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UNITED STATES SECURITIES AND
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EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
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(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 1-12269
--------------------
HOMESTEAD VILLAGE INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
MARYLAND
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
74-2770966
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
2100 RIVEREDGE PARKWAY, 9TH FLOOR
ATLANTA, GEORGIA 30328
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(770) 303-2200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
The number of shares outstanding of the Registrant's common stock as of August
13, 1999 was 120,031,477.
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<PAGE>
HOMESTEAD VILLAGE INCORPORATED
TABLE OF CONTENTS
<TABLE>
<CAPTION>
NUMBER
PAGE
-----------
PART I. Condensed Financial Information
Item 1. Financial Statements
<S> <C> <C>
Condensed Balance Sheets (unaudited) - June 30, 1999 and December 31, 1998................ 3
Condensed Statements of Operations (unaudited) - Three and Six-month Periods Ended June
30, 1999 and 1998......................................................................... 4
Condensed Statements of Cash Flows (unaudited) - Six-month Periods Ended June 30, 1999
and 1998.................................................................................. 5
Notes to Condensed Financial Statements (unaudited)....................................... 6
Report of Independent Public Accountants.................................................. 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................ 19
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders....................................... 20
Item 6. Exhibits and Reports on Form 8-K......................................................... 20
</TABLE>
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1999 1998
-------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................................. $ 15,388 $ 12,144
Accounts receivable, net of allowance of $422 in 1999 and $269 in 1998................. 7,142 5,910
Funds held in escrow................................................................... -- 1,701
Other current assets................................................................... 1,218 1,132
-------------- -------------
Total current assets.............................................................. 23,748 20,887
-------------- -------------
Property and equipment...................................................................... 1,178,840 1,186,652
Less accumulated depreciation............................................................... (51,867) (48,783)
-------------- -------------
Net investment in property and equipment.................................................... 1,126,973 1,137,869
-------------- -------------
Deposits and pursuit costs, including $3,399 of funds with title companies for property
acquisitions in 1998..................................................................... -- 7,830
Deferred loan costs, net of accumulated amortization of $36,080 in 1999 and $34,002 in
1998 2,641 1,063
Trademark and intangibles, net of accumulated amortization of $5,431 in 1999 and $4,190
in 1998 43,037 44,279
Other assets ............................................................................... 23,360 6,463
-------------- -------------
Total assets............................................................................. $ 1,219,759 $ 1,218,391
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit........................................................................ $ -- $ 357,080
Capital lease obligation, current...................................................... 3,654 --
Mortgage note payable.................................................................. -- 122,028
Development costs payable, including retainage of $6,582 in 1999 and $16,558 in
1998 11,993 24,330
Due to affiliate....................................................................... 920 335
Accrued interest payable to affiliate.................................................. 1,882 1,882
Accrued real estate taxes.............................................................. 7,158 5,681
Accrued payroll and related accrued expenses........................................... 5,320 7,969
Accrued special charge expenses........................................................ 11,296 1,528
Accounts payable and other accrued expenses............................................ 17,749 10,135
-------------- -------------
Total current liabilities......................................................... 59,972 530,968
Lines of credit............................................................................. 199,000 --
Capital lease obligation, noncurrent........................................................ 138,982 --
Convertible mortgage notes payable to affiliate............................................. 221,334 221,334
Other long-term liabilities................................................................. 7,905 8,064
-------------- -------------
Total liabilities................................................................. 627,193 760,366
-------------- -------------
Commitments and contingencies (Note 8)
Shareholders' equity:
Common stock, $.01 par value, 249,823 shares authorized, 120,031 shares
issued and outstanding in 1999 and 38,255 shares issued and outstanding
in
1998 1,200 383
Preferred stock, 177 shares authorized, none issued.................................... -- --
Additional paid-in capital............................................................. 694,572 474,337
Accumulated deficit.................................................................... (103,104) (16,135)
Less deferred compensation............................................................. (102) (560)
-------------- -------------
Total shareholders' equity........................................................ 592,566 458,025
-------------- --------------
Total liabilities and shareholders' equity........................................ $ 1,219,759 $ 1,218,391
============== =============
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
3
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------------------
1999 1998 1999 1998
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Room revenue............................................................ $ 55,153 $ 33,009 $ 103,272 $ 59,436
Other revenue........................................................... 1,556 608 2,459 1,709
------------- ------------ --------- ----------
Total revenues..................................................... 56,709 33,617 105,731 61,145
------------- ------------ --------- ----------
Operating expenses:
Property operating expenses............................................. 26,589 13,325 49,696 25,198
Corporate operating expenses............................................ 8,758 5,512 18,245 10,411
Special charge (Note 3)................................................. 65,296 -- 65,296 --
Depreciation and amortization........................................... 10,318 7,472 20,315 13,859
------------- ------------ --------- ----------
Total operating expenses........................................... 110,961 26,309 153,552 49,468
-------------- ------------ --------- ----------
Operating (loss) income...................................................... (54,252) 7,308 (47,821) 11,677
Interest income.............................................................. 202 215 356 504
Interest expense, net of capitalized interest................................ (13,958) (4,148) (25,274) (7,119)
------------- ------------ --------- ----------
------------- ------------ --------- ----------
(Loss) earnings before income taxes and cumulative effect of
accounting (68,008) 3,375 (72,739) 5,062
change...................................................................
Provision for income taxes................................................... -- -- -- --
------------- ------------ --------- ----------
(Loss) earnings before cumulative effect of accounting change................ (68,008) 3,375 (72,739) 5,062
Cumulative effect of accounting change for organizational, pre-opening and
start-up activities....................................................... -- -- (14,230) --
------------- ------------ --------- ----------
Net (loss) earnings.......................................................... $ (68,008) $ 3,375 $ (86,969) $ 5,062
============= ============ ========= ===========
(Loss) earnings per share:
Basic earnings (loss) before cumulative effect of accounting change.......... $ (0.99) $ 0.09 $ (1.36) $ 0.14
Cumulative effect of accounting change....................................... -- -- (0.26) --
------------- ------------ --------- ----------
Basic (loss) earnings........................................................ $ (0.99) $ 0.09 $ (1.62) $ 0.14
============= ============ ========= ===========
Diluted (loss) earnings before cumulative effect of accounting change........ $ (0.99) $ 0.09 $ (1.36) $ 0.14
Cumulative effect of accounting change....................................... -- -- (0.26) --
-------------- ------------ --------- ----------
Diluted (loss) earnings...................................................... $ (0.99) $ 0.09 $ (1.62) $ 0.14
============= ============ ========= ===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
4
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-------------------------------
1999 1998
----------- ------------
<S> <C> <C>
Operating activities:
Net (loss) earnings........................................................... $ (86,969) $ 5,062
Adjustments to reconcile net (loss) earnings to net cash provided by operating
activities:
Special charge write-offs and asset write-downs........................... 51,587 --
Cumulative effect of accounting change.................................... 14,230 --
Depreciation and amortization............................................. 20,315 13,859
Deferred compensation..................................................... (276) 325
Amortization of deferred loan costs....................................... 2,078 1,711
Change in assets and liabilities:
Increase in accounts receivable, net of change in allowance............... (1,232) (2,252)
Decrease in funds held in escrow.......................................... 1,701 --
(Increase) decrease in other current assets............................... (86) 1,447
Increase in accrued real estate taxes..................................... 1,477 274
Increase in accrued interest on convertible mortgage notes................ -- 174
(Decrease) increase in accrued payroll and related accrued expenses....... (2,649) 1,685
Increase in accrued special charge expenses....................... 9,768 --
Increase in accounts payable and other accrued expenses................... 7,614 355
Increase in due to affiliate.............................................. 585 487
-------------- --------------
Net cash provided by operating activities............................. 18,143 23,127
-------------- --------------
Investing activities:
Investment in properties.................................................. (76,903) (260,196)
Decrease in deposits and pursuit costs.................................... 695 821
Increase in other assets.................................................. (1,367) (1,804)
-------------- --------------
Net cash used in investing activities................................. (77,575) (261,179)
-------------- --------------
Financing activities:
Proceeds from lines of credit............................................. 41,920 181,272
Payments on lines of credit............................................... (200,000) (100,000)
Deferred loan costs for line of credit.................................... (3,657) (3,135)
Proceeds from convertible mortgage notes payable.......................... -- 17,014
Payments on mortgage notes payable........................................ (122,028) --
Sale of property and equipment, net....................................... 127,261 --
Proceeds from sale of shares, net of expenses............................. 221,644 154,241
Payments on capital lease obligation...................................... (2,364) --
Payments on other long-term liabilities................................... (7) (2)
Repurchase of stock....................................................... (107) --
Proceeds from principal payments on notes from officers.................. 14 --
-------------- --------------
Net cash provided by financing activities............................. 62,676 249,390
-------------- --------------
Net increase in cash and cash equivalents......................................... 3,244 11,338
Cash and cash equivalents, beginning of period.................................... 12,144 2,974
-------------- --------------
Cash and cash equivalents, end of period.......................................... 15,388 $ 14,312
============== ==============
Non-cash investing and financing transactions:
Increase in property and equipment, and development cost payable.......... $ -- $ 3,417
============== ==============
Increase in property and equipment, from capital lease.................... $ 145,000 $ --
============== ==============
Increase in property and equipment from capitalization of loan costs...... $ -- $ 1,249
============== ==============
Increase in trademark and intangibles arising from release of shares in $ -- $ 2,253
escrow
============== ==============
Loan costs resulting from issuance of convertible mortgage debt........... $ -- $ 1,251
============== ==============
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
5
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1--GENERAL
Principles of Financial Presentation
The financial statements of Homestead Village Incorporated ("Homestead") as
of June 30, 1999 and for the three and six month periods ended June 30, 1999 and
1998 are unaudited, and pursuant to the rules of the Securities and Exchange
Commission, certain information and footnote disclosures normally included in
financial statements have been omitted. While management of Homestead believes
that the disclosures presented are adequate, these interim financial statements
should be read in conjunction with the financial statements and notes included
in Homestead's 1998 Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of Homestead's financial
statements for the interim periods presented. The results of operations for the
three and six-month periods ended June 30, 1999 and 1998 are not necessarily
indicative of the results to be expected for the entire year.
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.
Reclassifications
Certain 1998 amounts have been reclassified to conform to the 1999
presentation.
New Accounting Rules
In April 1998, Statement of Position 98-5 "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") was issued which requires that costs
associated with organizational, pre-opening, and start-up activities be expensed
as incurred. SOP 98-5 is effective for fiscal years beginning after December 15,
1998. Through the end of 1998, Homestead capitalized costs associated with
pre-opening and start-up activities and amortized such costs over a two-year
period. Homestead has adopted SOP 98-5 beginning with its 1999 fiscal year and
wrote off unamortized organizational, pre-opening and start-up costs of $14.2
million as a cumulative effect of adoption of an accounting standard in the
first quarter 1999. No financial statement amounts were restated upon adoption
of the new standard. Pre-opening and start-up activities costs which would have
been expensed in the six month period ended June 30, 1998 if SOP 98-5 were
applied on a pro forma basis total $6,379,000. Amortization expense for
organizational, pre-opening and start-up costs recorded in the six month period
ended June 30, 1998 was approximately $2,452,000.
In June 1998, Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" was issued,
establishing standards for the accounting and reporting for derivative
instruments. The new rules, which become effective for Homestead on January 1,
2001, are not expected to have an impact on Homestead's financial position or
results of operations. Homestead has not entered into any derivative financial
instrument transactions.
