<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HOMESTEAD VILLAGE INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transaction applies:
N/A
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
N/A
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
-------------------------------------------------------------------------
(5) Total fee paid:
N/A
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
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(2) Form, Schedule or Registration Statement No.:
N/A
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(3) Filing Party:
N/A
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(4) Date Filed:
N/A
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Notes:
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
2100 RIVEREDGE PARKWAY
ATLANTA, GEORGIA 30328
----------------
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 1998
To the shareholders:
The 1998 annual meeting of shareholders of Homestead Village Incorporated
("Homestead") will be held on Wednesday, May 27, 1998, at The Renaissance
Waverly Hotel, 2450 Galleria Parkway, Atlanta, Georgia, at 11:00 a.m. (Eastern
Daylight Time) for the following purposes:
1. To elect one Class I Director to serve until the annual meeting of
shareholders in 2001, and until his successor is duly elected and
qualifies; and
2. To transact such other business as properly may come before the
meeting and any adjournment or postponement thereof.
Further information regarding the business to be transacted at the meeting
is given in the accompanying Proxy Statement.
Shareholders of record at the close of business on April 20, 1998 are
entitled to notice of, and to vote at, the meeting.
Please help Homestead by promptly marking, dating, signing and returning the
enclosed proxy card in the envelope provided for your convenience. If you
attend the meeting and decide to vote in person, you may revoke your proxy.
Jeffrey A. Klopf
Secretary
April 29, 1998
YOUR VOTE IS IMPORTANT.
PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
2100 RIVEREDGE PARKWAY
ATLANTA, GEORGIA 30328
----------------
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 1998
----------------
GENERAL INFORMATION
The Board of Directors (the "Board") of Homestead Village Incorporated
("Homestead") is soliciting the accompanying proxy for use at the 1998 annual
meeting of shareholders to be held on May 27, 1998 and at any and all
adjournments or postponements thereof. Any shareholder giving a proxy has the
right to revoke it at any time before it is voted by giving written notice to
the Secretary of Homestead, by delivering to the Secretary of Homestead a duly
executed proxy bearing a later date, or by attending and voting in person at
the meeting. The designated proxy holders will vote shares of Common Stock,
par value $.01 per share (the "Shares"), represented by a proxy which is
received and not revoked. Where the shareholder specifies a choice with
respect to any matter to be acted upon and for which a ballot is provided in
the proxy, the Shares will be voted in accordance with his or her
specifications. If the proxy card is signed and returned without specifying
choices, the Shares will be voted as recommended by the persons appointed as
proxies on the proxy card.
This Proxy Statement and the accompanying proxy card are first being mailed
to shareholders on or about April 29, 1998.
If you are a registered owner and plan to attend the meeting in person,
please detach and retain the admission ticket which is attached to your proxy
card. Beneficial owners who plan to attend the meeting in person may obtain
admission tickets in advance by sending written requests, along with proof of
ownership, such as a bank or brokerage firm account statement, to: Lucinda G.
Marker, Assistant Secretary, Homestead Village Incorporated, 125 Lincoln
Avenue, Santa Fe, New Mexico 87501. Record owners and beneficial owners
(including the holders of valid proxies therefrom) who do not present
admission tickets at the meeting will be admitted upon verification of
ownership at the admissions counter at the annual meeting.
The cost of soliciting proxies will be borne by Homestead. In addition to
solicitation by mail, and without additional compensation for such services,
proxies may be solicited personally, or by telephone or telegraph, by officers
or employees of Homestead. Homestead will also request banking institutions,
brokerage firms, custodians, trustees, nominees, fiduciaries and other like
parties to forward the solicitation material to the beneficial owners of
Shares held of record by such persons, and Homestead will, upon request of
such record holders, reimburse forwarding charges and expenses.
SHARES OUTSTANDING AND VOTE REQUIRED
At the close of business on April 20, 1998, approximately 38,231,746 Shares
were outstanding. Each Share outstanding on April 20, 1998, the record date
for determination of shareholders entitled to notice of, and to vote at, the
meeting, is entitled to one vote. There is no right to cumulative voting. A
majority of the outstanding Shares represented in person or by proxy will
constitute a quorum at the meeting.
Assuming the existence of a quorum, a plurality of all the votes cast at the
meeting is required to approve the election of the nominee for Director.
Representatives of Homestead's transfer agent will assist Homestead in the
tabulation of the votes. Abstentions and broker non-votes are counted as
Shares represented at the meeting for purposes of determining a quorum.
Abstentions and broker non-votes will have no effect on the outcome of the
election.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 20, 1998, certain information
concerning the beneficial ownership of Shares for (i) each person known to
Homestead to be the beneficial owner of more than 5% of such Shares, (ii) each
director of Homestead, (iii) each Named Executive Officer (defined below) of
Homestead and (iv) the directors and executive officers of Homestead as a
group. Unless otherwise indicated, all of such Shares are owned directly, and
the indicated person or entity has sole voting and investment power and the
address for each such person is Homestead Village Incorporated, 2100 RiverEdge
Parkway, Atlanta, Georgia 30328.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENT OF SHARES(2)
------------------- --------------------- -------------------
<S> <C> <C>
Security Capital Group Incorporated. 54,285,149(3) 82.2%
("Security Capital")
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Security Capital Pacific
Trust("PTR")....................... 19,246,402(4) 33.5
7670 South Chester Street
Englewood, Colorado 80112
Security Capital Atlantic
Incorporated
("ATLANTIC")....................... 8,524,215(4) 18.2
Six Piedmont Center
Atlanta, Georgia 30305
David C. Dressler, Jr............... 27,129(5) *
Michael D. Cryan.................... 29,600(5) *
John P. Frazee, Jr.................. 6,758(6) *
Manuel A. Garcia III................ 38,765(7) *
John C. Schweitzer.................. 8,336(8) *
Gary A. DeLapp...................... 10,000(5) *
Robert W. Frost, Jr................. 11,000(5) *
Ken W. Pierce -- *
All directors and executive officers
as a group (18 persons)............ 159,275 *
</TABLE>
- --------
* Less than 1%
(1) Includes, for PTR and ATLANTIC, all Shares that may be issued upon
conversion of all convertible mortgage notes that may be outstanding upon
full funding under the Funding Commitment Agreements (described below
under "Certain Relationships and Transactions--Funding Commitment
Agreements"). As of April 20, 1998, the principal amounts of the PTR and
ATLANTIC mortgages were approximately $212.5 million and $93.5 million,
respectively, and were convertible into 18,482,215 and 8,131,546 Shares,
respectively.
(2) Assumes (i) in the case of PTR and ATLANTIC, that PTR or ATLANTIC, as
applicable, has converted all convertible mortgages that may be
outstanding under the Funding Commitment Agreements and that no other
person has converted or exercised any outstanding convertible or
exercisable securities, (ii) in the case of Security Capital, that each of
PTR and ATLANTIC has converted all convertible mortgages that may be
outstanding under the Funding Commitment Agreements, and that no other
person has converted or exercised any outstanding convertible or
exercisable securities and (iii) in the case of each other person, that
such person has exercised all options owned by him or her and that no
other person has converted or exercised any outstanding convertible or
exercisable securities.
