes evidencing such loans will be
convertible into shares of Common Stock, $0.01 par value per share ("Common
Stock"), of Homestead on the terms and conditions described therein;
WHEREAS, pursuant to a Warrant Purchase Agreement (the "Warrant
Purchase Agreement"), dated as of May 21, 1996, among Homestead, SCG, Atlantic
and PTR, Homestead has agreed to issue to PTR warrants to acquire Common Stock;
and
WHEREAS, the execution of this Agreement is a condition to the
consummation of the transactions contemplated by the Merger Agreement, the
Funding Commitment Agreement and the Warrant Purchase 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:
Section 1. Board Representation. Until March 31, 1998 and for so
long thereafter as PTR shall continue to have the right to convert in excess of
$20 million in principal amount of loans made pursuant to the Funding Commitment
Agreement, Homestead shall not increase the number of members of its Board of
Directors to more than seven (7) members and PTR shall be entitled to designate
one person for nomination to the Homestead Board of Directors (such person, a
"Nominee") and Homestead will use its best efforts to cause the election of such
Nominee. The Nominee of PTR may, but need not, include the same person or
persons nominated by SCG pursuant to the Investor Agreement of even date
herewith between SCG and Homestead or the person nominated by Atlantic pursuant
to the Investor and Registration Rights Agreement of even date herewith between
Atlantic and Homestead.
<PAGE>
Section 2. Inspection. Until March 31, 1998 and for so long
thereafter as PTR shall continue to have the right to convert any principal
amount of loans made, pursuant to the Funding Commitment Agreement, at any time
during regular business hours and as often as reasonably requested of
Homestead's officers, Homestead shall permit PTR or any authorized employee,
agent or representative of PTR to examine and make copies and abstracts from the
records and books of account of, and to visit the properties of, Homestead and
to discuss the affairs, finances, and accounts of Homestead with any of its
officers or directors; provided, that all costs and expenses of such inspection
shall be borne by PTR.
Section 3. Registration Rights.
(a) Demand. At any time prior to the first anniversary of the date
on which the Common Stock is registered under Section 12(b) or 12(g) of the
Exchange Act of 1934, as amended (the "Exchange Act"), PTR may request one
registration of all or any part of its Registrable Securities (as defined
in sub-section (h) below) under the Securities Act of 1933, as amended (the
"Securities Act"), by delivering written notice (which notice shall state
that PTR intends to dispose of such securities through a public
distribution thereof) to Homestead specifying the number of Registrable
Securities that PTR desires to distribute and Homestead shall use its
reasonable efforts to effect the registration of such Registrable
Securities under the Securities Act in accordance with the further
provisions of this Section 3.
(b) Shelf Registration. At any time after the first anniversary of
the date on which the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, PTR may request, on up to three separate
occasions, registration of all or any part of its Registrable Securities
pursuant to Rule 415 under the Securities Act by delivering written notice
(which notice shall state that PTR intends to dispose of such securities
through a public distribution thereof) to Homestead and Homestead shall use
its reasonable efforts to effect the registration of such Registrable
Securities under the Securities Act in accordance with the further
provisions of this Section 3.
(c) Registration Procedures. If and whenever Homestead is required
by any of the provisions of this Section 3 to use its reasonable efforts to
effect the registration of any of the Registrable Securities under the
Securities Act, Homestead shall:
(i) prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement with respect to such
securities and use its reasonable efforts to cause such registration
statement to become effective and remain effective for as long as
shall be necessary to complete the distribution of the Registrable
Securities so registered;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection
-2-
<PAGE>
therewith as may be necessary to keep such registration statement
effective for so long as shall be necessary to complete the
distribution of the Registrable Securities so registered and to comply
with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration
statement whenever PTR shall desire to sell or otherwise dispose of
the same within such period;
(iii) furnish to PTR such numbers of copies of such registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement, including any preliminary
prospectus, and any amendment or supplement thereto, and such other
documents, as PTR may reasonably request in order to facilitate the
sale or other disposition of the Registrable Securities;
(iv) use its reasonable efforts to register and qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as PTR shall
reasonably request, and do any and all other acts and things
reasonably requested by PTR to assist it to consummate the public sale
or other disposition in such jurisdictions of the securities owned by
PTR, except that Homestead shall not for any such purpose be required
to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified or to file therein any general consent
to service of process;
(v) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months,
beginning with the first fiscal quarter beginning after the effective
date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act;
(vi) use its reasonable efforts to list such securities on any
securities exchange or quotation system on which any securities of
Homestead are then listed, if the listing of such securities is then
permitted under the rules of such exchange or quotation system; and
(vii) notify PTR, at any time when a prospectus relating to the
Registrable Securities is required to be delivered under the
Securities Act, of the happening of any event of which it has
knowledge as a result of which the prospectus included in such
registration statement, as then in effect, contains an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing.