6
<PAGE>
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Operating properties:
Owned properties:
Land $ 183,532 $ 191,694
Buildings and improvements........................... 598,616 645,235
Furniture, fixtures and equipment.................... 84,661 108,446
Properties under a capital lease.......................... 145,000 --
---------------- -----------------
1,011,809 945,375
Properties under construction................................ 70,468 110,891
Properties in planning (land owned for development).......... -- 126,054
Land held for sale........................................... 96,563 4,332
---------------- -----------------
Total.............................................. $ 1,178,840 $ 1,186,652
================ =================
</TABLE>
NOTE 3 - SPECIAL CHARGE
In the second quarter of 1999, Homestead determined, based on its inability
to obtain financing for development of sites beyond those already in
construction, to further curtail its development program. As of the beginning of
the second quarter, Homestead had substantial investments in ownership of land
for development and in costs of pursuit of additional development sites. All
land previously held for development is presently held for sale, all pursuits
for acquisition of additional sites for development have been abandoned, and
Homestead has reduced overhead costs and personnel to reflect a company with
stabilized operations of 136 properties. Homestead recorded a special charge of
$65.3 million in the second quarter of 1999 consisting of approximately $43.5
million for write-downs of the carrying cost of land held for sale to its
estimated fair value less estimated costs to dispose, approximately $7.1 million
of write-offs of costs of pursuits and loss of non-refundable earnest money
deposits, approximately $5.5 million for closing of administrative offices and
discontinuing new initiatives, and approximately $9.2 million for the costs of
severance of personnel. Revisions to these estimates may be required based upon
the ultimate sale of the properties.
Carrying costs on the land sites, such as interest and property taxes, will
be expensed until the sites are disposed of and will materially adversely affect
earnings until disposal. The majority of the land sites are subject to the
security interests of the lenders under the Working Capital Facilities (see
"Note 4 - Debt) and any sale of the encumbered sites requires the consent of the
lenders. Upon sale the proceeds will be used to repay the Working Capital
Facilities.
Payment of the final costs accrued for the special charge recorded in
fourth quarter 1998 were made in second quarter 1999 and no additional liability
remains.
NOTE 4--DEBT
Credit Facilities
On March 18, 1999 Homestead entered into amended and restated credit
agreements to, among other things, extend the $150 million revolving line of
credit facility secured by suburban properties and the $50 million line of
credit facility secured by urban properties (together the "Working Capital
Facilities") to December 31, 2000. The $150 million line was increased to $170
million total borrowing capacity, subject to collateral requirements, and the
interest terms adjusted to be a margin of 2.0% to 3.0% over LIBOR or
alternatively 1.0% to 2.0% over prime or 1.5% to 2.5% over the federal funds
rate, with the margin dependent on the percentage of borrowings outstanding
versus qualifying collateral. Future additional collateral under the $170
million line will be limited to suburban properties that are stabilized. The $50
7
<PAGE>
million facility was adjusted to $30 million total borrowing capacity, subject
to collateral, and the interest terms adjusted to 3.0% over LIBOR or
alternatively 2.0% over prime or 2.5% over the federal funds rate.
The amended and restated Working Capital Facilities require maintenance of
the following financial covenants effective with first quarter 1999:
- limiting total liabilities of no more than 55% of gross asset value,
as defined;
- limiting total indebtedness of no more than 50% of gross
asset value, as defined;
- maintaining a ratio of earnings before interest, taxes, depreciation
and amortization, as defined, to interest expense ranging from 1.25 to
1.0 for first quarter 1999 up to 1.90 to 1.0 by fourth quarter 2000;
- maintaining a ratio of earnings before interest, taxes, depreciation
and amortization, as defined, to debt service and preferred stock
dividends ranging from 1.0 to 1.0 for first quarter 1999 to 1.25 to 1.0
by fourth quarter 2000;
- maintaining a ratio of net property operating income to implied debt
service, as defined, ranging from 1.4 to 1.0 for
first quarter 1999 to 2.25 to 1.0 by fourth quarter 2000;
- maintaining minimum tangible net worth, as defined, of no less
than 85% of the year end 1998 amount, as defined,
adjusted for net proceeds of equity offerings; and
- maintaining positive net sources and uses of funds.
In addition, under the renewed Working Capital Facilities, distributions or
dividends on equity are prohibited; total cost, as defined, of projects in
development cannot exceed 25% of gross asset value, as defined, in 1999 or 15%
in 2000; and Homestead's business activities will be limited to development,
ownership and operation of extended stay hotels.
As of June 30, 1999, Homestead has an outstanding balance of $199 million
under the Working Capital Facilities, the full amount available under collateral
requirements. Subsequent to quarter end, the Working Capital Facilities balance
was paid down by $5.9 million with the net proceeds from the sale of an urban
site.
Homestead had an additional $200 million bank line of credit facility (the
"Bridge Facility") which bore interest at the Eurodollar rate plus 1.25% or at a
base rate of prime plus 0.25%. Proceeds from the consummation of the rights
offering (Note 5) were used to repay the $200 million Bridge Facility on May 28,
1999. The bank's commitment under the Bridge Facility and the obligation of
Security Capital Group Incorporated ("Security Capital") under its subscription
agreement for $200 million of subordinated debentures of Homestead expired upon
repayment of the facility.
Homestead was in compliance with all covenants under its credit facilities
as of June 30, 1999.
Convertible Mortgage Notes Payable
At June 30, 1999 Homestead owed convertible mortgage notes to Archstone
Communities Trust ("Archstone"), an affiliate, in the principal amount of
$221,333,620. The notes are collateralized by mortgages on 54 Homestead
properties with a historical cost of $360.8 million. The notes accrue interest
at 9.0% on the principal amount and require interest only payments every six
months on May 28 and November 28 of each year. The notes are due October 31,
2006, and are callable on or after May 28, 2001. The notes are convertible, at
the option of the holder, into 21,191,262 shares of Homestead common stock (a
conversion ratio equal to one share of common stock for every approximate $10.44
of principal amount outstanding). The conversion ratio was adjusted in
accordance with the terms of the notes upon the issuance of shares in the May
1999 rights offering. Previously, the conversion ratio was $11.50 (19,246,402
shares). Deferred financing costs and the discount on the respective fundings
have been fully amortized. No further funding commitment is available under the
mortgage notes.
Capital Lease Obligation
On February 23, 1999, Homestead completed a sale and leaseback of 18 of the
26 Homestead properties collaterizing the $122 million mortgage note which was
8
<PAGE>
due June 1999. Hospitality Properties Trust purchased the properties for $145
million. Homestead will continue to operate the properties under a long-term
lease through December 2015 and pay a minimum rent of approximately $16 million
per year. Homestead posted a security deposit equal to one year's rent. The
majority of the proceeds from the sale were used to repay the $122 million
mortgage note and post the approximate $16 million security deposit.
The lease is considered a capital lease for financial reporting purposes
and thus the present value of the minimum lease payments discounted at
approximately 9.8% has been recorded as an asset of $145,000,000, to be
amortized over the lease term, and an obligation, which will be reduced over the
term of the lease by allocating rent payments between interest expense and
reduction of the lease obligation. The balance of the obligation at June 30,
1999 was $142,636,000.
The lease also provides for two extension periods of 15 years each at the
option of Homestead, requires payment of percentage rents beginning July 2000
based on increases in revenues over a base period, and requires a percentage of
revenues be paid to a furniture, fixtures and equipment reserve to be used for
capital expenditures.
Interest
The following summarizes Homestead's interest expense (in thousands):
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED
JUNE 30, JUNE 30,
--------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Lines of credit facilities.................................$ 7,060 $ 2,974 $ 14,682 $ 4,432
Convertible mortgage notes................................. 5,035 8,352 10,015 15,989
Mortgage note payable...................................... -- -- 1,282 --
Capital lease obligation................................... 3,499 -- 4,906 --
Other...................................................... 188 197 381 394
------------ ------------- -------------- -------------
Total interest cost.................................... 15,782 11,523 31,266 20,816
Capitalized interest....................................... (1,824) (7,375) (5,992) (13,697)
------------ ------------- -------------- -------------
Net interest expense...................................$ 13,958 $ 4,148 25,274 $ 7,119
============ ============= ============== =============
Amortization of deferred financing costs included in
interest cost.............................................$ 1,084 $ 1,234 $ 2,078 $ 1,711
============ ============= ============== =============
</TABLE>
The total interest paid in cash for the six month periods ended June 30,
1999 and 1998 was $29,371,000 and $17,054,000, respectively.
NOTE 5--SHAREHOLDERS' EQUITY
Common Stock Rights Offering
On May 28, 1999, Homestead completed a common stock rights offering with
the sale of 81,818,181 shares for $225 million in gross proceeds ($2.75 per
share). The securities issued in the rights offering had been registered under
Homestead's existing $356,402,600 shelf registration. Security Capital purchased
77,749,220 shares in the rights offering at the same price paid by the public.
Following the completion of the rights offering, Security Capital owns 87.0% of
Homestead's outstanding common shares. Estimated net proceeds of $221.6 million
were used to repay the $200 million Bridge Facility and accrued interest;
payment of interest on the convertible mortgages, Working Capital Facilities,
and other long-term liabilities; payment of construction in process costs; and
to provide working capital for general corporate purposes. Security Capital's
obligations under a subscription agreement which secured the Bridge Facility was
terminated as a result of Security Capital's participation in the rights
offering and the repayment of the Facility.
Per Share Data
Basic earnings (loss) per share is calculated by dividing net earnings
(loss) available to common shareholders by weighted average common shares
outstanding. Diluted earnings per share is equivalent to basic earnings per
share unless dilution results from a calculation which divides adjusted earnings
9
<PAGE>
available to common shareholders by adjusted weighted average common shares
outstanding. Adjusted earnings available for common shareholders adds back all
net interest expense from convertible debt. Adjusted weighted average shares
outstanding includes any dilutive effect of options using the treasury stock
method and the dilutive effect of convertible debt. For the three and six month
periods ended June 30, 1999 and 1998 convertible debt is not assumed to be
converted and exercise of options is not assumed as the effects are
anti-dilutive in a period of loss in 1999 and the effects were not dilutive in
1998.
A reconciliation of the numerators and denominators used to calculate basic
and diluted earnings (loss) per share for the periods indicated follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net (loss) earnings attributable to common shares
before cumulative effect of accounting change.... $ (68,008) $ 3,375 $ (72,739) $ 5,062
============ =========== ============ ============
Weighted average shares outstanding - basic........ 68,808 38,263 53,611 37,007
============ =========== ============ ============
Net (loss) earnings per share before cumulative
effect of accounting change:
Basic.............................................. $ (0.99) $ 0.09 $ (1.36) $ 0.14
============ =========== ============ ============
Diluted............................................ $ (0.99) $ 0.09 $ (1.36) $ 0.14
============ =========== ============ ============
</TABLE>
NOTE 6--INCOME TAXES
As a result of Security Capital's ownership in Homestead exceeding 80%
after the closing of the May 1999 rights offering, Homestead's results, post
rights offering, will be included in the federal income tax return of Security
Capital. Security Capital may utilize tax operating losses generated by
Homestead subsequent to May 1999. In order to utilize the net operating loss
carryforwards generated by Homestead through May 1999, Homestead must generate
future taxable income. To the extent Homestead's net operating loss
carryforwards are so utilized on Security Capital's federal tax return, such
loss carryforwards will not be available to Homestead in the future.
Homestead has estimated tax net operating loss carryforwards of
approximately $87 million, which expire $4.2 million in the year 2011, $24.8
million in the year 2012, $50 million in the year 2018, and $8 million in the
year 2019.
Homestead in its financial statements presents its provision for taxes as
though Homestead filed a separate return. Deferred tax assets relate primarily
to: (1) the difference in the carrying amount of deferred financing costs
recognized at formation and in connection with subsequent fundings of
convertible mortgage notes payable for financial reporting purposes and the
amount recognized for tax purposes; (2) the difference in the carrying amount of
the convertible mortgage notes and other liabilities for financial reporting
purposes and the amount recognized for tax purposes; and (3) tax net operating
loss. Deferred tax liabilities relate primarily to the difference in the
carrying amount and the methods of depreciation of certain depreciable assets
for financial reporting purposes and the amount recognized for tax purposes. A
valuation allowance has been recognized to offset the net deferred tax assets,
due to uncertainty of realization of those deferred tax assets in future years.
NOTE 7--ADMINISTRATIVE SERVICES AGREEMENT
Homestead and Security Capital have an administrative services agreement
(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,
10
<PAGE>
insurance administration, accounts payable administration, internal audit, cash
management, human resources, management information systems, tax and legal
administration, facilities management, and payroll administration. 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 December 31, 1999, is
renewable for a one-year term, subject to approval by a majority of the
independent members of the Homestead Board. Total administrative services fees
for the six month periods ended June 30, 1999 and 1998 were $2,830,000 and
$1,897,000, respectively.