(3) Excludes 182,922 Shares held in escrow for Security Capital pursuant to
the Escrow Agreement (described below under "Certain Relationships and
Transactions--Escrow Agreement"). Includes 19,246,402 Shares beneficially
owned by PTR and 8,524,215 Shares beneficially owned by ATLANTIC upon
conversion of
2
<PAGE>
convertible mortgages. As a result of its ownership of approximately 32.9%
of PTR's outstanding common shares and approximately 49.9% of ATLANTIC's
outstanding common stock and Security Capital's contractual arrangements
with PTR and ATLANTIC, Security Capital may be deemed to beneficially own
all Shares owned by PTR and ATLANTIC. 24,602,638 Shares are owned of record
by SC Realty Incorporated, a wholly owned subsidiary of Security Capital,
and all such Shares are pledged to secure a $700 million revolving line of
credit facility with a syndicate of banks. As of April 20, 1998, there were
approximately $351 million of borrowings outstanding under the line of
credit. The line of credit is also secured by securities owned indirectly
by Security Capital of PTR, ATLANTIC, Security Capital Industrial Trust and
Security Capital U.S. Realty, a publicly traded entity based in Luxembourg
that is affiliated with Security Capital and which invests in real estate
operating companies in the United States. Security Capital estimates that
the aggregate market value of the pledged securities exceeded $3.6 billion
as of April 20, 1998. Security Capital was in compliance with all covenants
under the line of credit as of December 31, 1997.
(4) All such Shares are issuable upon conversion of convertible mortgages.
(5) Except for 2,129 Shares owned by Mr. Dressler and 4,600 Shares owned by
Mr. Cryan, all such Shares were purchased, subject to certain
restrictions, pursuant to the Homestead Village Incorporated 1996 Long-
Term Incentive Plan. Although the shareholder has all voting rights with
respect to such Shares, during the restricted period, such Shares may not
be sold, assigned, transferred, pledged or otherwise encumbered.
(6) Includes options to purchase 4,000 Shares.
(7) Includes 11,022 Shares held by a trust of which Mr. Garcia is a trustee
and options to acquire 2,000 Shares.
(8) Includes 2,226 Shares held by a partnership of which Mr. Schweitzer is a
general partner and 846 Shares held by a corporation that Mr. Schweitzer
owns and options to acquire 2,000 Shares.
3
<PAGE>
ELECTION OF DIRECTOR
The Shares represented by the accompanying proxy will be voted to elect Mr.
Cryan as a Class I Director. Mr. Cryan, if elected, will serve as a Director
until the annual meeting of Shareholders in 2001. The other individuals listed
below as "Continuing Directors" will continue to serve as Directors as
follows: Messrs. Frazee and Schweitzer, as Class II Directors, until the
annual meeting in 1999, and Messrs. Dressler and Garcia, as Class III
Directors, until the annual meeting in 2000. Any vacancies occurring during
any calendar year will be filled by the remaining Directors in office. Any
Director elected by the Directors to fill a vacancy will hold office until the
next annual meeting of shareholders, at which time the shareholders will elect
a Director to fill the unexpired term of the class of Directors in which the
vacancy occurred. Should the nominee named below become unavailable for
election, which is not anticipated, the Shares represented by the accompanying
proxy will be voted for the election of another person recommended by the
Board.
<TABLE>
<CAPTION>
DIRECTOR BUSINESS EXPERIENCE AND TERM
TO BE ELECTED AGE DIRECTORSHIPS OF PUBLICLY HELD COMPANIES EXPIRES
------------- --- ---------------------------------------- -------
<C> <C> <S> <C>
Michael D. Cryan 47 Director of Homestead since October 1996; 2001
Co-Chairman and Chief Operating Officer of
Homestead since October 1996, where he has
overall responsibility for operations;
formerly with ITT Sheraton Corporation from
August 1986 to August 1996, where his most
recent position held was Director,
Executive Vice President and Chief
Financial Officer.
<CAPTION>
CONTINUING
DIRECTORS
----------
<C> <C> <S> <C>
David C. Dressler, Jr. 44 Director of Homestead since January 1996; 2000
Co-Chairman and Chief Investment Officer of
Homestead since May 1996 and President
since January 1996, where he oversees all
investment and capital allocation
decisions; Co-Chairman of Security Capital
Investment Research Incorporated from March
1995 to May 1996; Managing Director of SCG
Multifamily Development from January 1994
to August 1995; Managing Director of PTR
from May 1993 to May 1996 and Director of
Security Capital Pacific Incorporated from
February 1995 to January 1997; Managing
Director of Security Capital (Atlantic)
Incorporated from April 1992 to May 1996.
John P. Frazee, Jr. 53 Director of Homestead since May 1996; 1999
Director, Chairman, President and Chief
Executive Officer of Paging Network
Incorporated (a provider of wireless
messaging and wireless information
services) since August 1997; formerly
President and Chief Operating Officer of
Sprint Corporation and, prior to the March
1993 merger of Sprint and Centel
Corporation, Chairman and Chief Executive
Officer of Centel Corporation, a major
telecommunications company he joined in
1972. Mr. Frazee is a Director of Security
Capital, Cable Satellite Public Affairs
Network ("C-SPAN"), Dean Foods Company and
Nalco Chemical Company. Mr. Frazee is also
a Director of the Foundation for
Independent Higher Education and a Life
Trustee of Rush-Presbyterian-St. Luke's
Medical Center. Mr. Frazee is also a
National Trustee of the Newberry Library.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CONTINUING BUSINESS EXPERIENCE AND TERM
DIRECTORS AGE DIRECTORSHIPS OF PUBLICLY HELD COMPANIES EXPIRES
---------- --- ---------------------------------------- -------
<C> <C> <S> <C>
Manuel A. Garcia III 54 Director of Homestead since April 1997; 2000
Chief Executive Officer of Davgar
Restaurants, Inc. since May 1969 where he
is the owner/operator of ten Burger King
Restaurants in central Florida, five
Pebbles Restaurants, Harvey's Bistro and
Manuel's on the 28th Restaurant in Orlando,
Florida; Director of ATLANTIC, The
Foundation for Orange County Public
Schools, and National Director of Cities in
Schools. Mr. Garcia is also on the Board of
Directors of the National Conference of
Christians and Jews and is an Honorary
Director of the Boys' Clubs and Boy Scouts
of Central Florida. In addition, Mr. Garcia
was a member of former President Bush's
Drug Advisory Council.
John C. Schweitzer 53 Director of Homestead since April 1997; 1999
General Partner, G.P. Campbell Capital Ltd.
(real estate and investments) since 1976;
Managing Partner, Continental Properties
Company, Austin, Texas (real estate and
investments) since 1976; Trustee, PTR,
Pacific Retail Trust and Texas Christian
University; Director, Austin Smiles,
Westgate Corp., Chase Bank Texas, and
Continental Transmissions.