-3-
<PAGE>
(d) Homestead's Ability to Postpone. Homestead shall have the right
to postpone the filing of a registration statement under this Section 3 for
a reasonable period of time (not exceeding 60 days) if Homestead furnishes
PTR with a certificate signed by the Chairman of the Board or the President
of Homestead stating that, in its good faith judgment, Homestead's Board of
Directors has determined that effecting the registration at such time would
adversely affect a material financing, acquisition, disposition of assets
or stock, merger or other comparable transaction or would require Homestead
to make public disclosure of information the public disclosure of that
would have a material adverse effect upon Homestead.
(e) Expenses. All expenses incurred in the registration of
Registrable Securities under this Agreement shall be paid by Homestead.
The expenses shall include, without limitation, the expenses of preparing
the registration statement and the prospectus used in connection therewith
and any amendment or supplement thereto, printing and photocopying
expenses, all registration and filing fees under Federal and state
securities laws, and expenses of complying with the securities or blue sky
laws of any jurisdictions, provided, however, that PTR shall be responsible
for the fees and disbursements of its own counsel.
(f) Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 3:
(i) Indemnity by Homestead. Without limitation of any other
indemnity provided to PTR, to the extent permitted by law, Homestead
will indemnify and hold harmless PTR and its officers, trustees and
any individual, partnership, corporation, trust, unincorporated
organization or other entity (a "Person") if any, who controls PTR
(within the meaning of the Securities Act or the Exchange Act),
against any losses, claims, damages, liabilities and expenses (joint
or several) to which they may become subject under the Securities Act,
the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, liabilities and expenses (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact
contained in any registration statement (including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto), (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading, or (iii) any violation or alleged
violation by Homestead of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law, and
Homestead will reimburse PTR and its officers, trustees and any
controlling person thereof for any reasonable legal or other expenses
incurred by them in connection with
-4-
<PAGE>
investigating or defending any such loss, claim, damage, liability,
expense or action; provided, however, that Homestead shall not be
liable in any such case for any such loss, claim, damage, liability,
expense or action to the extent that it arises out of or is based upon
a Violation that occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with
such registration by PTR or any officer, trustee or controlling person
thereof.
(ii) Indemnity by PTR. In connection with any registration
statement in which PTR is participating, PTR will furnish to Homestead
in writing such information and affidavits as Homestead reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, will indemnify
Homestead, its directors and officers and each Person who controls
Homestead (within the meaning of the Securities Act or Exchange Act)
against any losses, claims, damages, liabilities and expenses
resulting from any Violation, but only to the extent that such
Violation is contained in any information or affidavit so furnished in
writing by PTR; provided, that the obligation to indemnify will be
several and not joint and several with any other Person and will be
limited to the net amount received by PTR from the sale of Registrable
Securities pursuant to such registration statement.
(iii) Notice; Right to Defend. Promptly after receipt by an
indemnified party under this Section 3(f) of notice of the
commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 3(f), deliver to the
indemnifying party a written notice of the commencement thereof and
the indemnifying party shall have the right to participate in, and, if
the indemnifying party agrees in writing that it will be responsible
for any costs, expenses, judgments, damages and losses incurred by the
indemnified party with respect to such claim, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying
party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party
under this Section 3(f) only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission so
to deliver written notice to the indemnifying party will not relieve
it
-5-
<PAGE>
of any liability that it may have to any indemnified party other than
under this Section 3(f).
(iv) Contribution. If the indemnification provided for in this
Section 3(f) is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss,
liability, claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage
or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the
indemnified party on the other hand in connection with the statements
or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The
relevant fault of the indemnifying party and the indemnified party
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Notwithstanding the
foregoing, the amount PTR shall be obligated to contribute pursuant to
this Section 3(f)(iv) shall be limited to an amount equal to the
aggregate value of the Registrable Securities distributed by PTR
pursuant to the registration statement which gives rise to such
obligation to contribute (less the aggregate amount of any damages
which PTR has otherwise been required to pay in respect of such loss,
claim, damage, liability or action or any substantially similar loss,
claim, damage, liability or action arising from the distribution of
such Registrable Securities).
(v) Survival of Indemnity. The indemnification provided by this
Section 3(f) shall be a continuing right to indemnification and shall
survive the registration and sale of any securities by any Person
entitled to indemnification hereunder and the expiration or
termination of this Agreement.
(g) Limitations on Registration Rights.
(i) Homestead shall not, without the prior written consent of
PTR, include in any registration in which PTR has a right to
participate pursuant to this Agreement any securities of any Person
other than Atlantic and PTR.
(ii) PTR shall not, without the prior written consent of
Homestead, effect any public sale or distribution (including sales
pursuant to Rule 144 under the Securities Act) of securities of
Homestead during any period commencing 30 days prior to and ending 60
days after the effective date any registration statement filed
-6-
<PAGE>
by Homestead on behalf of any Person (including Homestead), other than
a registration statement on Form S-8 or any successor form.