Homestead believes its relationship with Security Capital under this
agreement provides it with certain advantages, including access to greater
quality and depth of resources, in such areas as information systems, insurance,
cash management and legal support provided at substantial economies of scale.
NOTE 8--COMMITMENTS AND CONTINGENCIES
Legal Proceedings
In second quarter 1999 Homestead recorded an expense and accrual of
approximately $1.2 million for construction related claims. Otherwise Homestead
is not a party to any litigation or claims, other than routine matters arising
out of the ordinary course of business that are incidental to the development
process and operation of the business of Homestead. Homestead does not believe
that the results of all claims and litigation, individually or in the aggregate,
will have a material adverse effect on its business, financial position or
results of operation.
Unfunded Development Commitments
At June 30, 1999, Homestead had approximately $17 million of unfunded
commitments for developments under construction. Homestead anticipates
completing development of properties under construction utilizing cash on hand,
proceeds from future sales, if any, of unencumbered land, and cash flow from
operations.
Finder's Agreement
Homestead has 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 payments 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 (exclusive of the four properties referred to in (i)
above and reduced by the 2 properties sold in February 1999 as described below);
(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 agreements, upon the sale of the
additional 35 properties to an unaffiliated third party. The sale and leaseback
of properties described in Note 4 included 2 properties subject to the terms
described in (iv) above, resulting in a payment of approximately $68,000 to the
Finder. Total payments under these agreements for amounts due under (i) and (ii)
described above for the six month periods ended June 30, 1999 and 1998 were
$356,000 and $367,000, respectively.
11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Homestead Village Incorporated:
We have reviewed the accompanying condensed consolidated balance sheet of
Homestead Village Incorporated (a Maryland corporation) and subsidiaries as of
June 30, 1999 and the related condensed consolidated statements of operations
for the three and six-month periods ended June 30, 1999 and 1998 and the related
condensed consolidated statement of cash flows for the six month period ended
June 30, 1999 and 1998. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Homestead Village Incorporated and
subsidiaries as of December 31, 1998 (not presented herein), and, in our report
dated February 4, 1999, we expressed an unqualified opinion on that statement.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1998, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
July 22, 1999
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with Homestead's
1998 Annual Report on Form 10-K (the "1998 Form 10-K") as well as the financial
statements and the notes thereto in Item 1 of this report. In addition to
historical information, this discussion contains forward-looking statements
under the federal securities laws. These statements are based on current
expectations, estimates and projections about the industry and markets in which
Homestead operates, management's beliefs and assumptions made by management.
Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates", variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. Among the important factors that could cause Homestead's actual
results to differ materially from those expressed in the forward-looking
statements are (i) changes in general economic conditions in its target markets
that could adversely affect demand for Homestead's properties, (ii) the effects
of increased or unexpected competition with respect to one or more properties,
(iii) Homestead's ability to open new properties on schedule which may be
affected by factors outside the control of Homestead, (iv) availability to
Homestead of debt or equity financing, (v) the matters described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operation-Risk Factors" in Item 7 of the 1998 Form 10-K and (vi) changes in
financial markets and interest rates that could adversely affect Homestead's
cost of capital and its ability to meet its financing needs and obligations.
OVERVIEW
Homestead's overall results of operations and financial position have been
significantly influenced by its development program and the financing activities
required to support it. The tightening of capital markets for real estate
operating companies and lodging companies which began in 1998 and continues in
1999 has had an adverse effect on Homestead's ability to continue its high
growth program of acquisition of land sites and construction of properties. In
October 1998, Homestead reorganized its development effort and recorded $7.24
million of special charges. Such charges primarily related to the severance of
certain development personnel and abandonment of certain pursuits of development
sites due to the limited availability of additional funds for development.
In the second quarter of 1999, Homestead determined, based on its inability
to obtain financing for development beyond those properties already in
construction, to further curtail its development program. As of the beginning of
the second quarter of 1999, Homestead had substantial investments in ownership
of land for development as well as in pursuit costs for additional development
sites. All land previously held for development is presently held for sale, all
pursuits for acquisition of additional sites for development have been
abandoned, and Homestead has reduced overhead costs and personnel to reflect a
company with stabilized operations of 136 properties. A special charge was
recorded in the second quarter of 1999 of $65.3 million for write-downs of land
to be held for sale, write-offs of costs of pursuits, and the costs of severance
of personnel.
The majority of the special charge relates to the write-downs on land held
for sale approximating $43.5 million. Substantial effort and costs were incurred
in the planning stage for design, engineering, and architectural work and
capitalization of carrying costs, all of which the company expects to be lost
upon sale of the sites.
Carrying costs on the land sites, such as interest and property taxes, will
be expensed until the sites are disposed of and will materially adversely affect
earnings until disposal. The majority of the land sites are encumbered by the
Working Capital Facilities and upon sale will require use of the proceeds to
repay the Working Capital Facilities.
Write-offs of pursuit costs and non-refundable earnest money deposits
approximate $7.1 million, severance costs approximate $9.2 million and other
costs such as closings of offices, overhead reductions and discontinuance of new
investment limitations approximate $5.5 million.
As of June 30, 1999, Homestead had 129 Homestead Village properties in
operation representing in the aggregate 17,294 rooms in 38 cities. Homestead had
13
<PAGE>
7 Homestead Village properties under construction totaling 881 rooms within five
of these cities, of which all 7 properties are scheduled to open by the end of
the third quarter 1999.
Homestead's operating results are substantially influenced by (i) the
demand for and supply of extended stay lodging in Homestead's markets and
submarkets, (ii) occupancy and average weekly rate, (iii) the effectiveness of
property level operations, (iv) the pace and cost at which Homestead can
complete the development of the remaining properties under construction, and (v)
the timing and amounts of proceeds Homestead can generate from sales of land to
repay indebtedness. Capital and credit market conditions which affect
Homestead's access to credit markets and cost of capital will influence future
operating results.
As of June 30, 1999, Homestead had approximately $570.9 million of
indebtedness outstanding, consisting of $199.0 million due on its long-term bank
lines of credit, $221.3 million due on a convertible mortgage note, $142.6
million due under a capital lease agreement and $7.9 million due on other
long-term obligations. During the six months ended June 30, 1999, Homestead
reduced its short-term debt from $479.1 million at December 31, 1998 to $3.7 at
June 30, 1999. Homestead refinanced its short-term debt as follows:
On February 23, 1999, Homestead completed a sale and lease-back of 18 of
the 26 Homestead properties collaterizing a $122 million mortgage note.
Hospitality Properties Trust purchased the properties for $145 million.
Proceeds of the sale were used to repay the $122 million debt which was due
June 1999. Additionally, as a result of payment of the $122 million
mortgage note, eight properties which were used as collateral for the
mortgage note were subsequently pledged as collateral for its Working
Capital Facilities to draw approximately $21 million in additional
borrowings under the line.
On March 18, 1999, Homestead renewed its Working Capital Facilities with
an extension of the maturity date to December 31, 2000.
On May 28, 1999, Homestead completed a $225 million common stock rights
offering of which $200 million was used to pay off
the Bridge Facility.
With the accomplishment of these reductions of short-term debt and the
decision to cease additional development efforts, Homestead is focusing on
generation of cash from sales of land to be used to retire debt and on operation
of a company with stabilized operations of 136 properties.
RESULTS OF OPERATIONS
Six-Months Ended June 30, 1999 and 1998
Net (loss) earnings, for the six months ended June 30, 1999 and 1998 were
($87.0) million and $5.1 million, respectively. The net loss for the six month
period ended June 30, 1999 includes a (i) cumulative effect of an accounting
change of $14.2 million relating to Homestead's adoption of Statement of
Position 98-5 "Reporting on the Costs of Start-Up Activities" beginning with its
1999 fiscal year and (ii) incurrence of a special charge of $65.3 million,
primarily relating to the write-downs on land held for sale. Exclusive of the
effect of the special charge, net loss before the cumulative effect decreased
$12.5 million from the $5.1 million net earnings for the six months ended June
30, 1998. The decrease is primarily attributable to an increase in interest
expense of $18.2 million offset by $5.8 million net increase in other items of
operating income discussed in the following.
Property Operations
For analysis purposes Homestead categorizes its operating properties as
either "stabilized" or "pre-stabilized." For purposes of this report, the term
"stabilized" means those properties which obtained 80% occupancy for a one-week
period or have been opened for 24 weeks and "pre-stabilized" means all other
operating properties. Homestead also categorizes its operating properties as
"comparable," "noncomparable," or "new opening." "Comparable" means a property
open throughout both periods of comparison, "noncomparable" means a property
open for only a portion of the prior period of comparison, and "new opening"
means a property opened in the most recent period.
14
<PAGE>
Whether considering the entire operating property portfolio or its
categories, Homestead's first half 1999 property-level revenue performance
compared to the same period of 1998 is characterized by higher weekly rates
offset by lower occupancy levels. The occupancy decreases are attributable to
(i) competition in markets characterized by an oversupply of extended stay
hotels (predominantly in the Southwest), (ii) the effect on occupancy due to
rate increases at Homestead versus competitor rate levels (experienced in the
portfolio generally), and (iii) the first quarter effect of the seasonal
downturn as Homestead has increased its number of properties located in the
northeast and midwest as compared to prior years (affecting noncomparable
properties and pre-stabilized properties).
The following table sets forth certain information for Homestead's total
operating property portfolio for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------- ------------------------------
1999 1998 CHANGE 1999 1998 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Weekly RevPAR(1)..................................... $250 $217 15.2% $236 $210 12.4%
Average Weekly Rate(2)............................... $352 $302 16.6% $352 $293 20.1%
Occupancy......... 70.9% 72.0% (1.1) 66.9% 71.6% (4.7)
Number of Operating Properties at Period End......... 129 93 38.7% 129 93 38.7%
Property Operating Income Margin..................... 52.8% 60.4% (7.6) 52.8% 58.4% (5.6)
- ----------
<FN>
(1) Weekly revenue per available room ("RevPAR") is determined by dividing room
revenue by the number of guest room days available for the period and
multiplying by seven.
(2) Average weekly rate is determined by dividing room revenue by the
number of guest room days occupied for the period and
multiplying by seven.
</FN>
</TABLE>
Homestead's 36 property openings from the end of the second quarter of 1998
through the end of the second quarter of 1999 were the predominant reason for
the room revenue increase of $43.8 million (73.8%) for the six months ended June
30, 1999 as compared to the same period in 1998. Total property operating
expenses increased $24.5 million (97.2%) for the six months ended June 30, 1999
over 1998. The increase is due primarily to the increase in the number of
operating properties as noted above and secondarily due to increased expenses
for additional services such as longer operating hours and travel agent
commissions.
Beginning in the latter part of second quarter 1999, management of
Homestead reduced room rates in selected markets to improve occupancy. Compared
to second quarter average occupancy of 70.9% for the total portfolio, occupancy
for July 1999 was 74.2%, which also compares favorably with July 1998 total
occupancy of 73.4%. Management is also presently reviewing property level
expenses in areas such as the number of new operating programs, extended
operating hours, job definitions and scheduling of personnel in order to improve
the property operating income margin.
Same-Store Properties
Homestead had 64 properties which were stabilized and operating throughout
both six month periods ended June 30, 1999 and 1998 ("same-store" properties).
Twenty-three such properties are located in the Southwest in Texas markets.
RevPAR for the six months ended June 30, 1999 for these 64 same store properties
remained at $222 versus the same period in 1998. The unchanged RevPAR was due to
a decrease in occupancy to 70.6% for the six month period ended June 30, 1999
from 76.9% for the same period in 1998, offset in part by an increase in the
average weekly rate of $26 (9.0%) for the six months ended June 30, 1999 as
compared to the same period in 1998. The decrease in occupancy is a result of
competition in the Southwestern markets which are characterized by over supply
and to some extent Homestead rates versus the rate levels of competitors. The
unchanged RevPAR, and increases in property expenses primarily for payroll,
housekeeping, security, and property administrative costs (primarily related to
increasing services such as longer office hours), resulted in the same-store
property operating income margin decreasing to 54.3% in 1999 from 59.7% in 1998.