</TABLE>
Security Capital has the right to nominate up to two Directors, depending
upon its level of beneficial ownership of Shares. See "Certain Relationships
and Transactions--Security Capital Investor Agreement." Mr. Cryan is the
nominee of Security Capital and Mr. Dressler was the nominee of Security
Capital in connection with the election of directors at the annual meeting of
shareholders held on May 28, 1997. In addition, PTR and ATLANTIC each have the
right to nominate up to one Director, depending upon the principal amount of
loans made pursuant to their respective funding commitment agreements with
Homestead. See "Certain Relationships and Transactions--ATLANTIC and PTR
Investor Agreements." In connection with the election of directors at the 1997
annual meeting, Mr. Schweitzer was the nominee of PTR and Mr. Garcia was the
nominee of ATLANTIC. Homestead's Restated Charter requires that a majority of
the Directors be independent Directors.
MEETINGS AND COMMITTEES
The Board held nine meetings during 1997, including five telephonic
meetings.
The Audit Committee of the Board was formed in December 1996 and consists of
Messrs. Frazee and Schweitzer. The Audit Committee makes recommendations
concerning the engagement of independent public accountants, reviews the plans
and results of the audit engagement with the independent public accountants,
approves professional services provided by the independent public accountants,
reviews the independence of the independent public accountants, considers the
range of audit and non-audit fees and reviews the adequacy of Homestead's
internal accounting controls. The Audit Committee held one meeting during
1997.
The Compensation Committee was formed in December 1996 and, from then until
September 1997, reviewed and approved the compensation arrangements and plans
of Homestead. From December 1996 to September 1997, the Compensation Committee
also administered the Homestead Village Incorporated 1996 Long-Term Incentive
Plan. The Compensation Committee held one meeting during 1997.
The Management Development and Compensation Committee ("MDCC") was formed in
September 1997 to replace the Compensation Committee. The MDCC's members are
Messrs. Frazee, Garcia and Schweitzer. The MDCC reviews and approves the
management development and compensation arrangements of Homestead and
administers the Homestead Village Incorporated 1996 Long-Term Incentive Plan.
The MDCC held one meeting during 1997.
There is no nominating committee of the Board.
During 1997, each Director attended at least 75 percent of the total number
of meetings of the Board and the committees on which such Director served.
5
<PAGE>
DIRECTOR COMPENSATION
Directors who are not employees of Homestead or Security Capital receive
$14,000 per year for serving as a Director and are reimbursed for their travel
and other expenses incurred in connection with attending meetings of the Board
or committees thereof. Outside directors also receive grants of options to
acquire Shares. For 1997, Messrs. Frazee, Garcia and Schweitzer received
$14,000, $9,956 and $9,956, respectively, as well as options to purchase 2,000
Shares each, for their services as Directors.
OUTSIDE DIRECTORS PLAN
Homestead adopted the Homestead Village Incorporated 1996 Outside Directors
Plan, under which up to 100,000 Shares may be subject to options (the "Outside
Directors Plan"). Options granted under the Outside Directors Plan have a five
year term and are immediately exercisable in whole or in part. Options are
granted to each outside director as of the date of each annual meeting of
shareholders of Homestead at an exercise price equal to the fair market value
of the Shares as of those dates. In 1997, options to purchase 2,000 Shares
each, at an exercise price of $17.25 per Share, were granted to Messrs.
Frazee, Garcia and Schweitzer. Options granted under the Outside Directors
Plan provide that the option holder may, in the event of the acquisition of
50% or more of the outstanding Shares as a result of any cash tender offer or
exchange offer (other than one made by Homestead), exercise the options
immediately or surrender the options, or any unexercised option thereof, to
Homestead and receive cash from Homestead equal to the difference between the
exercise price of each option and the per Share price of the tender offer or
exchange offer, multiplied by the number of Shares for which options are held.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table presents the compensation for 1997 and 1996 paid to the
chief investment officer, the chief operating officer and the three other most
highly compensated executive officers of Homestead (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
----------------------------------- --------------------------------
SHARES OF
SECURITY
CAPITAL
CLASS A
COMMON
SHARES STOCK
RESTRICTED UNDERLYING UNDERLYING
NAME AND OTHER ANNUAL STOCK STOCK OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS(1) OPTIONS(#) (#) (2) COMPENSATION
------------------ ---- -------- -------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David C. Dressler, Jr. . 1997 $250,000 $300,000 -- -- 258,058 -- --
Co-Chairman, President 1996 195,000 285,000 -- -- 60,000 439 --
and Chief Investment
Officer
Michael D. Cryan ....... 1997 260,000 290,000 -- -- 258,058 -- --
Co-Chairman and 1996 85,635 65,000 -- -- 50,000 455 --
Chief Operating Officer
(3)
Gary A. DeLapp.......... 1997 200,000 75,000 -- -- 74,710 -- --
Senior Vice President
(4) 1996 127,452 70,000 -- -- 25,000 132 --
Robert W. Frost, Jr. ... 1997 200,000 50,000 -- -- 22,355 -- --
Senior Vice President 1996 175,000 50,000 -- -- 25,000 88 --
Ken W. Pierce........... 1997 166,670 80,000 -- -- 74,532 -- --
Senior Vice President
(5) 1996 -- -- -- -- -- -- --
</TABLE>
- -------
(1) Under the stock purchase program portion of the 1996 Long-Term Incentive
Plan, Homestead permitted the following individuals to purchase Shares,
subject to the following restrictions, at $10.00 per Share (the fair
market value per Share on the purchase date) on October 15, 1996: Mr.
Dressler, 25,000 Shares; Mr. Cryan, 25,000 Shares; Mr. DeLapp, 10,000
Shares; and Mr. Frost, 11,000 Shares. Until the earlier of (i) the second
anniversary of the purchase (October 15, 1998 in the case of all Shares
referred to above), (ii) the date on which the participant terminates
employment with Homestead or its affiliates by reason of death or
disability or (iii) immediately prior to a change-in-control, the Shares
of restricted stock may not be sold, transferred, pledged or otherwise
encumbered. To the extent that Homestead pays dividends on Shares, it will
pay dividends with respect to the foregoing restricted Shares. At December
31, 1997, the fair market values of these individuals' holdings of
restricted Shares were as follows: Mr. Dressler, $376,562; Mr. Cryan,
$376,562; Mr. DeLapp, $150,625; and Mr. Frost, $165,688.
(2) Prior to Homestead becoming an independent company on October 17, 1996,
Security Capital granted Messrs. Dressler, Cryan, DeLapp and Frost options
to acquire $500,000 (at $1,139 per Class A Share), $500,000 ($290,000 at
$1,057 per Class A Share and $210,000 at $1,163 per Class A Share),
$150,000 (at $1,139 per Class A share), and $100,000 (at $1,139 per Class
A Share), respectively, of Class A Shares.
(3) Mr. Cryan joined Homestead on September 1, 1996 and the 1996 compensation
figures reflect the portion of the year he was employed by Homestead.
(4) Mr. DeLapp joined Homestead on February 26, 1996 and the 1996 compensation
figures reflect the portion of the year he was employed by Homestead.
(5) Mr. Pierce joined Homestead on March 1, 1997 and the 1997 compensation
figures reflect the portion of the year he was employed by Homestead.