(h) Registrable Security. The term Registrable Security means (i)
any shares of Common Stock issuable to PTR pursuant to the conversion of
notes issuable pursuant to the terms of the Funding Commitment Agreement or
otherwise held by PTR, (ii) any other shares of Common Stock owned by PTR
and (iii) any shares of Common Stock or other securities that may
subsequently be issued with respect to such shares of Common Stock as a
result of a stock split or dividend or any sale, transfer, assignment or
other transaction by Homestead involving the shares of Common Stock and any
securities into which the shares of Common Stock may thereafter be changed
as a result of merger, consolidation, recapitalization or otherwise. As to
any particular Registrable Securities, such securities will cease to be
Registrable Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act. All
Registrable Securities shall cease to be Registrable Securities when all
such securities may be sold in any three-month period pursuant to Rule 144,
or any successor to such rule, under the Securities Act.
Section 4. File Reports. For so long as PTR owns any Registrable
Securities, Homestead shall file on a timely basis all annual, quarterly and
other reports required to be filed by it under Section 13 and 15(d) of the
Exchange Act, and the rules and regulations of the Commission thereunder, as
amended from time to time.
Section 5. Miscellaneous.
(a) Survival of Covenants. All covenants contained herein shall survive
the execution of this Agreement and shall remain in full force and effect until
terminated in accordance with this Agreement.
(b) 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.
(c) 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):
-7-
<PAGE>
If to Homestead:
Homestead Village Properties 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
(d) 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.
(e) Amendment. This Agreement may be amended only by a writing duly
executed by both Homestead and PTR.
(f) 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.
(g) Entire Agreement. This Agreement constitutes the entire agreement,
and supersedes all other prior agreements and understandings, both written and
oral, between the parties hereto and their affiliates, with respect to the
subject matter hereof.
(h) 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.
(i) Captions. The 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.
-8-
<PAGE>
(j) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
(k) Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Maryland.
(l) 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.
* * * * *
-9-
<PAGE>
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 PROPERTIES
INCORPORATED
By: __________________________
David C. Dressler, Jr.
Chairman
SECURITY CAPITAL PACIFIC TRUST
By: __________________________
C. Ronald Blankenship
Chairman
-10-
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement"), is made in Boston, Massachusetts,
this _____ day of _________, 1996, among Homestead Village Properties
Incorporated, a Maryland corporation ("Homestead"), Security Capital Group
Incorporated, a Maryland corporation ("SCG"), and State Street Bank and Trust
Company, a national banking association, as Escrow Agent (in such capacity, the
"Escrow Agent").
WHEREAS, Homestead and SCG have entered into a Merger and Distribution
Agreement, dated as of May 21, 1996 (the "Merger Agreement"), pursuant to which,
among other things, SCG will be entitled to receive certain shares of common
stock, $0.01 par value per share (the "Common Stock"), of Homestead;
WHEREAS, a portion of the shares of Common Stock (the "Escrowed Shares")
issuable to SCG are payable based upon the projected value of certain expected
cash flows contributed in connection with the Merger Agreement by SCG (or one of
its subsidiaries) to Homestead with respect to certain properties of Homestead
which are not currently operational (individually, a "Property" and
collectively, the "Properties");
WHEREAS, pursuant to the Merger Agreement, the Escrowed Shares shall be
delivered into the escrow created hereby;
WHEREAS, the number of Escrowed Shares and the pro rata share (the "Pro
Rata Share") of such Escrowed Shares attributable to each Property are set forth
on Schedule I hereto;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
Section 1. Escrow.
Section 1.1 Creation of Escrow. Homestead has delivered, concurrently
with the execution of this Agreement, to the Escrow Agent, to be held in escrow
pursuant hereto, a stock certificate, registered in the name of the Escrow Agent
(as nominee for the beneficial owners of such shares), representing the Escrowed
Shares and the Escrow Agent has delivered a receipt therefor to SCG. The parties
hereto agree and acknowledge that SCG is the beneficial owner of the Escrowed
Shares, and the certificate relating thereto is registered in the name of the
Escrow Agent merely as a matter of administrative convenience pending the
determination pursuant to this Agreement of the number of Escrowed Shares to be
retained by SCG by delivery from the Escrow Agent.
Section 1.2 Disbursement of Escrowed Shares. On January 1, 2000, or the
first business day thereafter, the Escrow Agent shall (i) deliver to The First
National Bank of Boston,
<PAGE>
the transfer agent for the Common Stock (the "Transfer Agent"), a certificate
representing the Escrowed Shares which have not been the subject of a prior SCG
Funding Certificate, with instructions for the Transfer Agent to cancel such
shares on the records of the Transfer Agent and (ii) deliver to Homestead the
Pro Rata Share of the Proceeds (as defined below) with respect to such Escrowed
Shares.