15
<PAGE>
Stabilized Properties Operations
RevPAR for the 115 stabilized properties for the six months ended June 30,
1999 increased to $235 from $222 for the 64 stabilized properties for the same
period in 1998. Average weekly rates for stabilized properties increased to $346
in 1999 from $288 in 1998 (an increase of 20.1%) but was offset by the decline
of occupancy to 68.0% for 1999 from 76.9% for 1998. Property operating income
margin for stabilized properties decreased to 55.2% in 1999 from 59.7% in 1998
due to increased property expenses as described above for the same-store
properties.
Corporate Operating Expenses
Corporate operating expenses increased $7.8 million for the six month
period ended June 30, 1999 as compared to the same period in 1998. The increase
is primarily attributed to increases of approximately $2.4 million in marketing
and sales expense, $1.5 million in incremental development overhead expenses
which were not capitalized due to declining development activity in the six
months ended June 30, 1999, loss provision for construction related claims of
approximately $1.2 million, and approximately $0.9 million in administrative
services related to the increased size of Homestead.
Depreciation and Amortization
Depreciation and amortization increased $6.5 million for the six months
ended June 30, 1999 as compared to the same period in 1998 due to the increased
number of properties operating for the six month period ended June 30, 1999 as
compared to the same period in 1998. Depreciation of the cost of properties and
improvements is provided using the straight-line method over the estimated
useful lives of the assets. Amortization of the trademark and other intangibles
is calculated on a straight-line basis over a period of 20 years.
Interest Income
Interest income of $356,000 for the six months ended June 30, 1999 was a
result of interest earned from investment of excess cash on hand.
Interest Expense
The following summarizes Homestead's interest expense (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -----------------------------
1999 1998 1999 1998
------------ ----------- ------------- --------------
<S> <C> <C> <C> <C>
Lines of credit facilities....................................$ 7,060 $ 2,974 $ 14,682 $ 4,432
Convertible mortgage notes.................................... 5,035 8,352 10,015 15,989
Mortgage note payable......................................... -- -- 1,282 --
Capital lease obligation...................................... 3,499 -- 4,906 --
Other......................................................... 188 197 381 394
---------------------------------------------------------
Total interest cost....................................... 15,782 11,523 31,266 20,816
Capitalized interest.......................................... (1,824) (7,375) (5,992) (13,697)
---------------------------------------------------------
Net interest expense......................................$ 13,958 $ 4,148 $ 25,274 $ 7,119
============= =========== ============= ==============
Amortization of deferred financing costs included in interest
cost........................................................ $ 1,084 $ 1,234 $ 2,078 $ 1,711
============= =========== ============= ==============
</TABLE>
Interest expense on line of credit borrowings increased $10.2 million for
the six months ended June 30, 1999 as compared to the same period in 1998 due
primarily to a higher average outstanding balance ($350.2 million in 1999
compared to $79.2 million in 1998).
Interest expense on the convertible mortgages decreased $6.0 million for
the six months ended June 30, 1999 as compared to the same period in 1998 as a
result of the early extinguishment of $98 million of Homestead convertible
mortgage notes in the third quarter 1998. Homestead incurred $1.3 million in
interest expense for the six months ended June 30, 1999 relating to the mortgage
note which funded the extinguishment. On February 23, 1999, this mortgage note
16
<PAGE>
was repaid with proceeds from the sale of properties discussed in Note 4 to the
financial statements. Homestead incurred $4.9 million in interest expense in the
six months ended June 30, 1999 as a result of the leaseback of such properties
under a capital lease.
Interest expense recognized on borrowings is offset by interest capitalized
with respect to Homestead's development activities. Capitalized interest levels
are reflective of Homestead's cost of funds and the level of development
activity. Capitalized interest decreased by $7.7 million for the six months
ended June 30, 1999 as compared to the same period in 1998 due to less
development activity during the first six months of 1999 as compared to 1998.
LIQUIDITY AND CAPITAL RESOURCES
Investing and Financing Activities
On May 28, 1999, Homestead completed a common stock rights offering with
the sale of 81,818,181 shares for $225 million in gross proceeds ($2.75 per
share). The securities issued in the rights offering had been registered under
Homestead's existing $356,402,600 shelf registration. Security Capital purchased
77,749,220 shares in the rights offering at the same price paid by the public.
Following the completion of the rights offering, Security Capital owns 87.0% of
Homestead's outstanding common shares. Estimated net proceeds of $221.6 million
were used to repay the $200 million Bridge Facility and accrued interest;
payment of interest on the convertible mortgages, Working Capital Facilities,
and other long-term liabilities; payment of construction in process costs; and
to provide working capital for general corporate purposes. Security Capital's
obligations under a subscription agreement which secured the Bridge Facility was
terminated as a result of Security capital's participation in the rights
offering and the repayment of the Facility.
During the six month periods ended June 30, 1999 and 1998, Homestead
invested $76.9 million and $260.2 million, respectively in properties. The
amounts invested in the six months ended June 30, 1999 were financed primarily
from proceeds from borrowings under the Working Capital Facilities. The amounts
invested in the six months ended June 30, 1998 were financed primarily from
borrowings under the lines of credit and proceeds from the January 1998 rights
offering.
During the first six months of 1999, Homestead reduced its short-term debt
from $479.1 million at December 31, 1998 to $3.7 million at June 30, 1999.
Homestead reduced its short-term debt by (i) paying off the $122.0 million
mortgage note due June 1999 with proceeds received from the sale and leaseback
of properties (ii) paying off the $200 million Bridge Facility with proceeds
received from the rights offering, and (iii) amending its Working Capital
Facilities to, among other things, extend the maturity date to December 31,
2000.
With the decision to cease development of all land sites owned, other than
those already in construction, and to cease pursuit of acquisition of additional
sites for development, Homestead's needs for financing are drastically reduced.
Future funding needs are expected to be primarily for the completion of the
properties in construction, funding of the severance of personnel, and debt
service.
Homestead had at June 30, 1999 unfunded commitments for properties in
construction of approximately $17 million.
Homestead believes it will have adequate cash resources from cash on hand
and cash flow from operations to fund its needs for debt service, payment of
severances, and completion of properties in construction. In addition Homestead
may generate cash inflows by the sale of unencumbered land sites, but no
assurance can be given that such sales will occur or provide significant net
proceeds. While Homestead believes it will continue to generate positive cash
flow from operation of its properties, there can be no assurance of generation
of cash from future operations due to the risks of operation of lodging
properties including competitive pressures, rates, occupancies, and costs of
operation. Additionally, Homestead's ability to meet its obligations could be
adversely affected by incurrence of unexpected construction costs for those
properties not yet open and by increases in interest rates.
17
<PAGE>
Operating Activities
Net cash flow provided by operating activities decreased by $5.0 million
for the six months ended June 30, 1999 as compared to 1998. The decrease is due
primarily to an increase in corporate expenses, special charge expenses and
interest during the six months ended June 30, 1999 as compared to the same
period in 1998 offset in part by additional cash from operations provided from
the growth in the number of operating properties as described under "Results of
Operations."
YEAR 2000
The Year 2000 issue has arisen as many existing computer programs and
chip-based embedded technology systems use only the last two digits to refer to
a year, and therefore do not properly recognize a year that begins with "20"
instead of the familiar "19." If not corrected, many computer applications could
fail or create erroneous results. Homestead has adopted a Year 2000 compliance
program in an attempt to minimize or prevent the number and seriousness of any
disruptions that may occur as a result of the Year 2000 issue. Homestead's
compliance program includes an assessment of its hardware and software computer
systems ("information technology" systems) and embedded systems
("non-information technology" systems such as lighting, security, fire, card
keys, phones, irrigation, elevators, and heating, ventilation, and air
conditioning systems), as well as an assessment of the Year 2000 issues relating
to third parties with which Homestead has a material relationship or whose
systems are material to the operations of Homestead's properties.
Homestead's computer hardware, operating systems, general accounting,
property management systems and principal desktop software applications are Year
2000 compliant as certified by the various vendors. Homestead has tested these
information technology systems, and based on this testing, management does not
anticipate any Year 2000 issues that will materially impact operations or
operating results.
Homestead's critical non-information technology systems have been
inventoried and have been assessed for Year 2000 compliance by contacting the
vendors of the systems. All non-information technology systems are in
compliance.
Homestead has surveyed its financial institutions and major vendors to
determine the extent to which Homestead is vulnerable to failure by those
institutions and vendors to make their systems Year 2000 compliant. Homestead
has received responses indicating these institutions and vendors are either Year
2000 compliant or have plans in place to be compliant by year end. Homestead's
most reasonably likely worst case scenario is the failure on the part of these
entities to be or become Year 2000 compliant which could result in disruption in
Homestead's cash receipt and disbursement functions, utilities and the failure
of reservation systems. Homestead management does not believe that the company
faces a material adverse financial impact from Year 2000 problems in the most
likely worst case scenario.
Homestead will complete by November 1999 a contingency plan to deal with
unforeseen problems caused directly or indirectly by Year 2000 issues. The plan
will address temporary procedures required due to failures in internal systems
or by service providers due to Year 2000 issues.
Homestead's historical costs for addressing the Year 2000 issue are not
material and management does not anticipate that its future costs associated
with the Year 2000 issue will be material. Third-party costs and software
upgrades or replacements for Year 2000 issues are not expected to exceed
$50,000. Homestead does not separately track the internal costs incurred for
Year 2000 compliance issues. Such costs are principally the related payroll
costs of its information technology group. Although the cost of recently
replacing Homestead's key information technology systems was substantial, the
replacements were made to improve operational efficiency and were not
accelerated due to the Year 2000 issue. Homestead has not delayed any material
projects as a result of the Year 2000 issue. Funds expended to address Year 2000
issues have been made from operating cash flow.
There can be no assurances that Year 2000 remediation by Homestead or third
parties will be properly and timely completed, and failure to do so could have a
material adverse effect on Homestead, its business and its financial condition.
18
<PAGE>
Homestead cannot predict the actual effects to it of the Year 2000 problem,
which depends on numerous uncertainties, many of which are outside its control,
such as: (i) whether significant third parties properly and timely address the
Year 2000 issue; and (ii) whether broad-based or systemic economic failures may
occur. Failures could include disruptions in passenger transportation or
transportation systems generally, loss of utility and/or telecommunications
services, the loss or disruption of hotel reservations made on centralized
reservation systems and errors or failures in financial transactions or payment
processing systems such as credit cards. Homestead's Year 2000 compliance
program is expected to significantly reduce the level of uncertainty about the
Year 2000 issue and management believes that the possibility of significant
interruptions of normal operations should be reduced.
Homestead will continue to monitor these issues through its Year 2000 compliance
program.
ENVIRONMENTAL MATTERS
Homestead is not aware of, nor does it expect, any environmental condition
on its properties to have a material adverse effect upon its business, results
of operations or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Homestead's exposure to market risk for changes in interest rates relates
primarily to its lines of credit facilities. Homestead has no involvement with
derivative financial instruments.
The table below provides information about Homestead's financial
instruments that are sensitive to changes in interest rates, including estimated
fair values for Homestead's interest rate sensitive liabilities as of June 30,
1999. As the table incorporates only those exposures that exist as of June 30,
1999, it does not consider exposures which could arise after that date.
Moreover, because there were no firm commitments to actually sell the
obligations at fair value as of June 30, 1999, the information presented has
limited predictive value. As a result, Homestead's ultimate realized gain or
loss with respect to interest rate fluctuations will depend on the exposures
that arise during a future period and prevailing interest rates. Dollar amounts
in the following table are in thousands.