7
<PAGE>
OPTION GRANTS
During 1997, options for 2,174,061 Shares were granted by the MDCC to 96 key
employees and officers of Homestead. Such options granted consisted of an
aggregate of 1,435,190 Shares at an exercise price equal to $16.19 per Share,
an aggregate of 673,871 Shares at an exercise price range of $16.25 to $17.75
per Share, and an aggregate of 65,000 Shares at an exercise price equal to
$18.19 per Share. The following table sets forth certain information with
respect to individual grants of options to each of the Named Executive
Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
SHARES PERCENT OF EXERCISE
UNDERLYING TOTAL OPTIONS OR
OPTIONS GRANTED TO BASE GRANT DATE
GRANTED(1) EMPLOYEES IN PRICE EXPIRATION PRESENT VALUE
NAME (NUMBER) FISCAL YEAR ($/SHARE) DATE ($)(2)
---- ---------- ------------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
David C. Dressler, Jr... 61,776 2.84% $16.19 December 3, 2007 $ 372,645
196,282 9.03% 16.81 July 11, 2007 1,229,726
Michael D. Cryan........ 61,776 2.84% 16.19 December 31, 2007 372,645
196,282 9.03% 16.81 July 11, 2007 1,229,726
Gary A. DeLapp.......... 74,710 3.44% 16.19 December 3, 2007 450,665
Robert W. Frost, Jr..... 22,355 1.03% 16.19 December 3, 2007 134,850
Ken W. Pierce........... 49,532 2.28% 16.19 December 3, 2007 298,787
25,000 1.15% 17.75 March 3, 2007 165,363
</TABLE>
- --------
(1) The options vest twenty-five percent in each of the second, third, fourth
and fifth years after the date of grant. All options expire ten years
after the date of grant.
(2) The amounts shown are based on the Black-Scholes option pricing model. The
material assumptions incorporated in the Black-Scholes model in estimating
the value of the options include the following: an expected option life of
5.0 years; a risk-free interest rate of 5.76%; no expected dividend yield;
and expected volatility of 30%. The actual value, if any, an optionee will
realize upon exercise of an option will depend on the excess of the market
value of the Shares over the exercise price on the date the option is
exercised. There can be no assurance that the value realized by an
optionee will be at or near the value estimated by using the Black-Scholes
model.
AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning exercises of
options during 1997 by each of the Named Executive Officers and the year-end
value of unexercised options owned by such executive officers.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT YEAR-END YEAR-END ($)
EXERCISE REALIZED ------------------------- -------------------------
NAME (NUMBER) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David C. Dressler, Jr... None N/A 0 318,058 $ 0 $303,750
Michael D. Cryan........ None N/A 0 308,058 0 253,125
Gary A. DeLapp.......... None N/A 0 99,710 0 126,563
Robert W. Frost, Jr..... None N/A 0 47,355 0 126,563
Ken W. Pierce........... None N/A 0 74,532 0 0
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Homestead has no employment contracts with any Named Executive Officer and
no plans or arrangements by which any such executive officer will be
compensated as a result of his resignation or retirement or any other
termination of his employment with Homestead or in connection with a change in
control of Homestead, except that in the event a "Change in Control," as such
term is defined in the Homestead Village Incorporated 1996 Long-Term Incentive
Plan, occurs, options to purchase Shares become immediately exercisable and
restrictions on purchased Shares lapse.
8
<PAGE>
LOANS TO EXECUTIVE OFFICERS
Homestead loaned each of Mr. Cryan and Mr. Dressler $250,000 on October 15,
1996. Each person used the proceeds of such loans to purchase 25,000
restricted Shares. Such Shares will vest on October 15, 1998. The loans are
due on January 5, 2006, are secured by the Shares and interest accrues at the
lowest rate charged by Morgan Guaranty Trust Company on maturities of 90 days
or less, plus 0.25%. If either Mr. Cryan or Mr. Dressler leaves the employ of
Homestead prior to payment in full of the loan, Homestead will buy back these
Shares at a price of $10 per Share and will refund all payments of interest
made under the loan. At April 20, 1998, the outstanding principal amounts of
the loans and accrued interest due from Mr. Cryan and Mr. Dressler were
$256,393 each.
On September 11, 1997, Security Capital entered into a secured promissory
note and related pledge agreement with Mr. Dressler. Under the terms of the
secured promissory note, Security Capital has agreed to loan Mr. Dressler up
to $1,300,000, which amount is due on the earliest of December 31, 1998, 90
days after the sale of certain real estate owned by Mr. Dressler or 120 days
after Mr. Dressler is no longer an officer of an affiliate of Security
Capital. Interest on the unpaid balance accrues at 7.50% per year and is
payable annually on January 15 each year the secured promissory note is
outstanding. The proceeds of the note were used to pay personal obligations of
Mr. Dressler. The secured promissory note is secured by Class A Shares of
Security Capital and options to purchase Class A Shares of Security Capital
owned by Mr. Dressler. In addition, Mr. Dressler has obtained a life insurance
policy on himself in the amount of $1,300,000, which policy names Security
Capital as beneficiary. Mr. Dressler has also agreed that if he exercises any
options for Security Capital securities prior to repayment of the secured
promissory note, any securities obtained upon exercise of such options shall
become subject to the pledge agreement. The net proceeds (after payment of
minimum withholding taxes) of any securities obtained upon exercise of such
options and disposed of by Mr. Dressler and 50% of Mr. Dressler's share of the
net proceeds of sale of certain real estate owned by Mr. Dressler shall be
immediately applied to the outstanding and unpaid interest and principal on
the secured promissory note.
HOMESTEAD VILLAGE INCORPORATED 1996 LONG-TERM INCENTIVE PLAN
General
Homestead adopted the Homestead Village Incorporated 1996 Long-Term
Incentive Plan (the "Incentive Plan") which contains the following terms and
conditions. The number of Shares which may be awarded under the Incentive Plan
may not exceed 4,000,000 in the aggregate. Shares 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 authorizes the award of stock
grants (which may be subject to restrictions), and performance stock and
authorizes the establishment of one or more stock purchase programs. The
Incentive Plan was administered by the Compensation Committee until September
1997 and by the MDCC thereafter. Subject to the terms of the Incentive Plan,
the MDCC determines 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
Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified stock
options which are not intended to satisfy Section 422 of the Code. Options
become exercisable in accordance with the terms established by the MDCC, which
may include conditions relating to completion of a specified period of service
or achievement of performance standards. Options expire on the date determined
by the MDCC which shall not be later than the earliest to occur of (i) the
tenth anniversary of the grant date, (ii) the first anniversary of the
participant's termination of employment by reason of death, disability or
retirement or (iii) the three month anniversary of the participant's
termination of employment for any other reason. Shares transferred to a
participant pursuant to the exercise of an option may be subject to such
additional restrictions or limitations as the MDCC may determine.
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Under the Incentive Plan, the MDCC may grant awards of Shares to
participants, which are subject to such conditions and restrictions, if any,
as the MDCC determines. During the period a stock award is subject to
restrictions or limitations, the MDCC may award the participant dividend
rights with respect to such Shares. The Incentive Plan also provides that the
MDCC may establish one or more stock programs which may permit purchases of
Shares.