Section 1.3 Notice by SCG. In the event that SCG from time to time
delivers to the Escrow Agent a certificate (a copy of which shall also be
delivered concurrently to Homestead) on or before December 31, 1999 (the
"Termination Date") (each, an "SCG Funding Certificate"), which certificate
shall be substantially in the form of Exhibit A hereto, shall be signed by a
senior officer of SCG and shall (i) set forth that Security Capital Pacific
Trust ("PTR") or Security Capital Atlantic Incorporated ("Atlantic") has
advanced funds to Homestead (or one of its subsidiaries) with respect to a
Property or Properties pursuant to a funding commitment agreement between PTR
and Homestead (or one of its subsidiaries) or between Atlantic and Homestead (or
one of its subsidiaries) (each, a "Funding Commitment Agreement"), (ii) identify
the Property or Properties as to which such funding has been made and (iii) the
number of Escrowed Shares to which each such Property relates, then the Escrow
Agent shall distribute the Escrowed Shares in accordance with this Section 1.3
as follows:
(a) if, within 10 days after receiving an SCG Funding Certificate, the
Escrow Agent shall have received a certificate (the "Hold-Back
Certificate") signed by a senior officer of Homestead, which certificate
shall be substantially in the form of Exhibit B hereto, shall be delivered
concurrently to SCG and shall state (i) the Property or Properties, if any,
identified in the SCG Funding Certificate as to which Homestead believes
were improperly included therein and (ii) the number of Escrowed Shares, if
any, as to which a dispute exists (the "Disputed Shares"), then the Escrow
Agent shall, within 5 business days of receipt of the Hold-Back
Certificate, (A) deliver to the Transfer Agent the certificate representing
the Escrowed Shares with instructions for the Transfer Agent to issue new
certificates (x) to SCG representing, subject to Section 3.3 hereof, the
total number of Escrowed Shares set forth in the Hold-Back Certificate as
to which no dispute exists, and (y) to the Escrow Agent certificates
representing the Disputed Shares and the remaining Escrowed Shares (other
than the shares released to SCG in the previous provision (x)) subject to
this Agreement, (B) deliver to SCG the Pro Rata Share of the Proceeds
relating to the Escrowed Shares as to which no dispute exists and (C)
unless otherwise instructed in writing signed by each of SCG and Homestead,
surrender the Disputed Shares, together with a Pro Rata Share of the
Proceeds relating to such Disputed Shares, to a court for determination of
proper disposition in accordance with the procedures as set forth in
Section 1.4 hereof.
(b) if, within 10 days after receiving an SCG Funding Certificate, the
Escrow Agent shall not have received from Homestead a Hold-Back
Certificate, then the Escrow Agent shall not accept thereafter a Hold-Back
Certificate with respect to the Properties and Escrowed Shares subject to
such SCG Funding Certificate, and shall, within 5
-2-
<PAGE>
business days after the expiration of such 10-day period (i) deliver to the
Transfer Agent the certificate representing the Escrowed Shares with
instructions for the Transfer Agent to issue (A) to SCG a new certificate,
subject to Section 3.3 hereof, in the name of SCG representing the Escrowed
Shares which were the subject of the SCG Funding Certificate and (B)
deliver to the Escrow Agent a certificate representing the remaining
Escrowed Shares and (ii) deliver to SCG a Pro Rata Share of the Proceeds
relating to such Escrowed Shares.
Section 1.4 Interpleader. The Escrow Agent shall, within 60 calendar days
upon receipt of a certificate representing any Disputed Shares, interplead such
shares to any state or Federal court of competent jurisdiction located in
Suffolk County, State of Massachusetts, and such court shall determine whether
such shares are to be delivered to or withheld from SCG pursuant to the terms of
this Agreement. Upon interpleading such shares, SCG and Homestead agree to file
a joint motion permitting the Escrow Agent to be dismissed with prejudice and
all fees and costs of the Escrow Agent, including reasonable attorneys' fees,
shall be paid by Homestead on such date.
2. Substitution of Properties. Homestead may, from time to time prior to
the Termination Date, amend Schedule I to this Agreement to substitute
properties for existing Properties. To amend Schedule I to substitute
Properties, Homestead shall deliver written notice (the "Substitution Notice"),
which notice shall certify that such substitution was made in accordance with
the provisions of a Funding Commitment Agreement, to the Escrow Agent and shall
concurrently furnish a copy of such Substitution Notice to SCG. The Substitution
Notice shall set forth the name of the Property or Properties proposed to be
removed from Schedule I and the name of the Property or Properties proposed to
be substituted therefor. The Property or Properties so substituted shall succeed
to the respective number of Escrowed Shares attributable to the Property or
Properties for which they are substituted; under no circumstances shall any
party hereto be entitled to change or in any way modify the number of Escrowed
Shares to which a Property or Properties relate.
Section 3. Rights of Parties in Respect of Escrowed Shares.