<TABLE>
<CAPTION>
EXPECTED MATURITY/PRINCIPAL REPAYMENT DECEMBER 31,
Nominal
Interest Total Fair
Rate 1999 (2) 2000 2001 2002 2003 Thereafter Balance Value(3)
---- -------- ---- ---- ---- ---- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Sensitive Liabilities:
Lines of Credit Facilities - variable
rate (1)............................. 8.32% $ -- $199,000 $ -- $ -- $ -- $ -- $199,000 $ 199,000
Convertible Mortgage Notes - fixed rate.. 9.00% $ -- $ -- $ -- $ -- $ -- $ 221,334 $221,334 $ 218,363
Capital Lease Obligation - fixed rate.... 9.8% $ 2,006 $ 3,821 $4,213 $4,647 $5,124 $ 122,825 $142,636 $ 142,636
Other Long-Term Obligation - fixed rate.. 9.74% $ 3 $ 13 $ 14 $ 16 $ 17 $ 7,853 $ 7,916 $ 7,907
<FN>
(1) On March 18, 1999, Homestead obtained an extension and amendment of its
Working Capital Facilities to a December 31, 2000 due date. The Working
Capital Facilities interest terms were amended resulting in the
borrowings under the lines, based on the present borrowings to
collateral leverage ratio, bearing interest at 3% over LIBOR.
(2) Amounts represent expected maturities and principal repayment for the
six months remaining for 1999.
(3) The estimated fair value of obligations extending beyond a one-year
maturity as of June 30, 1999 were calculated by discounting the stream
of cash payments of each obligation using a rate which, in management's
judgement, represents an interest rate obtainable by Homestead as of
June 30, 1999 on a similar instrument.
</FN>
</TABLE>
19
<PAGE>
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on June 23, 1999
Shareholders elected the following Class I and Class II Directors to office:
Shares in Favor Shares Withheld
--------------- ---------------
Class I:
C. Ronald Blankenship 110,617,733 149,263
Eugene B. Vesell 110,631,477 135,519
Class II:
John P. Frazee 110,632,177 134,819
John C. Schweitzer 110,632,212 134,784
In addition, shareholders approved adoption of Homestead's 1999
Long-term Incentive Plan with 109,180,469 shares in favor
and 1,586,527 shares withheld.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Administrative Services Agreement dated January 1, 1999 between
Homestead Village Incorporated and SCGroup Incorporated
10.2 Separation Agreement and General Release between Robert C. Aldworth
and Homestead
10.3 Separation Agreement and General Release between Michael D. Cryan and
Homestead
10.4 Separation Agreement and General Release between Robert J. Morse and
Homestead
10.5 Change in Control Agreement between David C. Dressler, Jr. and
Homestead
10.6 Change in Control Agreement between Gary A. DeLapp and Homestead
15 Letter regarding unaudited interim financial information
27 Financial Data Schedules
(b) Reports on Form 8-K.
Date Items Reported Financial Statements
April 5, 1999 Item 5, Item 7 No
May 3, 1999 Item 5, Item 7 No
May 4, 1999 Item 5, Item 7 No
May 12, 1999 Item 5, Item 7 No
20
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
HOMESTEAD VILLAGE INCORPORATED
/S/ BRYAN J. FLANAGAN
Bryan J. Flanagan, Senior Vice President
And Chief Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: August 13, 1999
21
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is made and
entered into effective as of January 1, 1999, by and between Homestead Village
Incorporated, a Maryland corporation ("the Company"), and SCGroup Incorporated,
a Texas corporation ("SCGroup").
WHEREAS, the Company wishes to purchase from SCGroup certain
administrative services designed to assist the Company in the cost-efficient
management of the Company's administrative and business affairs in the manner
and pursuant to terms and conditions as more specifically described herein; and
WHEREAS, SCGroup desires to provide or cause to be provided those
services requested by the Company under such terms and conditions; and
WHEREAS, SCGroup will perform similar administrative services for other
entities (collectively "SCGroup Clients") which may vary from time to time.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. Services
1.1 Scope of Services. The specific services to be provided by
SCGroup to the Company (each a "Service" and collectively the "Services") shall
be listed in Schedule A. Schedule E provides a description of the manner and
extent to which each Service will be provided. The scope of Services provided by
SCGroup may be expanded, reduced or otherwise modified during the Initial Term
(as defined in Section 3) or any Renewal Term (as defined in Section 3) upon
prior written agreement of the parties. Unless otherwise agreed, the Company
shall provide SCGroup with written notice at least 30 days prior to any
requested change in the scope of Services. In addition, the parties shall review
the scope of Services annually and shall complete such review and agree upon any
resulting scope changes for the upcoming calendar year not later than November
30 of the then current year. In either event, Schedules A and E shall be amended
to reflect any agreed upon changes in the scope of Services.
1.2 Performance of Services. SCGroup covenants that it will
perform or cause to be performed the Services in a timely, efficient and
workmanlike manner. SCGroup further covenants that it will maintain or contract
for a sufficient staff of trained personnel to enable it to perform the Services
hereunder. SCGroup may delegate and subcontract some or all of its obligations
under this Agreement to one or more third parties. If SCGroup does so, it will
remain responsible for the performance of all obligations performed by such
subcontractors to the same extent as if such obligations were performed by
SCGroup employees.
1.3 Access, Information, Cooperation and Assistance. The
Company will provide SCGroup with all access, Company information, cooperation
and assistance necessary for SCGroup to perform the Services in accordance with
this Agreement. The Company will cooperate with SCGroup to institute changes
expected to result in reduced and more efficient resource usage.
<PAGE>
1.4 Changes in Scope of Service. Subject to appropriate
undertakings of confidentiality by SCGroup, the Company shall notify SCGroup at
least 30 days prior to the occurrence of any of the following: (i) the Company
proposes to acquire any new property or properties; (ii) the Company proposes to
enter into any business combination or acquire any significant assets of another
person or entity, (iii) the Company proposes to establish any new subsidiary
corporation, partnership, joint venture, business trust or other entity; (iv)
the Company proposes to conduct operations or business in any state or other
jurisdiction in which the Company is not qualified to transact business; or (v)
the Company proposes to take any other action which may significantly increase
the scope of Services to be provided by SCGroup hereunder. Upon receipt of such
notice by SCGroup, the parties shall negotiate in good faith the scope of such
Services and the charges payable therefor (if additional Services are required).
Any such charges shall be payable by the Company as provided in Section 2.4.
Section 2. Charges.
2.1 Charges. The charges to be paid by the Company to SCGroup
for the Services then being performed or to be performed by SCGroup shall be
listed in Schedule B ("Charges"). These charges shall remain in effect
throughout the initial or applicable Renewal Term of this agreement. If the
scope of Services is changed during the annual review process or at any other
time, the parties shall negotiate in good faith and agree in advance on any
resulting changes in the Charges to be paid to SCGroup by the Company in the
subsequent Renewal Term. Schedule B shall be amended to reflect any agreed upon
changes in the Charges.
2.2 Retained Expenses. The Company shall retain financial
responsibility for those functions and expense items shown as retained expenses
in Schedule D. The Company will be billed directly by third parties for such
services. The Company agrees to pay such expenses timely and in the ordinary
course of business.
2.3 Pass-Through Expenses. Pass-through expenses are listed in
Schedule C. Unless otherwise agreed by the parties, pass-through expenses will
be paid by the Company directly. SCGroup will promptly provide the Company with
the original third-party invoice for such expenses together with a statement
that SCGroup has reviewed and validated the invoiced charges. SCGroup will
highlight any charges that appear to be inappropriate and will work with the
Company to reconcile all bills with the third-party suppliers.
<PAGE>
2.4 Payment for Services. SCGroup shall invoice the Company,
at the end of each calendar month, the amount agreed to from time to time
pursuant to Section 2.1 for the applicable Service. Such amount shall be payable
in full within 20 days of receipt of such invoice by the Company. Any past due
amounts shall be subject to a .834% per month (10% per annum) (or the maximum
rate allowable by law, whichever is less) late payment fee.
2.5 Taxes.
(a) Each party will pay any real estate or personal property
taxes on property its owns or leases, franchise and privilege taxes on
its business, and taxes based on its net income or gross receipts.
(b) SCGroup will pay all sales, use, excise, value-added,
services, consumption, and other taxes and duties payable by SCGroup on
any goods or services used or consumed by SCGroup in providing the
Services where the tax is imposed on SCGroup's acquisition or use of
such goods or services and the amount of tax is measured by SCGroup's
costs in acquiring such goods or services.
(c) In the case of any sales, use, excise, value-added,
services, consumption, or other tax during the term of this Agreement
that is assessed on the provision of the Services as a whole, or on any
particular hardware, software, or Services received by the Company from
SCGroup, the Company will pay such taxes.
(d) The Parties agree to fully cooperate with each other to
enable each to more accurately determine its own tax liability and to
minimize such liability to the extent legally permissible.
Section 3. Term. The initial term of this Agreement shall commence on
the date hereof and, unless terminated earlier in accordance with Section 10,
shall end on December 31, 1999 (the "Initial Term"). Absent written notice of
non-renewal as provided in this Section 3, this Agreement shall be automatically
renewed for successive one-year terms (each, a "Renewal Term") upon the
expiration of the Initial Term and each Renewal Term. Notice of non-renewal, if
given, shall be given in writing by either party hereto not less than ninety
(90) calendar days before the expiration of the Initial Term or any Renewal
Term.
Section 4. Audit of Services. At any time during regular business hours
and as often as reasonably requested by the Company's officers, SCGroup shall
permit the Company or its authorized representatives to examine and make copies
and abstracts from the records and books of SCGroup for the purpose of auditing
the performance and Charges of SCGroup under the terms of this Agreement;
provided, that all costs and expenses of such inspection shall be borne by the
Company.
Section 5. Company Data. Data obtained by SCGroup from the Company in
connection with the performance of any Services ("Company Data") is and shall
remain the exclusive property of the Company. SCGroup is authorized to have
access to and make use of the Company Data as necessary and appropriate for the
<PAGE>
performance by or for SCGroup of its obligations under this Agreement. Upon the
termination or expiration of this Agreement, SCGroup will return to the Company
all Company Data then in its possession. SCGroup will not use Company Data for
any purpose other than for providing the Services.
Section 6. Confidentiality. Except as otherwise provided in this
Agreement, SCGroup and the Company each agree that all information communicated
to it by the other, whether before or after the effective date of this
Agreement, will be received in strict confidence, will be used only for purposes
of this Agreement, and will not be disclosed by the recipient party without the
prior written consent of the other party. Each party agrees to use the same
means it uses to protect its own Confidential Information, but in any event not
less than reasonable means, to prevent the disclosure of such information to
outside parties. However, neither party will be prevented from disclosing
information to its counsel or regular public accountants, or from disclosing
information which belongs to such party, or is (a) already known by the
recipient party without an obligation of confidentiality; (b) publicly known or
becomes publicly known through no unauthorized act of the recipient party; (c)
rightfully received from a third party; (d) independently developed without use
of the other party?s confidential information; (e) disclosed without similar
restrictions to a third party by the party owning the confidential information;
or (f) required to be disclosed pursuant to a requirement of a governmental
agency or legal requirement if the disclosing party provides the other party
with notice of this requirement prior to disclosure.
Section 7. Service Levels.
7.1 Establishment of Service Levels. Schedule E contains the
scope of services and service levels agreed to by the parties. To the extent any
desired service level is determined by the parties to be unattainable using
commercially reasonable efforts, SCGroup will identify the level of service
which is reasonably attainable, the modifications or changes necessary to attain
the higher service level and the costs associated with such modifications or
changes. Following the initial one year period, the parties will meet as
required to evaluate and revise the service levels to the extent appropriate.
SCGroup will measure the quality and quantity of the Services actually
delivered. The data obtained by SCGroup will be reviewed and verified by the
parties and will be one of the bases for evaluating and possibly revising
Schedule E. All such revisions must be agreed to by the Company and SCGroup. If
requested, the Company will provide copies of relevant information in its
possession to SCGroup to assist in any review or revision of the service levels.
7.2 Failure to Attain Service Levels. If SCGroup fails to
attain any service level, SCGroup will (i) promptly investigate the cause of the
problem; (ii) prepare a report identifying the cause of the problem and
recommending solutions; and (iii) use commercially reasonable efforts to correct
the problem and to begin meeting the service levels as soon as practicable.