The MDCC may award participants performance stock, the distribution of which
is subject to achievement of performance objectives. The number of Shares and
the performance measures and periods shall be established by the MDCC at the
time the award is made.
Non Qualified Options
Homestead has granted nonqualified options to acquire Shares. In 1997, the
Named Executive Officers and certain other officers and employees of Homestead
received options to purchase an aggregate of 1,435,190 Shares at $16.19 per
Share, an aggregate of 673,871 Shares at a range of $16.25 to $17.75 per
Share, and an aggregate of 65,000 Shares at $18.19 per Share. The options
become exercisable twenty-five percent in each of the second, third, fourth
and fifth years after the date of grant, and expire ten years after the date
of grant. The participants have no rights as shareholders with respect to the
Shares subject to his or her options until the option is exercised. No income
will be recognized by a participant at the time the options are granted. The
exercise of a nonqualified stock option is generally a taxable event that
requires the participant to recognize, as ordinary income, the difference
between the fair market value of the Shares at the time of exercise and the
option price. Homestead ordinarily will be entitled to claim a federal income
tax deduction on account of the exercise of a nonqualified option. The amount
of the deduction is equal to the ordinary income recognized by a participant.
Homestead has adopted Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for its stock options. Therefore, any excess of fair value of the
Shares at the date of grant over the option price has been treated as
compensation expense, recorded over the option period.
Stock Purchase Program
The Incentive Plan provides for a stock purchase program. In 1997, no Shares
were sold under this portion of the Incentive Plan.
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MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The MDCC consists entirely of non-employee directors and is responsible for
acting on behalf of the Board of Directors with respect to (i) Homestead's
compensation practices, (ii) Homestead's benefits programs, (iii) review and
approval of salaries and other compensation of Homestead's senior executive
officers and (iv) adopting, administering and approving awards under incentive
compensation and stock plans. The MDCC determines the Chief Investment
Officer's compensation, the Chief Operating Officer's compensation and the
compensation of the Named Executive Officers and other executive officers of
Homestead based upon the recommendations of senior management.
COMPENSATION PHILOSOPHY
Homestead's compensation program is designed to:
. Attract, reward and retain highly qualified executives.
. Align shareholder and employee interests.
. Reward long-term career contributions to Homestead.
. Emphasize the variable portion of total compensation (cash and stock) as
an individual's level of responsibility increases.
. Encourage teamwork focused on guest and employee satisfaction as well as
financial performance.
The MDCC is committed to a compensation philosophy that rewards employees on
the basis of Homestead's success in attaining corporate financial objectives
as well as on the basis of the employees' success in attaining individual
financial and qualitative performance objectives.
COMPENSATION PRACTICES
Homestead's compensation practices regarding its executive officers have the
following components:
. Individual performance reviews every 12 months.
. Base salary which is paid annually and reviewed every 24 months.
. A target bonus which is set, but an actual bonus which is paid in
varying percentages of the target bonus (based upon individual and
company performance) every 12 months, and which is reviewed every 24
months.
. Option awards at fair market value which are annual awards based upon
the responsibility band of the executive and an individual performance
assessment.
Performance Reviews
With respect to 1997 compensation for individual executive officers, the
MDCC reviewed Homestead's financial performance, as well as objective factors
and a subjective assessment of the executive's performance. In the case of
particular individuals, circumstances unique to such individual, such as
increased responsibilities or extraordinary effort, were also considered. The
MDCC also retained the services of an independent compensation consultant to
assist its members in evaluating the compensation for Homestead's executive
officers.
Base Salary
With respect to the executive officers of Homestead, the MDCC bases its
salary compensation decisions primarily on its overall assessment of the
executive's potential contribution to Homestead on both a short-term and long-
term basis and competitive market perspectives for the executive officer's
compensation. Base salary is established when an executive officer joins
Homestead and is reviewed in December of even years. The next salary review
will occur in late 1998, and will become effective January 1999.
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Annual Bonus
The MDCC establishes target bonuses for each executive officer every 24
months (at the same time that base salary is established). The actual
percentage of target bonus for each year is up to the discretion of the MDCC.
The actual amount of a bonus is based primarily on the individual's
performance in the prior year.
Option Awards
The MDCC believed it was appropriate in 1997 to make long-term incentive
awards to Homestead's executive officers. Option awards have been awarded
annually since Homestead was founded and constitute a major component of
senior executive compensation. In arriving at the 1997 award levels, the MDCC
gave consideration to the executive's relative position, responsibilities and
performance.
The purpose of the awards is to furnish long-term incentives to executive
officers to build shareholder value and to motivate and retain the personnel
critical to Homestead's long-term success. Awards vest over a five-year
period, with no awards vested until the end of the second anniversary of the
grant. It is the intention of the MDCC to continue to emphasize long-term
incentives in the compensation provided to Homestead's executive officers.
CHIEF INVESTMENT OFFICER AND CHIEF OPERATING OFFICER COMPENSATION
The MDCC meets annually without the Chief Investment Officer or the Chief
Operating Officer present to evaluate their individual performance and to
determine their compensation. In considering Mr. Dressler's and Mr. Cryan's
compensation, the MDCC considers their principal responsibilities, which are
to provide the overall vision and strategic direction for Homestead, to
attract and retain highly qualified employees and to develop and maintain key
capital relationships for Homestead.
In reviewing and determining Mr. Dressler's and Mr. Cryan's compensation for
1997, the MDCC reviewed the overall performance of Homestead and their
respective individual performances. During 1997, Homestead successfully went
through several significant changes which the MDCC believed Mr. Dressler and
Mr. Cryan were instrumental in achieving. Homestead completed its first full
year as a public company, and expanded its operations into new areas of the
United States, namely the West Coast, Northeast and Central regions. As a
result, Homestead's earnings before depreciation, amortization and deferred
taxes ("EBDADT") nearly doubled, from $10.8 million for the year ended
December 31, 1996 to $19.4 million for the year ended December 31, 1997. Each
of these developments was considered by the MDCC in determining Mr. Dressler's
and Mr. Cryan's compensation.
Based on their individual contributions as well as Homestead's performance,
during 1997 Mr. Dressler received a base salary of $250,000 and a bonus of
$300,000 and Mr. Cryan received a base salary of $260,000 and a bonus of
$290,000. The MDCC determined to award Mr. Dressler and Mr. Cryan options to
acquire 258,058 Shares each. The long-term incentives received by Mr. Dressler
and Mr. Cryan are in the form of stock options which are identical in
structure to those that are offered to Homestead's other officers and key
employees.
The MDCC expects to conduct a complete review of Homestead's compensation
practices during 1998 to determine whether the compensation philosophy,
general amounts and combination of base salary, target bonus and options
should be materially changed.
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Section 162(m)
The MDCC is aware of the limitations imposed by Section 162(m) of the
Internal Revenue Code of 1986, as amended, on the deductibility of
compensation paid to certain senior executives to the extent it exceeds
$1 million per executive. The law exempts compensation paid under plans that
relate compensation to performance. Although Homestead's plans are designed to
relate compensation to performance, certain elements of the plans do not meet
the tax law's requirements because they allow the MDCC to exercise discretion
in setting compensation. It may be appropriate in the future to recommend
changes in Homestead's compensation program to take account of the tax law.