Section 3.1 Distributions. All dividends or other distributions, if any,
and any proceeds thereon (such dividends, distributions and proceeds,
collectively referred to herein as "Proceeds") paid by Homestead in respect of
the Escrowed Shares and delivered to the Escrow Agent shall be retained by the
Escrow Agent for the benefit of SCG with respect to those Escrowed Shares
ultimately issued to SCG pursuant to Section 1.3 and for the benefit of
Homestead with respect to those Escrowed Shares to be returned to Homestead
pursuant to Section 1.2. The Escrow Agent shall invest Proceeds, in accordance
with the written instructions of Homestead, in short-term bank time or demand
deposits, short-term certificates of deposit, short-term United States
government securities or other short-term United States government guaranteed
money instruments and any other investment permitted under Rule 15c2-4 under the
Securities Exchange Act of 1934, as amended; provided, however, that such
-3-
<PAGE>
investments shall be made in a manner permitting necessary Proceeds to be
available for transfer in accordance with this Agreement.
Section 3.2 Voting. The Escrow Agent shall vote the Escrowed Shares in
accordance with the written instructions of SCG. In the event that the Escrow
Agent shall not have received written instructions from SCG with respect to all
or any portion of the Escrowed Shares, the Escrow Agent shall not vote such
Escrowed Shares.
Section 3.3 Fractional Shares. SCG shall have no right to receive, and
the Escrow Agent shall not distribute, fractional Escrowed Shares. In the event
that the distribution of any Escrowed Shares would, but for this Section 3.3,
result in SCG receiving fractional shares of Common Stock, (i) the Escrow Agent
shall instruct the Transfer Agent to issue a certificate in SCG's name for the
number of Escrowed Shares rounded down to the nearest whole share, (ii) the
Escrow Agent shall instruct the Transfer Agent to issue an additional
certificate representing all fractional share interests and the Escrow Agent
shall thereupon deliver such certificate to Homestead, (iii) Homestead shall
deliver to the Escrow Agent an amount of cash representing the aggregate value
of such fractional share interests (based on the last sale price of a share of
Common Stock on the date of the SCG Funding Certificate), and (iv) the Escrow
Agent shall deliver to SCG cash or a check representing SCG's fractional share
interest.
Section 4. General Terms.
Section 4.1 Definitions. All capitalized terms used but not otherwise
defined herein shall have the meanings ascribed thereto in the Merger Agreement.
Section 4.2 Concerning the Escrow Agent.
(a) If at any time the Escrow Agent shall receive conflicting
notices, claims, demands or instructions or if for any reason it shall be
unable in good faith to determine the party or parties entitled to receive
all or any portion of the Escrowed Shares, the Escrow Agent may refuse to
deliver the Escrowed Shares to the Transfer Agent and shall interplead the
Escrowed Shares as described in Section 1.4 hereof.
(b) Homestead and SCG, jointly and severally, shall indemnify and
hold harmless the Escrow Agent for losses and expenses it incurs, including
reasonable attorneys' fees, in connection with any dispute hereunder or
under the Merger Agreement. This indemnity shall include, but not be
limited to, all costs incurred in connection with any interpleader which
the Escrow Agent may enter into regarding this Agreement; provided,
however, that if it is ultimately determined that SCG is not entitled to
any Escrowed Shares that were interplead, SCG shall reimburse Homestead for
all such costs. In no instance shall the Escrow Agent be bound by the terms
of the Merger Agreement, the Funding Commitment Agreement or any other
agreement by or among the parties to this
-4-
<PAGE>
Agreement or charged with knowledge of the terms thereof or have any duty
to comply with or determine compliance with the terms thereof.
(c) Homestead and SCG, jointly and severally, agree to assume any and
all obligations imposed now or hereafter by any applicable tax law with
respect to the payment of Escrowed Shares under this Agreement, and to
indemnify and hold the Escrow Agent harmless from and against any taxes,
additions of late payment, interest, penalties and other expenses, that may
be assessed against the Escrow Agent on any such payment or other
activities under this Agreement. Homestead and SCG undertake to instruct
the Escrow Agent in writing with respect to the Escrow Agent's
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting in
connection with its acting as Escrow Agent under this Agreement. Homestead
and SCG, jointly and severally, agree to indemnify and hold the Escrow
Agent harmless from any liability on account of taxes, assessments or other
governmental charges, including without limitation the withholding or
deduction or the failure to withhold or deduct same, and any liability for
failure to obtain proper certifications or to properly report to
governmental authorities, to which the Escrow Agent may be or become
subject in connection with or which arises out of this Agreement, including
costs and expenses (including reasonable legal fees and expenses), interest
and penalties. Notwithstanding the foregoing, no distributions will be made
unless the Escrow Agent is supplied with an original, signed W-9 form or
its equivalent prior to distribution.
(d) In performing any of its duties under this Agreement, neither the
Escrow Agent nor any of its directors, officers or employees shall be
liable to the parties hereto for any losses which may be incurred by such
other parties as a result of the Escrow Agent or any of its directors,
officers or employees so acting (or failing to act as a result of a
dispute) and further, the Escrow Agent shall not incur any liability with
respect to any action taken or omitted to be taken in reliance upon advice
of legal counsel or in reliance upon any document delivered in connection
herewith which the Escrow Agent in good faith believes to be valid,
including any of the certificates described herein and included as Exhibits
hereto. In no event shall the Escrow Agent be liable for indirect,
punitive, special or consequential damages.