Section 8. Prevention of Performance. SCGroup shall not be determined
to be in violation of this Agreement if it is prevented from performing any
Services hereunder, in whole or in part, by the acts or omissions of the Company
or a third party or for any other reason beyond its reasonable control,
including without limitation acts of God, nature or public enemy, war, civil
disturbance, labor dispute, failure or fluctuation in electrical power, heat,
light, air conditioning or telecommunication service, or limitations of law,
regulations or rules of the Federal, state or local government or of any agency
thereof.
<PAGE>
Section 9. Software and Other Intellectual Property.
9.1 Company Software. The Company's ownership, license or
other right or title to computer software used by the Company
("Company Software") will remain the Company's property and SCGroup will have no
ownership interest or other right in such Company Software due to this Agreement
or the services provided hereunder, except as provided in this Section. The
Company grants to SCGroup, without charge, the limited nonexclusive
nontransferable right to access Company Software during the term of this
Agreement for the purpose of, and to the extent necessary for, performing the
Services.
9.2 SCGroup Software. Software owned by or licensed to SCGroup
which is used by SCGroup in providing the Services (collectively, "SCGroup
Software") is and will remain SCGroup's property and the Company will have no
ownership interest or other right in such SCGroup Software.
9.3 Intellectual Property Rights. If, in the course of
providing Services under this Agreement, the Company requests and SCGroup agrees
to develop any Software, process, document or other material to the
specification of the Company, not being SCGroup Software or an enhancement
thereto, and the Company pays all of the Charges associated with such
development ("Work Product"), then the copyright or other intellectual property
rights and all legal and beneficial rights therein shall belong to the Company.
SCGroup hereby assigns to the Company all right, title and interest that arises
in SCGroup with respect to such Work Product, including all intellectual
property rights related thereto, and SCGroup agrees to take all reasonable steps
and execute all documents necessary to perfect title to such Work Product in the
Company. SCGroup shall be permitted to access and use such Software, process,
document or other material to the extent necessary for the provision of the
Services to the Company.
9.4 SCGroup Ownership Rights. Except as provided for in
Section 9.3 above, all copyright or intellectual property rights in any
Software, process, document or other material created by SCGroup, its employees
or agents and all legal and beneficial rights therein shall belong to SCGroup.
Section 10. Termination.
10.1 Termination for Cause. Either party may terminate this
Agreement, in whole or in part, by giving written notice to the other party, if
such other party materially breaches any of its duties or obligations set forth
herein and fails to cure such breach within thirty (30) days of written notice
of such breach. If less than all Services are terminated, the parties will
equitably adjust the Charges to be paid by the Company hereunder for the
remaining Services.
<PAGE>
10.2 Terminate for Insolvency. In the event that either party
(a) files for bankruptcy; (b) becomes or is declared insolvent, or is the
subject of any proceedings related to its liquidation, insolvency or the
appointment of a receiver or similar officer for it; (c) makes an assignment for
the benefit of all or substantially all of its creditors; or (d) enters into an
agreement for the composition, extension, or readjustment of substantially all
of its obligations, then the other party may terminate this Agreement at any
time upon notice to the other party.
SECTION 11. DISCLAIMER AND LIMITATION OF LIABILITY AND INTELLECTUAL
PROPERTY CLAIMS BETWEEN PARTIES.
11.1 DISCLAIMER. EXCEPT AS SPECIFICALLY STATED IN THIS
AGREEMENT, NEITHER SCGROUP NOR THE COMPANY MAKES ANY REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, REGARDING ANY MATTER, INCLUDING THE
MERCHANTABILITY, SUITABILITY, ORIGINALITY, TITLE, FITNESS FOR A PARTICULAR USE
OR PURPOSE, OR RESULTS TO BE DERIVED FROM THE USE OF ANY HARDWARE, SOFTWARE,
SERVICES OR OTHER ITEMS PROVIDED UNDER THIS AGREEMENT.
11.2 LIMITATION OF LIABILITY. IN NO EVENT WILL A PARTY BE
LIABLE FOR INDIRECT, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES EVEN
IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Additionally,
the total liability of the parties under or in connection with this Agreement
will be limited to the total charges paid by the Company to SCGroup during the
12 months preceding the event which is the subject of the claim (the "Liability
Cap"); provided, however, the Liability Cap will not apply with respect to (i)
damages occasioned by the willful misconduct of a party, (ii) claims that are
the subject of the indemnification provisions set forth herein, or (iii) the
failure to pay Charges due and owing to SCGroup under this Agreement.
Section 12. Indemnification.
12.1 By the Company. The Company shall indemnify, defend and
hold SCGroup, and its directors, officers, and employees harmless from and
against all damages, losses and reasonable out-of-pocket expenses (including
fees) incurred by SCGroup Incorporated in the course of performing the duties on
behalf of the Company and its subsidiaries as prescribed hereby, except for
matters covered by subsection 12.2 hereof.
12.2 By SCGroup. SCGroup shall indemnify, defend and hold the
Company, its trustees, officers and employees harmless from and against all
damages, losses and reasonable out-of-pocket expenses (including fees) caused by
or arising out of any willful misconduct or gross negligence by SCGroup in the
performance of its obligations under this Agreement.
12.3 Remedy. Except as otherwise provided in subsection 12.2
hereof, SCGroup does not assume any responsibility under this Agreement other
than to render the Services called for under this Agreement in good faith and in
a manner reasonably believed to be in the best interests of the Company. Except
<PAGE>
as otherwise provided in subsection 12.2 hereof, the Company's sole remedy on
account of the failure of SCGroup to render the Services as and when required
hereunder shall be to procure services elsewhere.
Section 13. Relationship of the Parties.
13.1 Independent Contractor Status. SCGroup is an Independent
Contractor. This Agreement will not be construed as creating any partnership,
agency relationship or other form of legal association that would impose
liability upon one party for the other party?s actions or failure to act. Nor
will this Agreement be construed as providing either party with the right, power
or authority (express or implied) to create any duty for, or obligation of, the
other party.
13.2 Responsibility for Employees. Each party will be
responsible for the management, direction and control of its employees and other
agents. All SCGroup employees used in performing SCGroup?s obligations under
this contract shall be employed solely and exclusively by SCGroup, and all
Company employees used in performing the Company?s obligations under this
Agreement shall be employed solely and exclusively by the Company. Thus, SCGroup
and the Company shall not be considered a joint or single employer of any
employee.
13.3 SCGroup Control of Services. Except where this Agreement
expressly provides that SCGroup will perform certain identified Services as
agent for the Company, the Services will be under the control, management and
supervision of SCGroup.
Section 14. Notices.
14.1 Manner of Delivery. Each notice, demand, request,
consent, report, approval or communication (each a "Notice") which is or may
be required to be given by either party to the other party in connection with
this Agreement and the transactions contemplated hereby, shall be in writing,
and given by telecopy, personal delivery, receipted delivery service, or by
certified mail, return receipt requested, prepaid and properly addressed to
the party to be served.
14.2 Addresses. Notices shall be addressed as follows:
If to the Company:
Homestead Village Incorporated
7777 Market Center Avenue
El Paso, TX 79912
Attention: Bryan J. Flanagan
If to SCGroup:
SCGroup Incorporated
7777 Market Center Avenue
El Paso, Texas 79912
Attention: J. Robert Hutchison
<PAGE>
14.3 Effective Date of Notice. Notices shall be effective on
the date sent via telecopy, the date delivered personally or by receipted
delivery service, or three (3) days after the date mailed.
14.4 Change of Address. Each party may designate by notice to
the others in writing, given in the foregoing manner, a new address to which
any notice may thereafter be so given, served or sent.
Section 15. Entire Agreement. This Agreement, together with the
Exhibits hereto, constitutes and sets forth the entire agreement and
understanding of the parties pertaining to the subject matter hereof, and no
prior or contemporaneous written or oral agreements, understandings,
undertakings, negotiations, promises, discussions, warranties or covenants not
specifically referred to or contained herein or attached hereto shall be valid
and enforceable. No supplement, modification, termination in whole or in part,
or waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. 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 any such waiver
constitute a continuing waiver unless otherwise expressly provided.
Section 16. Priority. If there is any apparent conflict or
inconsistency between the provisions set forth in this Agreement, and the
provisions set forth in any schedule, exhibit, attachment or supplement
attached hereto, to the extent possible such provisions will be interpreted in
a manner so as to make them consistent. If it is not possible to interpret
such provisions consistently, the provisions set forth in the body of this
Agreement will prevail.
Section 17. No Third Party Beneficiaries. The parties do not
intend, nor will any clause of this Agreement be interpreted to create, for any
third party any obligation to or benefit from the Company or SCGroup.
Section 18. Survival. All provisions of this Agreement which
contemplate performance or observance following the expiration or earlier
termination of this Agreement, will survive any such expiration or earlier
termination. Additionally, all provisions of this Agreement will survive the
expiration or earlier termination of this Agreement to the fullest extent
necessary to give the parties the full benefit of the bargain expressed
herein.
Section 19. Consents and Approvals. Where agreement, approval,
permission, acceptance, consent or similar action by either party is required
by any provision of this Agreement, such action will not be unreasonably
delayed, conditioned or withheld.
Section 20. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, each of their respective
successors and permitted assigns, but may not be assigned by either party
without the prior written consent of the other party, and no other persons
shall have or derive any right, benefit or obligation hereunder.
<PAGE>
Section 21. Headings. The headings and titles of the various
paragraphs of this Agreement are inserted merely for the purpose of
convenience, and do not expressly or by implication limit, define, extend or
affect the meaning or interpretation of this Agreement or the specific terms
or text of the paragraph so designated.
Section 22. Governing Law. This Agreement shall be governed
in all respects, whether as to validity, construction, capacity, performance or
otherwise, by the laws of the State of Texas.
Section 23. Severability. If any provision of this Agreement shall be
held invalid by a court with jurisdiction over the parties to this Agreement,
then and in that event such provision shall be deleted from the Agreement,
which shall then be construed to give effect to the remaining provisions
thereof. If 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, then in that event, to
the maximum extent permitted by law, such invalidity, illegality or
enforceability shall not affect any other provisions of this Agreement or any
other such instrument.