However, the MDCC is of the opinion that it is better to retain discretion
than to give it up in exchange for the tax deduction.
*******
This report is submitted by the members of the MDCC: John P. Frazee, Jr.,
Manuel A. Garcia III, and John C. Schweitzer.
The Report of the Management Development and Compensation Committee on
Executive Compensation and related disclosure, including the Performance
Graph, shall not be deemed incorporated by reference by any general statement
incorporating this Proxy Statement into any filing under the Securities Act of
1933 or under the Securities Exchange Act of 1934, except to the extent
Homestead specifically incorporates this information by reference, and shall
not otherwise be deemed filed under such Acts.
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PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Shares against the cumulative
total return of the Standard & Poor's Composite--500 Stock Index and the S&P
Hotel Index for the period commencing October 31, 1996, the date that the
Shares were first traded on a when-issued basis, and ending December 31, 1997.
The Share price performance shown on the graph is not necessarily indicative
of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)
HOMESTEAD COMMON SHARES, S&P COMPOSITE-500 STOCK INDEX &
S&P HOTEL INDEX
LOGO
<TABLE>
<CAPTION>
OCTOBER 31, 1996(2) DECEMBER 31, 1996 DECEMBER 31, 1997
------------------- ----------------- -----------------
<S> <C> <C> <C>
Homestead............... $100.00 $104.35 $ 87.32
S&P 500................. 100.00 105.43 140.60
S&P Hotel............... 100.00 96.36 129.93
</TABLE>
- --------
(1) Assumes that the value of the investment in Shares and each index was $100
on October 31, 1996 and that all dividends were reinvested.
(2) The Shares commenced trading on October 31, 1996 on a when-issued basis.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
THE MERGERS
On May 21, 1996, ATLANTIC, PTR, Security Capital and Homestead entered into
a merger agreement, pursuant to which each of ATLANTIC, PTR and Security
Capital agreed to contribute, through a series of merger transactions, all of
their respective assets relating to Homestead Village properties to Homestead
in exchange for Shares, ATLANTIC and PTR agreed to enter into the Funding
Commitment Agreements and Security Capital provided funding for Homestead
acquisitions prior to the closing, all in exchange for warrants to purchase
Shares ("Warrants"). All of the Warrants have either been exercised or have
expired unexercised. ATLANTIC's and PTR's respective shareholders approved the
Homestead transaction on September 13, 1996 and September 12, 1996,
respectively, and the closing of the Homestead transaction occurred on October
17, 1996, which resulted in (i) ATLANTIC (a) owning 4,201,220 Shares, (b)
owning 2,818,517 Warrants each to purchase one Share at $10.00 per Share, (c)
agreeing to provide funding beyond the merger date of approximately $111
million to Homestead in exchange for up to approximately $98 million in
convertible mortgage notes and (d) providing a cash payment of approximately
$16.5 million to Homestead on the closing date; (ii) PTR (a) owning 9,485,727
Shares, (b) owning 6,363,789 Warrants each to purchase one Share at $10.00 per
Share and (c) agreeing to provide funding beyond the merger date of
approximately $138 million to Homestead in exchange for up to approximately
$154 million in convertible mortgage notes and (iii) Security Capital (a)
owning 4,062,788 Shares and (b) owning 817,694 Warrants each to purchase one
Share at $10.00 per Share.
Each of ATLANTIC and PTR distributed the Shares and Warrants which it
received in the Homestead transaction to its shareholders pro rata on November
12, 1996 to shareholders of record on October 29, 1996. Each holder of record
of a share of ATLANTIC's common stock received 0.110875 Shares and Warrants to
purchase 0.074384 Shares and each holder of record of a share of PTR's common
shares received 0.125694 Shares and Warrants to purchase 0.084326 Shares. As a
result of the Homestead transaction, including the distributions by each of
ATLANTIC and PTR, Security Capital owned 9,894,402 Shares and Warrants to
purchase 4,730,022 Shares.
Homestead issued 4,062,788 Shares to Security Capital in exchange for its
assets related to Homestead Village properties, which consisted primarily of
the Homestead Village trademark, and the development and management expertise,
as well as operating systems utilized in the ongoing development and
operations of extended-stay lodging properties. Security Capital received
1,911,896 Shares based on the ratio of actual funding provided at the closing
of the transaction by PTR and ATLANTIC to the total expected funding of PTR
and ATLANTIC. The remaining 2,150,892 Shares were issued to an escrow agent.
As of April 20, 1998, 182,922 of such Shares remain in escrow. The escrowed
Shares will be transferred to Security Capital pro rata upon the completion of
PTR's and ATLANTIC's remaining funding commitments and upon request of
Security Capital. See "--Funding Commitment Agreements." In the event not all
of the funding commitments are provided to Homestead by PTR and ATLANTIC, the
remaining Shares not transferred to Security Capital from escrow will be
returned to Homestead along with the dividends, if any, paid on such Shares.
The escrow agent will vote all Shares held in the escrow account
proportionately in accordance with the vote of all other Homestead
shareholders as instructed by Homestead. In the event that instructions are
not received, the escrow agent will not vote such Shares. See "--Escrow
Agreement."
PROTECTION OF BUSINESS AGREEMENT
Each of PTR, ATLANTIC and Security Capital have entered into a protection of
business agreement, dated as of October 17, 1996 (the "Protection of Business
Agreement"), with Homestead which prohibits PTR, ATLANTIC, Security Capital
and their respective affiliates from engaging, directly or indirectly, in the
extended-stay lodging business in the continental United States except through
Homestead and its subsidiaries. The Protection of Business Agreement also
prohibits Homestead from, directly or indirectly, engaging in the ownership,
operation, development, management or leasing of multifamily properties. The
Protection of Business Agreement does not prohibit any of PTR, ATLANTIC or
Security Capital from: (i) owning securities of
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<PAGE>
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 Security Capital; (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
terminates in the event of an acquisition, directly or indirectly (other than
by purchase from PTR, ATLANTIC and Security Capital or their respective
affiliates (as defined in the Protection of Business Agreement)), by any
person (or group of associated persons acting in concert), other than PTR,
ATLANTIC, Security Capital 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. Subject to earlier termination pursuant to the preceding
sentence, the Protection of Business Agreement will terminate on October 17,
2006.