(e) It is understood and agreed that the duties of the Escrow Agent
are purely ministerial in nature and that it shall not be liable for any
error of judgment, fact or law or any act done or omitted to be done except
for its own willful misconduct or gross negligence. With respect to this
Agreement, the Escrow Agent shall not be required to determine whether an
event or condition hereunder has occurred, been met or satisfied, or as to
whether a provision of this Agreement has been complied with or as to
whether sufficient evidence of the event or condition or compliance with
the provision has been furnished to it. No action in compliance with the
terms of this Agreement, including interpleader, shall subject the Escrow
Agent to any claim, liability or obligation
-5-
<PAGE>
whatsoever, even if it shall be found that such action was improper or
incorrect provided only that the Escrow Agent shall not have been guilty of
willful misconduct or gross negligence in making such determination. The
recitals of this Agreement shall not be deemed to be made or represented to
by the Escrow Agent.
(f) Homestead and SCG acknowledge and agree that the Escrow Agent (i)
shall not be responsible for any of the agreements referred to herein but
shall be obligated only for the performance of such duties as are
specifically set forth in this Agreement, (ii) shall not be obligated to
take any legal or other action hereunder which might in its judgment
involve any expense or liability unless it shall have been furnished with
acceptable indemnification; (iii) may rely on and shall be protected in
acting or refraining from acting upon any written notice, instruction,
instrument, statement, request or document furnished to it hereunder and
believed by it to be genuine and to have been signed or presented by the
proper person, and shall have no responsibility for determining the
accuracy thereof, and (iv) may consult counsel satisfactory to it,
including house counsel, and the opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in accordance with
the opinion of such counsel.
(g) The Escrow Agent shall have no more or less responsibility or
liability on account of any action or omission of any book-entry depository
or subescrow agent employed by the Escrow Agent than any such book-entry
depository or subescrow agent has to the Escrow Agent, except to the extent
that such action or omission of any book-entry depository or subescrow
agent was caused by the Escrow Agent's own gross negligence or bad faith.
(h) All representations and indemnifications contained in this
Agreement shall survive the termination of this Agreement.
(i) For purposes of this Agreement a "business day" is a day on which
the Escrow Agent is open for business and shall not include a Saturday,
Sunday, or legal holiday. Notwithstanding anything to the contrary in this
Agreement, no action shall be required of the Escrow Agent, Homestead, or
SCG except on a business day and in the event an action is required on a
day which is not a business day, such action shall be required to be
performed on the next succeeding day which is a business day.
(j) All action by the parties hereto shall be performed at the office
of the Escrow Agent.
Section 4.3 Reliance on Instructions. Notwithstanding anything to the
contrary contained in this Agreement, the Escrow Agent shall take any and all
actions as directed by both Homestead and SCG, provided such direction is set
forth in a writing signed by both parties.
-6-
<PAGE>
Section 4.4 Assumed Validity of Documents. The Escrow Agent shall not be
responsible for the sufficiency or accuracy of the form, execution, validity or
genuineness of documents deposited hereunder, or of any endorsement thereon, or
for any lack of endorsement thereon, or for any description therein, nor shall
the Escrow Agent be responsible or liable in any respect on the account of the
identity, authority or right of the persons executing or delivering or
purporting to execute or deliver any such document or endorsement.
Section 4.5 Fees. The Escrow Agent shall be entitled to receive a
reasonable fee for its services and to be reimbursed by Homestead for the
out-of-pocket costs and expenses, including legal fees, incurred by the Escrow
Agent in connection with the preparation of this Agreement and in connection
with the ordinary administration of the escrow, including charges for the
acceptance and disbursement of the Escrowed Shares, including legal fees and
expenses incurred in connection with the administration of the escrow created
hereby which are in excess of its compensation for normal services hereunder,
including without limitation, payment of any legal fees incurred by the Escrow
Agent in connection with resolution of any claim by any party hereunder. The
schedule of fees is set forth in Exhibit C. Homestead shall pay all fees and
expenses of the Escrow Agent under this Agreement.
Section 4.6 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 such other address for a
party as shall be specified by like notice):
If to Homestead:
Homestead Village Properties Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: David C. Dressler, Jr.
Facsimile: (505) 982-2925
If to SCG:
Security Capital Group Incorporated
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Attention: Jeffrey A. Klopf
Facsimile: (505) 988-8920
-7-
<PAGE>
If to the Escrow Agent:
State Street Bank and Trust Company
Corporate Trust Department
P.O. Box 778
Boston, Massachusetts 02102-0778
Attention: John F. Sugden
Facsimile: (617) 664-5724
4.7 Assignment. A party to this Agreement may not, without the prior
written consent of the other parties hereto, directly or indirectly, sell,
transfer, distribute, assign, pledge (other than a bona fide pledge to a lender
for borrowed money for which the lender has recourse to SCG; it being understood
that in no event shall the Escrowed Shares be delivered to any such pledgee
except in accordance with Section 1 hereof), hypothecate, encumber, grant a
security interest in, or grant, issue, sell or convey any option, warrant or
right to acquire or otherwise dispose of this Agreement or any interest herein,
including the Escrowed Shares other than by operation of law; provided, however,
that notwithstanding anything to the contrary contained herein, no consent of
any party shall be required under this Agreement in connection with any merger
to which Homestead is a party.