Section 24. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which taken together shall be considered one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
HOMESTEAD VILLAGE INCORPORATED
By:
Bryan J. Flanagan
Senior Vice President
SCGROUP INCORPORATED
By:
Paul E. Szurek
Managing Director
SCHEDULE A
SCGroup shall provide the Company with the following services described in
Schedule E to this Agreement:
- ------------------------------------------------- -----------------------------
PARAGRAPH
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Business Services
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Payroll Bank Reconciliation 1.4 - only
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Stock Option Administration & Reporting 1.8 - only
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Cash Management 2
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Corporate Tax Administration 3
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Disbursements 4
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Facilities Management 5
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Human Resources 6
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Internal Audit 7
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Legal 8
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
MIS 9
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Payroll Processing 10
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Property Tax Administration 11
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Risk Management 12
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
Special Projects 13 - as requested &
authorized in advance
- ------------------------------------------------- -----------------------------
<PAGE>
SCHEDULE B
SCGroup will provide the services listed in Schedule A to be billed at the
following rates:
<TABLE>
SERVICE DESCRIPTION COST DRIVER RATE/COST DRIVER
<S> <C> <C> <C>
- ----------------------------------------------- -------------------------- --------------------------------
BUSINESS SERVICES:
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Financial Reporting and Analysis Services per hour $60
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
G/L Accounting Services per hour $25
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Stock Option Administration & Reporting per account $100/year
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Registrar and Transfer Agent Services (for up to per month $1,000
300 shareholders/certificates; $5 per shareholder
transactions above 300; $2.30/check (dividend/
bond)
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Payroll/Bank Reconciliation per hour $30
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
EIP Accounting per hour $25
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Budgeting and Forecasting per hour $40
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
CASH MANAGEMENT:
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Bank Relationship Management bank accounts Monthly fee (plus $1,000 per
bank account)(1)
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Wire Transfers (special handling wires - $40/wire) # wires $16/wire
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
CORPORATE TAX SERVICES:
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Income Tax Consulting Hours $85
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Tax Compliance Hours $60
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
DISBURSEMENTS:
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Accounts Payable (including filing and retrieval) # invoices $2.30/invoice
($2.00 for invoices over 200,000)
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Help Desk per call $4.00
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Emergency checks per check $50
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
A/P Rejects per reject $20
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Soda Stop Payments per stop payment $50
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
T&E Processing # vouchers $9/voucher
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Corporate Travel Center (and Corporate Card T&E $ 1%
Administration)
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
FACILITIES MANAGEMENT:
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
El Paso only Headcount $1,600/year
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
HUMAN RESOURCES:
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Performance Review & Compensation Services Headcount $60/year
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Database Management Headcount $25/year
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Health Benefits Administration Participants $100/year
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Retirement Plan Administration Participants $100/year
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Compliance Services Headcount $60/year
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Relocations (International $4,200) per relocation $700
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
HRIS (special reports $65/per hour) per HR report $80
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Pre-employment Screening per candidate $60
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Recruitment (El Paso only) per new hire $2,230
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
H/R Help Desk Headcount $15/year
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
INTERNAL AUDIT SERVICES:
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Internal Audit Hours $65
- ----------------------------------------------- -------------------------- --------------------------------
- ----------------------------------------------- -------------------------- --------------------------------
Audit Planning and Presentation Hours $125
- ----------------------------------------------- -------------------------- --------------------------------
</TABLE>
<PAGE>
<TABLE>
SERVICE DESCRIPTION COST DRIVER RATE/COST DRIVER
<S> <C> <C> <C>
- ---------------------------------------------- -------------------------- --------------------------------
LEGAL SERVICES:
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Lawyer per hour $180
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Paralegal per hour $90
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Associate per hour $45
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
MIS SERVICES:
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Office Setup-Support per hour $75
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Data Center Operations per PC/per year $564
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Telecom Voice Networks per port/per year $190
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
2nd Line Help Desk per call $25
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Training Offsite per day $2,800
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Training Onsite per 2-hour class $45
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
On-line Training per student/year $100
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Vendor Management and Administration per PC/per year $220
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Applications Development (non-El Paso-$75) per hour $80
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
PeopleSoft Financials, Support and Maintenance per user $225/month
(over 50 users, $100/month)
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
PeopleSoft H/R-Payroll Support & Maintenance Headcount $100/year
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Technical Writing per hour $45
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
PAYROLL (special handling checks/$50) # of pay checks $4.00
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
PROPERTY TAX SERVICES:
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Property Tax Appeals/Administration per property per year $800
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Property Tax Research per hour $70
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
RISK MANAGEMENT:
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Maintain and procure insurance coverage $ premium 4.25%
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Claims Management $ per claim $215
- ---------------------------------------------- -------------------------- --------------------------------
- ---------------------------------------------- -------------------------- --------------------------------
Secure Performance Bonds $ per bond premium 12%
- ---------------------------------------------- -------------------------- --------------------------------
<FN>
(1) Property bank accounts are counted as one quarter of corporate bank
accounts. Cash Management fee based on customer revenues and is $0.25 per
$1,000 of revenue.
</FN>
</TABLE>
<PAGE>
SCHEDULE C
Pass-Through Expenses are expenses and costs incurred by the
Company for which SCGroup has oversight responsibility for the third-party
vendor and will review and validate the invoiced charges. These Pass-Through
Expenses include but are not limited to the following:
- Independent audit expenses
- External tax-related services
- Insurance premiums and claims
- Banking fees
- External payroll processing fees
- Third-party vendors hired at the direction of the Company
- Out-of-pocket expenses
- All out-of-pocket expenses will be billed as incurred.
Applicable out-of-pocket expenses may include but
are not limited to: postage, envelopes, labels, forms
and stationery and delivery and freight charges
- Computer hardware, software or telephone equipment purchases
<PAGE>
SCHEDULE D
Retained Expenses are costs and expenses incurred by the Company
from third parties which may provide the Company with administrative services in
an outsource arrangement. Retained expenses include, but are not limited to, the
following:
- Costs and expenses of third party service providers (eg:
IBM, CompuCom or Merrill Lynch), including fees and
out-of-pocket expenses.
<PAGE>
SCHEDULE E
SERVICE LEVEL DESCRIPTION AND STANDARDS BETWEEN THE COMPANY AND SCGROUP
A. Purpose of Objective
The Company and SCGroup have jointly created this Schedule to detail
the conditions and expectations of the two parties regarding service
delivery by SCGroup to the Company.
No changes will be made to this Schedule without the agreement of both
parties. This Schedule will remain in force until explicitly
superseded, replaced or terminated.
B. Scope
SCGroup provides the services provided for in the Agreement to which
this Schedule is attached. Section E of this Schedule contains service
descriptions and standards to which SCGroup will adhere in providing
services during the term of this agreement.
From time to time, the Company may make requests for additional
services not covered by this Agreement ("out-of-scope" services). Upon
such request, the Company and SCGroup shall determine in good faith
whether such services requested by the Company were intended to be
included in paragraph D below or were out-of-scope. If the services
are determined to be out-of-scope, SCGroup personnel will notify
requesting Company personnel if they believe a service request is
out-of-scope. It a service request is determined to be out-of-scope,
an estimate of the cost will be provided to the Company Service
Manager and approval received from the Service Manager prior to
providing such service to the Company.
This Schedule pertains to all personnel in the home office, as well as
all regional offices within the United States.
C. Contact Personnel
The Company and SCGroup each shall designate a Service Manager who is
responsible for managing the respective rights and obligations of the
parties.
Contact information for the Service Managers and related personnel are
listed in Appendix A.
D. SCGroup agrees to provide the company with some or all of the
following services and adhere to the service standards described below
through the term of this agreement.
SCGroup will also provide the Company with standard, monthly
management reports to assist the Company with the analysis of the
Company's usage of SCGroup services. The reports will contain
budget-to-actual volume data and comparisons and information to enable
the Company to determine the source of demand for non-standard
services.
<PAGE>
1. Business Services
1.1 General Ledger Accounting Services
(a) General Ledger Accounting
- Maintain system master files including chart
of accounts and application security
- Generate and record standard general
ledger transactions Record non-standard
general ledger transactions provided by
management
- Update system with annual budget and
quarterly forecast data
- Produce standard system generated financial
statements
- Support external audit requirements
- Maintain transaction
documentation and closing files (trial
balance, current ledger, various account
analysis, reconciliations, sub-ledger
printouts, closing checklist)
(b) Property Accounting
- New property setup and on-going
maintenance from lease abstracts
- Produce and record monthly recurring charges
(rent roll)
- Record non-recurring charges provided by
management
- Record and apply cash receipts to open
charges
- Produce standard system generated receivable,
revenue and management reports
- Maintain transaction documentation and
closing files (account analysis and
sub-ledger to general ledger reconciliations)
(c) Project Cost
- Maintain system master files including job
data and cost codes
- Record job cost transactions
- Update system with job cost budget data
- Produce standard system generated job
cost reports
- Maintain transaction documentation and
closing files (account analysis and
sub-ledger to general ledger reconciliations)
1.2 Financial Reporting and Analysis
- Prepare Security Capital Group Incorporated
("SCG") flash and performance summary
internal reports
- Prepare standard company management financial
and operating reports (as they exist on the
date of this agreement)
- Prepare financial statements for external use
- Other ad hoc reports and analysis including
supporting schedules
- Report development and/or assistance with
third party report development
1.3 Budgeting and Forecasting
- Prepare budgets and forecasts at the
direction of the Company
- Prepare future cash flow or other forward
looking projections
1.4 Payroll Bank Reconciliations
- Reconcile Company payroll bank accounts on
a monthly basis utilizing
- SCGroup standard bank reconciliation forms
- Provide journal entries necessary to correct
company book cash balance by the end
of the following month
1.5 Service Level Standards (for paragraphs 1.1 through
1.4)
- Produce flash and performance summary reports
by the 5th business day and the 15th
day following the end of the month,
respectively
- Respond to questions and management requests
within twenty-four hours
1.6 EIP Accounting
(a) Services - The following services are
provided for each Employee Investment
partnership:
- Partner investments and withdrawals
are accounted for in total in the
PeopleSoft General Ledger System and
tracked by partner in an EIP Access
Database
- Fundings to the investment companies are
prepared for EIP partners as well
as accredited investors
- Dividends from the investment
companies are deposited and posted to
the general ledger in total and
allocated to each partner quarterly
- Cash accounts are monitored daily Bank
reconciliations are performed monthly
- EIP distributions are prepared and
processed semi-annually
(b) Service Level Standards
- Partner investments and withdrawals
will be posted to the general ledger
and the database within five working
days of receipt
- All partner checks will be delivered to Cash
Management the same day they
are received
- Distributions to investment companies will be
wired within one working day
of the funds being available
- Dividends will be posted to the
general ledger and allocated to each
partner within five working days of
receipt
- Cash accounts will be monitored daily via
Cash Management XRT electronic
files
- Bank reconciliations will be prepared
by the end of each subsequent month
- EIP distributions and/or statements to
partners will be processed and
mailed semi-annually on January 31 and
July 31, or five working days following
the receipt of the dividend checks,
whichever is later.
1.7 Registrar and Transfer Agent Services
(a) Account Maintenance (maintenance of
shareholders of record)
- Processing of new shareholder accounts
- Posting and acknowledging address changes
- Processing other routine file
maintenance adjustments Posting all
transactions, including debit and
credit certificates to the
stockholder
- Researching and responding to all registered
shareholder inquiries
- Responding to requests for audit
confirmations
(b) Routine Certificate Issuance (issuance,
cancellation and registration of certificates
- Production and mailing of certificates
- Processing of all legal transfers
- Combining certificates into large
and/or smaller denominations
- Replacing lost certificates Placing,
maintenance and removing stop-transfer
notations
(c) Mailing, Reporting and Miscellaneous
Services
- Addressing, enclosing and mailing to
registered shareholders company-provided
materials
- Preparing and mailing dividend and
interest checks Preparing standard
reports - Stockholder Activity Report,
- Certificate Detail Report, and Net Change
Report
- Preparing 1099s and corresponding end of year
reports
(d) Annual Meeting Services
- Preparing stockholder lists for mailing of
announcements
- Preparing mailing labels for proxies
(e) Service Level Standards
- SCGroup shall at all times act in good
faith and agrees to use its best
efforts within reasonable time limits
to ensure the accuracy of all services
performed under this Agreement
- Shareholder list will be mailed or
e-mailed by the 15th of the month
- Dividend payment checks that are
required to be signed by persons
located outside El Paso will be overnighted
to the Company for signature one day in
advance of the dividend payment date
- Where an authorized check signer
resides in El Paso, checks will be
mailed directly from the El Paso office
on the dividend payment date
1.8 Stock Option Administration and Reporting
<PAGE>
(a) Account Maintenance
- Process of new stock option accounts
- Post and acknowledging address changes
- Process other routine file maintenance
adjustments
- Post all transactions,
grants, exercises/management questions
regarding the stock option database
- Provide "in the money" or exercise
calculations to employee/management
(b) Routine Grant Issuance
- Issuance of stock option grants,
cancellations and exercises
(c) Mailing, Reporting and Miscellaneous Services
- Prepare standard monthly reports -
options granted, options cancelled,
options exercised and options
outstanding
- Prepare standard year-end reports -
FAS 123 reports - expense allocation
report, outstanding exercisable by
price report, options/SAR grants in
last fiscal year report, valuation
disclosure recap and valuation of
options granted report
- Other standard year-end reports -
stock purchase loan statement summary,
statement of dividend equivalent units
("DEU") in the aggregate
- Standard end of year employee
statements - summary statement, option
award summary, option award summary
with vesting, supplemental DEU
calculation worksheet, statement of
dividend equivalent units, statement of
dividend equivalent units with vesting
and stock purchase loan statement
- New grant employee statements
(d) Additional Services
- Any additional services requested by
the customer, provided by SCGroup which
are not described above are to be
billed separtely at an hourly rate of
$50.00 per hour.
(e) Out-of-pocket Expenses
- All out-of-pocket expenses will be
billed as incurred. Applicable
out-of-pocket expenses may include but
are not limited to:
- postage, envelopes, labels, forms and
stationery and delivery and
freight charges.