SECURITY CAPITAL INVESTOR AGREEMENT
Homestead and Security Capital have entered into an investor agreement (the
"Security Capital Investor Agreement") which, among other things, provides
that, without having first consulted with the nominee of Security Capital
designated in writing, Homestead may not seek Board approval of (i)
Homestead's annual budget, (ii) incurring expenses in any year exceeding (A)
any line item in the annual budget by 20% and (B) the total expenses set forth
in the annual budget by 5%, (iii) acquisitions or dispositions in a single
transaction or group of related transactions where the aggregate purchase
price paid or received exceeds $5 million, (iv) new contracts with a service
provider for (A) investment management, property management or leasing
services, or (B) that reasonably contemplates annual contract payments by
Homestead in excess of $200,000, (v) the declaration or payment of any
dividend or other distribution, (vi) the approval of stock option plans, (vii)
the offer or sale of any shares of stock of Homestead or any securities
convertible into shares of stock of Homestead (other than the sale or grant of
any stock or grants of options or exercise of options granted under any
benefit option plan approved by stockholders) and (viii) the incurrence,
restructuring, renegotiation or repayment of indebtedness for borrowed money
in which the aggregate amount involved exceeds $5 million. The Security
Capital Investor Agreement also provides that, so long as Security Capital
owns at least 10% of the outstanding Shares, Homestead may not increase the
number of persons serving on the Board to more than seven without the approval
of Security Capital. Security Capital also will be entitled to designate one
or more persons as directors of Homestead, as follows: (i) so long as Security
Capital owns at least 10% but less than 30% of the outstanding Shares, it is
entitled to nominate one person; and (ii) so long as Security Capital owns at
least 30% of the outstanding Shares, it is entitled to nominate that number of
persons as shall bear approximately the same ratio to the total number of
members of the Board as the number of Shares beneficially owned by Security
Capital bears to the total number of outstanding Shares, provided that
Security Capital shall be entitled to designate no more than two persons so
long as the Board consists of no more than seven members. Any person who is
employed by Security Capital or who is an employee, a 25% shareholder or a
director of any corporation of which Security Capital is a 25% shareholder
(except for Homestead) shall be deemed to be a designee of Security Capital.
The nominee(s) of Security Capital may, but need not, be the same person(s)
nominated by either PTR pursuant to the PTR Investor Agreement or ATLANTIC
pursuant to the ATLANTIC Investor Agreement.
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<PAGE>
The Security Capital Investor Agreement provides Security Capital with
registration rights pursuant to which, in certain specified circumstances,
Security Capital may request, on not more than three occasions, registration
of all of Security Capital's Shares pursuant to Rule 415 under the Securities
Act of 1933 (the "Securities Act").
FUNDING COMMITMENT AGREEMENTS
Pursuant to funding commitment agreements dated October 17, 1996 (the
"Funding Commitment Agreements"), each of PTR and ATLANTIC agreed to make
convertible mortgage loans to Homestead after October 17, 1996 with face
amounts of up to $154,047,877 and $98,028,471, respectively. The obligations
of PTR and ATLANTIC are limited to a specific dollar amount for each property
identified in the respective Funding Commitment Agreements. Upon any
determination by Homestead to commence development of a property identified in
the Funding Commitment Agreement, Homestead is required to notify PTR or
ATLANTIC, as the case may be, and PTR or ATLANTIC, as the case may be, is
required to endeavor in good faith to fund up to the full amount of its
obligation with respect to such property. Homestead is required to complete
the development of such property consistent with the development plans for
such property. Each mortgage loan issued by Homestead pursuant to a Funding
Commitment Agreement is convertible into Shares on the basis of one Share 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 expired 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 May 28,
2001. Homestead has pledged substantially all of the assets contributed by PTR
or ATLANTIC, as the case may be, as collateral for the mortgage loans. As of
April 20, 1998, PTR and ATLANTIC have funded approximately $130.5 million and
$106.0 million, respectively, under their respective Funding Commitment
Agreements since the date of the mergers.
Pursuant to each Funding Commitment Agreement, PTR and ATLANTIC agreed to
provide Homestead aggregate funding on such developments after the merger date
in the amounts of up to approximately $138 million and $111 million,
respectively, which amounts are anticipated to be sufficient to complete the
development of the respective Homestead Village properties contributed by
them. PTR and ATLANTIC will receive convertible mortgage notes in respect of
such fundings with face amounts of up to approximately $154 million and $98
million, respectively. The effect of these provisions is that PTR funds
$898,000 for each $1,000,000 face amount of convertible mortgage loans and
ATLANTIC funds $1,133,535 for each $1,000,000 face amount of convertible
mortgage loans. The face 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 properties contributed by PTR and
ATLANTIC, respectively.
ATLANTIC AND PTR INVESTOR AGREEMENTS
ATLANTIC and PTR have each entered 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 Board, and Homestead will use its best efforts to cause the
election of such nominee(s), for so long as PTR or ATLANTIC has the right to
convert in excess of $20 million in principal amount of loans made pursuant to
their respective Funding Commitment Agreement. Such nominee(s) may, but need
not, be the same person(s) nominated by Security Capital pursuant to the
Security Capital Investor Agreement. In addition, Homestead has granted to
each of ATLANTIC and PTR registration rights with respect to the issuance upon
conversion and the distribution of all of the Shares issuable upon conversion
of the convertible mortgage notes. Each of ATLANTIC and PTR may request three
registrations pursuant to Rule 415 promulgated under the Securities Act of all
Shares issued or issuable upon conversion of the convertible mortgage notes.
Such registrations, except for the fees and disbursements of counsel to
ATLANTIC or PTR, shall be at the expense of Homestead.
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<PAGE>
ESCROW AGREEMENT
Pursuant to an escrow agreement dated October 17, 1996 (the "Escrow
Agreement") among Homestead, Security Capital and State Street Bank and Trust
Company ("Escrow Agent"), a portion of the Shares issuable to Security Capital
was 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 in the
escrow account will be released to Security Capital, together with a
proportionate amount of accrued dividends, if any. On January 1, 2000, unless
all of the Shares placed in the escrow account have been released to Security
Capital sooner in accordance with the provisions of the Escrow Agreement, the
Escrow Agent will release to Homestead all of the Shares remaining in the
escrow account. All dividends or other distributions paid by Homestead in
respect of the Shares held in the escrow account shall be retained by the
Escrow Agent for the benefit of the party to whom the related Shares are
ultimately issued. The Escrow Agent will vote all Shares held in the escrow
account proportionately in accordance with the vote of all other Homestead
shareholders as instructed by Homestead. In the event that instructions are
not received, the Escrow Agent will not vote such Shares.
Because the number of Shares received by Security Capital was based on the
anticipated future REIT management fees and property management fees Security
Capital would have received under existing agreements with PTR and ATLANTIC
for the 80 Homestead Village properties contributed to Homestead, net of
overhead of Security Capital related to those properties, and since many of
the contributed Homestead Village properties were either in the development or
planning stage, the purpose of the Escrow Agreement is to time Security
Capital's receipt of the Shares held in escrow with the time the properties
are actually funded and supported by a completion guaranty. As of April 20,
1998, 1,967,970 Shares had been released from the escrow account.
ADMINISTRATIVE SERVICES AGREEMENT
Homestead has entered into an administrative services agreement with
Security Capital (the "Administrative Services Agreement"), pursuant to which
Security Capital provides Homestead with administrative services with respect
to certain aspects of Homestead's business. These services include, but are
not limited to, insurance administration, accounts payable administration,
internal audit, cash management, human resources, management information
systems, tax and legal administration, research, shareholder communications
and investor relations. The fees payable to Security Capital are based on
identifiable costs incurred by Security Capital on behalf of Homestead plus
20% to cover overhead. Any arrangements under the Administrative Services
Agreement for the provision of services are required to be commercially
reasonable and on terms not less favorable than those which could be obtained
from unaffiliated third parties. The Administrative Services Agreement, which
expires on December 31, 1998, is automatically renewed each year for a one-
year term, subject to approval by a majority of the disinterested members of
the Board. Homestead incurred fees of $2,320,000 for administrative services
provided by Security Capital in the year ended December 31, 1997.