4.8 Resignation. The Escrow Agent may at any time resign as Escrow Agent
hereunder by giving thirty (30) days' prior written notice of resignation to
Homestead and SCG. Prior to the effective date of the resignation as specified
in such notice, Homestead will issue to the Escrow Agent a written instruction
authorizing redelivery of the Escrow Funds to a bank or trust company that it
selects subject to the reasonable consent of Homestead. Such bank or trust
company shall have a principal office in Boston, Massachusetts, and shall have
capital, surplus and undivided profits in excess of $50,000,000. If, however,
Homestead shall fail to name such a successor Escrow Agent within twenty (20)
days after the notice of resignation from the Escrow Agent, SCG shall be
entitled to name such successor Escrow Agent. If no successor Escrow Agent is
named by Homestead or SCG, the Escrow Agent may apply to a court of competent
jurisdiction for appointment of a successor Escrow Agent.
4.9 Termination. This Agreement shall terminate and be of no further
force and effect upon and after the date that final distribution of the Escrowed
Shares has been made hereunder and all amounts to be distributed have been
distributed or the Escrow Agent has interplead all Escrowed Shares and has been
dismissed as contemplated by Section 1.4 hereof. The provision of Section 4.2
shall survive the termination of this Agreement.
4.10 Applicable Law. This Agreement shall be governed by and interpreted,
construed and enforced in accordance with the internal laws of the Commonwealth
of Massachusetts without reference to its conflict of laws rules.
-8-
<PAGE>
4.11 CONSENT TO JURISDICTION. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED IN SUFFOLK COUNTY, STATE OF MASSACHUSETTS, AS LONG AS SUCH VENUE IS
PROPER, IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY ANY PARTY HERETO WITH
RESPECT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND FURTHER
AGREES THAT NO MOTION RELATING TO FORUM NON CONVENIENS SHALL BE RAISED. IN ANY
SUCH ACTION OR PROCEEDING, HOMESTEAD AND SCG HEREBY ABSOLUTELY AND IRREVOCABLY
WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT, DECLARATION OR OTHER PROCESS
AND HEREBY ABSOLUTELY AND IRREVOCABLY AGREE THAT THE SERVICE THEREOF MAY BE MADE
BY CERTIFIED OR REGISTERED FIRST-CLASS MAIL DIRECTED TO HOMESTEAD AND SCG, AS
THE CASE MAY BE, AT THEIR RESPECTIVE ADDRESSES IN ACCORDANCE WITH SECTION 4.6
HEREOF.
4.12 Counterparts. One or more counterparts of this Agreement may be
signed by the parties, each of which shall be an original but all of which
together shall constitute one and the same instrument.
4.13 Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity and
enforceability of the remaining provisions contained herein shall not be
affected thereby.
4.14 Headings. The headings in this Agreement are for convenience of
reference only and shall not be deemed to alter or affect the meaning or
interpretation of the provisions hereof.
4.15 Amendment. This Agreement may be amended, modified or supplemented
but only in writing signed by each of Homestead, the Escrow Agent and SCG. No
course of conduct shall constitute a waiver of any of the terms and conditions
of this Agreement, unless such waiver is specified in writing, and then only to
the extent so specified. A waiver of any of the terms and conditions of this
Agreement on one occasion shall not constitute a waiver of the other terms of
this Agreement, or of such terms and conditions on any other occasion. This
Agreement shall be binding upon the respective parties hereto and their heirs,
executors, successors and assigns.
4.16 Force Majeure. Neither Homestead nor SCG nor the Escrow Agent shall
be responsible for delays or failures in performance resulting from acts beyond
its control. Such acts shall include but not be limited to acts of God, strikes,
lockouts, riots, acts of war, epidemics, governmental regulations superimposed
after the fact, fire, communication line failures, power failures, earthquakes
or other disasters.
4.17 Reproduction of Documents. This Agreement and all documents relating
thereto, including, without limitation, (a) consents, waivers and modifications
which may hereafter be
-9-
<PAGE>
executed, and (b) certificates and other information previously or hereafter
furnished, may be reproduced by any photographic, photostatic, microfilm,
optical disk, micro-card, miniature photographic or other similar process. The
parties agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproductions of such reproduction shall likewise be admissible in
evidence.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers effective as of the day and year
first above written.
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
By: ____________________________
David C. Dressler, Jr.
Chairman
SECURITY CAPITAL GROUP INCORPORATED
By: ____________________________
Jeffrey A. Klopf
Senior Vice President
STATE STREET BANK AND TRUST COMPANY,
as Escrow Agent
By: ____________________________
Name:
Title:
-11-
<PAGE>
SCHEDULE I
Escrowed Shares
---------------
Property Shares Pro Rata Share
- -------- ------ --------------
<PAGE>
EXHIBIT A
Form of SCG Funding Certificate
-------------------------------
Pursuant to Section 1.3 of that certain Escrow Agreement (the "Escrow
Agreement"), dated as of ___________, 1996 among Homestead Village Properties
Incorporated, a Maryland corporation ("Homestead"), Security Capital Group
Incorporated, a Maryland corporation ("SCG"), and State Street Bank and Trust
Company, a national banking association, as Escrow Agent, the undersigned, being
a senior officer of SCG, hereby certifies that (capitalized terms used but not
expressly defined herein shall have the meanings attributed thereto in the
Escrow Agreement):
1. As of the date hereof, PTR and/or Atlantic has advanced funds to
Homestead with respect to each Property identified below and set forth opposite
such Property are the number of Escrowed Shares and Pro Rata Share to which such
Property relates:
Property Escrowed Shares Pro Rata Share
- -------- --------------- --------------
2. The undersigned is concurrently herewith delivering a copy of this
certificate to Homestead in accordance with the terms of the Escrow Agreement.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this ____ day
of ______________, 199_.
SECURITY CAPITAL GROUP INCORPORATED
By: _________________________
Its: _________________________
Received by:
STATE STREET BANK AND TRUST COMPANY
as Escrow Agent
this _______ day of _____________, 199__
By:________________________
Name:______________________
Title:_____________________
<PAGE>
EXHIBIT B
Form of Hold-back Certificate
-----------------------------
Pursuant to Section 1.3 of that certain Escrow Agreement (the "Escrow
Agreement), dated as of ____________, 1996 among Homestead Village Properties
Incorporated, a Maryland corporation ("Homestead"), Security Capital Group
Incorporated, a Maryland corporation ("SCG"), and State Street Bank and Trust
Company, a national banking association, as Escrow Agent, the undersigned, being
a senior officer of Homestead, hereby certifies that (capitalized terms used but
not expressly defined herein shall have the meanings attributed thereto in the
Escrow Agreement):
1. As of the date hereof, Homestead believes that the Properties set forth
below were improperly included on the SCG Funding Certificate dated ___________,
199_ and that the number of Escrowed Shares set forth opposite such Properties
constitute the "Disputed Shares":
Property Escrowed Shares Pro Rata Share
- -------- --------------- --------------
2. The number of Escrowed Shares (and the Properties to which they relate)
to be released to SCG by the Escrow Agent is as follows:
Property Escrowed Shares Pro Rata Share
- -------- --------------- --------------
3. The undersigned is concurrently herewith delivering a copy of this
certificate to SCG in accordance with the terms of the Escrow Agreement.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this ____ day
of ______________, 199_.
HOMESTEAD VILLAGE PROPERTIES INCORPORATED
By: _________________________
Its: _______________________
Received by:
STATE STREET BANK AND TRUST COMPANY
as Escrow Agent
this _______ day of _____________, 199__
By:__________________________
Name:______________________
Title:_______________________
<PAGE>
EXHIBIT C
Fee Schedule
------------
Acceptance Fee $500
- --------------
Includes review of documents and set up of account. Payable at closing.
Annual Administration Fee $3,000
- -------------------------
Includes administrative services performed according to documents. Payable
annually in advance for each year or part thereof in which State Street Bank and
Trust Company acts as Escrow Agent.
Out-of-Pocket Expenses Billed at cost
- ----------------------
Escrow Transaction Charges Included in Annual
- -------------------------- Administration Fee
Legal Counsel Fees Billed at cost
- ------------------
<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 registration statement on Form S-4 of
Homestead Village Properties Incorporated which includes a prospectus related
to Homestead Village Properties 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 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) the reference to our firm under the heading "Independent Public
Accountants and Experts" in the registration statement.
KPMG Peat Marwick LLP
Chicago, Illinois
May 24, 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 Properties Incorporated that is made a part of the Registration
Statement (Form S-4) of Homestead Village Properties Incorporated dated May
24, 1996.
Ernst & Young LLP
Dallas, Texas
May 24, 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 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 Registration Statement on
Form S-4 and the Prospectus of Homestead Village Properties Incorporated
("Homestead") for the registration of Homestead common stock.
Ernst & Young LLP
West Palm Beach, Florida
May 24, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the PTR-Homestead Village Group financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,931
<SECURITIES> 0
<RECEIVABLES> 799
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,044
<PP&E> 125,187
<DEPRECIATION> (4,316)
<TOTAL-ASSETS> 126,390
<CURRENT-LIABILITIES> 6,742
<BONDS> 77,289
<COMMON> 25,890
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 126,390
<SALES> 0
<TOTAL-REVENUES> 6,868
<CGS> 0
<TOTAL-COSTS> 5,829
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 961
<INCOME-PRETAX> 1,039
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,039
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<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 ___________ __, 1996, at _____a.m., Mountain time, at ______________ 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 Annual 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 ___, 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