Homestead believes its relationship with Security Capital under this
agreement provides it with certain advantages, including 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 currently provide
internally.
OTHER TRANSACTIONS WITH AFFILIATES
On January 15, 1998, Security Capital purchased 8,429,225 Shares at a price
of $15 per Share. Such purchase was made in connection with a subscription
rights offering by Homestead and on the same terms and at the same time as
made available to other shareholders and investors. In connection with this
offering, Homestead paid a fee of $1,564,026 to Security Capital Markets Group
Incorporated, a wholly-owned subsidiary of Security Capital, for its services
as placement agent for the Shares being sold, and also reimbursed Security
Capital Markets Group Incorporated for approximately $45,000 of out-of-pocket
expenses that it incurred in connection therewith.
18
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Homestead
directors, officers and beneficial owners of more than 10% of the outstanding
Shares to file reports of ownership and changes in ownership of the Shares
with the Securities and Exchange Commission and to send copies of such reports
to Homestead. Based solely upon a review of such reports and amendments
thereto furnished to Homestead and upon written representations of certain of
such persons that they were not required to file certain of such reports,
Homestead believes that no such person failed to file any such report on a
timely basis during 1997, except that Security Capital filed one late report
on fifteen transactions, Jeffrey B. Allen filed two late reports on one
transaction each and Mr. Garcia filed one late report on one transaction.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected Arthur Andersen LLP, certified public accountants
("Arthur Andersen"), who have served as auditors for Homestead since December
5, 1997, to serve as the auditors of Homestead's books and records for the
coming year. A representative of Arthur Andersen is expected to be present at
the annual meeting and will be given an opportunity to make a statement if he
or she desires to do so and will be available to respond to appropriate
questions.
On December 5, 1997, Homestead dismissed the firm of Ernst & Young LLP
("Ernst & Young") as Homestead's principal accountant to audit Homestead's
financial statements and engaged Arthur Andersen as Homestead's principal
accountant to audit Homestead's financial statements for the fiscal year
ending December 31, 1997. The decision to change accountants was approved by
the Audit Committee of the Board of Directors of Homestead.
Ernst and Young's report on the financial statements of Homestead for the
fiscal year ending December 31, 1996, did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope, or accounting principles. In connection with the audit of
Homestead's financial statements for the fiscal year ended December 31, 1996,
and in subsequent interim periods through the date of dismissal, there has
never been any disagreement with Ernst & Young on any matter of accounting
principle or practice, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not resolved to the satisfaction of Ernst &
Young, would have caused it to make reference to the subject matter of the
disagreement in connection with its report. In addition, there has never been
a reportable event as described in paragraph (a)(1)(v) of Item 304 of
Regulation S-K, promulgated under the Securities Exchange Act of 1934 (a
"Reportable Event").
Prior to engaging Arthur Andersen, Homestead had never consulted Arthur
Andersen concerning either (i) the application of accounting principles to a
specified completed or uncompleted transaction; (ii) the type of audit opinion
that might be rendered on Homestead's financial statements; (iii) a written
report or oral advice that the new accountant concluded was an important
factor considered by Homestead in reaching a decision as to an accounting,
auditing or financial reporting issue; or (iv) any matter that was the subject
of a Reportable Event.
ANNUAL REPORT
Homestead's 1997 Annual Report, which includes financial statements, has
previously been mailed to shareholders or is being mailed to shareholders
together with this Proxy Statement. The Annual Report does not constitute a
part of the proxy solicitation material.
19
<PAGE>
SHAREHOLDER PROPOSALS
Any proposal by a shareholder of Homestead intended to be presented at the
1999 annual meeting of shareholders must be received by Homestead at its
principal executive offices not later than December 30, 1998, for inclusion in
Homestead's proxy statement and form of proxy relating to that meeting.
In addition, shareholders may present proposals which are proper subjects
for consideration at an annual meeting, even if the proposal is not submitted
by the deadline for inclusion in the proxy statement. To do so, the
shareholder must comply with the procedures specified by Homestead's bylaws.
Homestead's bylaws require that all shareholders who intend to make proposals
at an annual shareholders' meeting submit their proposals to Homestead during
the period 60 to 90 days before the anniversary date of the previous year's
annual meeting. To be eligible for consideration at the 1999 annual meeting,
proposals which have not been submitted by the deadline for inclusion in the
proxy statement must be received by Homestead between February 26 and
March 28, 1999.
OTHER MATTERS
Homestead is not aware of any business or matter other than those indicated
above which may properly be presented at the meeting. If, however, any other
matter properly comes before the meeting, the proxy holders will, in their
discretion, vote thereon in accordance with their best judgment.
By Order of the Board of Directors
Jeffrey A. Klopf
Secretary
April 29, 1998
20
<PAGE>
SKU# 4440-PS-98
<PAGE>
HVI19F DETACH HERE
PROXY
HOMESTEAD VILLAGE INCORPORATED
THIS PROXY IS SOLICITED BY AND ON BEHALF OF
THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 1998
The undersigned hereby appoints each of David C. Dressler, Jr., Michael D.
Cryan and Jeffrey A. Klopf, as proxies with full power of substitution, to
represent the undersigned at the annual meeting of shareholders of Homestead
Village Incorporated to be held on May 27, 1998, and at any adjournments or
postponements thereof, and to vote at such meeting the shares of common Stock
that the undersigned would be entitled to vote if present at such meeting in
accordance with the instructions indicated on the reverse side of this card; if
no instructions are indicated, the shares represented by this proxy will be
voted for the election of the listed nominee and, at the direction of the
proxies named above, on any other matter that may properly come before the
meeting.
The undersigned acknowledges receipt of the Notice of Annual Meeting and
the Proxy Statement together with this Proxy.
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
Annual Meeting of Shareholders
ADMISSION TICKET
Wednesday, May 27, 1998
11:00 a.m. (Eastern Daylight time)
Renaissance Waverly Hotel
2450 Galleria Parkway
Atlanta, Georgia 30339
Please present this ticket for admittance.
HVI19F DETACH HERE
Please mark
X votes as in
this example.
<TABLE>
<S> <C>
1. The election of the following person as Director: 2. To vote upon any other matters that may properly be
Class I - Michael D. Cryan presented at the meeting according to their best judgment
and in their discretion.
FOR WITHHELD
THE FROM THE
NOMINEE NOMINEE
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MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT | |
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Please sign, date and return this proxy card promptly using
the enclosed postage-paid envelope whether or not you plan
to attend the meeting.
Please sign exactly as name(s) appears to the left. If shares are
held jointly, each joint tenant should sign. If signing as attorney,
executor, administrator, trustee or guardian or as officer of a
corporation or other entity, please give full title and capacity in
which you are signing.
Signature:____________________________ Date:___________ Signature:____________________________ Date:___________
</TABLE>