(f) Service Level Standards
- SCGroup shall at all times act in good
faith and agrees to use its best
efforts within reasonable time limits
to ensure the accuracy of all services
performed under the Agreement.
- The following option reports will be
mailed or e-mailed by the 8th of the
following month:
<PAGE>
- Options Granted, Options Cancelled, Options
Exercised and Options Outstanding
- End of year reports will be mailed
by January 31 of the following
year
- End of year employee
statements will be mailed by
January 31 of the following year
2. Cash Management
2.1 Cash Optimization Services
- Daily forecasting of cash needs and excess
cash.
- Invest and redeem excess cash, as deemed
prudent or necessary consistent with
Company guidelines.
- Manage line of credit borrowing and payment.
- Execute internal funds transfers to
concentrate cash efficiently.
- Facilitate payments for utilities, taxes,
payroll, and mortgages.
- Fund controlled disbursement checking
accounts.
- Prepare daily bank deposits & overnight
to concentration account.
- Provide NSF information.
- Provide deposit slips & endorsement stamps.
- Process research requests.
- Utilize bank earnings credits to the extent
possible or practicable.
2.2 Wire Transfers
- Process wire and ACH disbursements.
- Ensure that funds are available for payment.
2.3 Special Handling Wire Transfers
- Process cashiers checks, foreign currency
drafts, international wires, late wires,
tentative wires, federal reference numbers,
incoming wire tracking,and morning deadline
wires.
2.4 Bank Account Maintenance
- Opening, closing, and changing bank or
investment accounts.
- Maintain account records.
- Daily reconciliation of account activity and
balances.
- Changes to corporate banking resolutions,
certificates of incumbency, and account
signers.
- Negotiate bank prices, review fees and
process for payment.
- Support controlled disbursement/positive pay
accounts, investment accounts,
concentration accounts.
- Provide detailed reports on account activity.
- Low maintenance accounts such as property
accounts (including location codes), petty
cash accounts, and security deposit accounts
are charged as only one-quarter of an account.
<PAGE>
2.5 Service Level Standards
- Wires will be sent on time provided that
the wire request form is completed accurately
and submitted by the deadline (noon on
the day before for US wires, four days
ahead for international wires).
- Morning payments are executed subject
to receipt of any necessary funding. Late
requests will be processed on a best-efforts
basis.
- Special handling instructions will be
followed provided that the instructions are
included on the disbursement request form.
- Service levels are subject to external
constraints including, but not limited
to, receipt of information on large
dollar transactions, customer's operational
needs, bank availability schedules, bank
deadlines, borrowing provisions, and
transaction costs.
- Balance, activity, and NSF reports will be
provided daily.
- All investments executed by Cash Management
will adhere to Company investment
guidelines.
- Investment and borrowing decisions will be
made daily and executed in time to meet
financial institution deadlines.
- Checks received in cash management by 3 p.m.
will be sent overnight to the bank provided
that the transaction costs are lower than
the additional interest earnings.
2.6 Items Not Covered
- Substantive changes such as those resulting
from mergers and acquisitions, the addition
of new legal entities, the implementation
of new bank services, and new lines of
credit.
- Development of new cash management
services (such as direct debit, automated
journal entries).
- In addition to the wire charges above, AP
also charges a fee for processing all
disbursements.
- Bank fees are charged to the Company.
- Mail costs (for overnight deposits, deposit
supply mailings etc.) are charged to
the Company.
- Services requested by customer under this
paragraph are billed separately at an
hourly rate of $50 per hour.
3. Corporate Tax Administration
3.1 Tax Compliance Services
- Preparation of federal and state tax
workpapers for the Company and all domestic
subsidiaries/partnerships
- Coordination/scheduling of review of
workpapers and preparation of federal/state
tax returns by independent public accounting
firms
- Review of tax returns and timely filing with
appropriate federal/state taxing
jurisdictions
<PAGE>
- Preparation and timely filing of annual
reports in order to maintain "good standing"
in states in which the Company is doing
business
- Correspondence with taxing authorities on
all routine matters Preparation of
filing extensions with all federal/state
jurisdictions for all appropriate entities.
- Timely preparation and filing of forms
1099 related to taxability of dividends,
reporting of dividend/interest payments,
and other miscellaneous payments.
3.2 Tax Consulting Services
- Calculation/monitoring of quarterly REIT
income and asset tests to ensure
compliance with REIT requirements
- Preparation/review of periodic taxability
forecasts both as requested and as
recommended to assist management in operating
the business
- Calculation of quarterly federal/state
estimated tax calculations and timely
remittance to appropriate taxing
jurisdictions
- Coordination/management and handling of
income tax audits. Will manage and consult
with external advisors as appropriate
- Asset optimization planning to include:
- Tax basis analysis
- 1031 issues
- Tracking tax basis of replacement
properties
- Responding to ad-hoc requests/projects for
tax planning consulting as engaged. Will
initiate tax planning issues with management
where deemed appropriate
3.3 Items Not Covered
- Items not included in the fees and services
set forth in this agreement will be
provided as requested at our normal hourly
rates.
3.4 Service Level Standards
- Compliance and consulting work will not
exceed budget without prior consent of the
Company through its designated tax matters
representative.
- All tax returns will be timely filed
provided information required to be
furnished by the Company is provided on a
timely basis.
4. Disbursements
4.1 Invoice Processing Services
(a) General
- Process all properly approved and coded
invoices for payment; issue check to
vendor
- Perform back-end audits for policy
compliance
- Enter all invoices into system
- Update master files
- Generate weekly check runs
- Match remittances
- Obtain authorized manual signature
if check amount over $10,000
- Overnight/Special Handling checks
processed daily
- Mail checks
- File "processed" invoices
<PAGE>
- Issue positive-pay bank transmissions
daily
- Purchase Card Administration
- Issue/Change/Cancel P-Cards
- Issue Cardholders Statements Monthly
- Provide Standard P-Card reports on
an as-requested basis
- Provide one custom report (excess
reports to be billed at $50.00
each)
- Download MasterCard transactions to G/L
system monthly (more than once
monthly to be billed at $50.00 each)
- Prepare payment to Wells Fargo for
P-Card transactions monthly
- Other Services
- Electronic funds processing
- Recurring payment processing
- Returned checks
- Issue void at bank and in system
- Reissue, if necessary
- 1099 reporting compliance
(b) Emergency (Manual) Check Services
- Process emergency or manual check as
requested by customer
- Overnight/Special Handling processing
- Mail checks per special handling
instructions
(c) AP Compliance (Reject) Program Services
- Prepare reject notification for improperly
completed vouchers; return to sender
- Oversee and administer the AP Compliance
Program
- Monitor compliance by company,
property and non-compliance type
- Review compliance on a monthly basis
with customer senior management Provide
monthly reports on all non-compliance
issues to customer senior management
(d) Stop Payments and Reissued Checks
- Process stop payments; void check in system
and at bank
(e) Service Level Standards
- Invoices processed within 3 business days
of receipt; payment generated according
to vendor payment terms
- AP Documentation filed within 48 hours (2
business days) of processing
- Checks disbursed one business day after
issuance
- Customer Service Calls returned within 2
business hours; research complete and
resolved within 48 hours (2 business days)
- Void Check and Stop Payment Requests
processed within 48 hours (2 business
days)
- SODA's processed within 3 business
days of receipt
<PAGE>
- Emergency Checks disbursed same business
day after issuance per special
handling instructions
4.2 Accounts Payable Help Desk Services
(a) General
- Answer general accounts payable ("A/P")
Help Desk calls
- Provide payment status of invoices, date
paid, check numbers, etc.
- Provide residents information on their
refunds
- Provide Signature Authorization
- Level information
- Provide A/P Manuals/Stamps (one Manual
per property; additional hard copy
manuals to be billed at $15.00 each and
Stamps to be billed at cost)
- Provide information on Common A/P Forms
- Provide information on A/P Policies and
Procedures
- Perform A/P research as required
(b) Vendor Management
- Process and enter New Vendor Setup Forms
(forms received must be complete and
accurate per A/P Manual)
- Update vendor information in vendor database
- MaintainFull-Risk/No-Risk Vendor
Compliance Program
- Maintain Insurance Certificates for
full-risk vendors
- Maintain filing system for full-risk/
no-risk vendors
- Prepare Vendor Credit Applications
- Maintain filing system for credit
applications
(c) Service Standards
- New Vendor Requests processed within 48
hours (2 business days) of receipt
- Customer Service Calls returned within 2
business hours; research complete and
resolved within 48 hours (2 business days)
4.3 Corporate Travel Center
(a) Corporate Charge Card Administration
- Corporate card application distribution,
processing, card distribution and
account maintenance
- Field calls from cardholders re: card losses
past due accounts, reconciliation questions
- Follow-up calls to delinquent cardholders
- Assistance in individual card
reconciliation and credit refund research
- Liaison to AMEX on behalf of cardholders
<PAGE>
- Prepare and coordinate weekly wire
transfers to AMEX
(b) Corporate Travel
- Manage relationship with Travel Agency
Partner (AMEX)
- Establish and monitor operating service
and financial agreements and standards
with vendors and customers; monitor
compliance and performance periodically
- Provide timely updates to all travelers
and travel planners on industry and
vendor changes, as well as corporate
travel policy updates
- Receive, report and provide follow-up on
service issues from travelers and
travel planners
- Update and maintain corporate travel
policy manual
- Maintain Business Traveler
Profiles
- Approve, reconcile, pay and charge-back
travel partner's direct billings
- Analyze travel data by Company; provide
standard reports to each company on a
quarterly basis
- Monitor travel policy compliance by Company
and provide standard exception
reports to management
4.4 T & E Voucher Processing Services
(a) General
- Date stamp all vouchers received
- Process new employee account setups
- Code for correct general ledger account
- Enter all vouchers into system
- Perform back-end audits for Policy Compliance
- File "processed" expense reports
- Generate files for wire transfers to
American Express on behalf of employee
- Generate employee checks for out-of-pocket
expenses
- Emergency check processing and
American Express payments
- Process and reconcile employee cash
advances
- Archive files
(b) Service Level Standards
- T&E processed within 96 hours (4
business days) of receipt, payment
generated and prepared for distribution
- Customer Service inquiries acknowledged
within 2 business hours
4.5 Items Not Covered
- Special projects to include:
- Training of SCG affiliated company
employees on use of A/P system
- Setup and training of P-card, utilitY
outsourcing programs
- Change in business structure and
operation requiring process change
- Travel, lodging, car rentals and meals
related to special projects
- Meetings with customers for special
projects
- Consulting Time for special projects
- Major research projects
(requires time outside our service
description standards)
- Major copy projects (major copy
projects requiring time outside our
service description and standards)
- Requests from external auditors
- Special Reports and Logs
- Sales and Use Tax Compliance
- Copies of checks, invoices and employee
expense vouchers
- Copies to be billed at $ .20 each
- Full charge card account reconciliation
provided at a rate of $50.00 per hour
5. Facilities Management (Where services are required to be
performed in a specific location, this agreement refers to
the El Paso, Texas office at 7777 Market Center Avenue)
(a) National Supply/Service Agreements
- Provide a centralized contact for the
purchase/lease of copy, fax, and
postage equipment in addition to Steelcase
cube components.
- Assist in the purchase process, and establish
national purchasing agreements for the
benefit of the Company.
(b) Access Control System
- Maintain an access control system for the
benefit of all associates and their guests.
- This is a 24 hour per-day 7 day a week
service
- Requests for visitor/guest access should
be made 24 hours in advance of the required
need.
(c) Reception
- Receive and redirect telephone calls.
- Greet visitors.
- Receive and log in deliveries.
- Switchboard and lobby hours:
- 7:30am - 5:30pm Monday through
Thursday
- 7:30am - 5:00pm Friday, or the last
workday of the week.
(d) Mail Center
- Receipt and distribution of USPS mail,
packages, and supplies.
- Prepare for shipment, various items, both
domestic and international, generated by
the Company.
- Track mail.
- Additional requirements/service cutoffs:
- All USPS mail items must be received in
the mail room by 4:30pm to guarantee
delivery to the Post Office on the same
day.
- All other shipments must be received in
the mailroom by 5:00pm to guarantee
delivery to the various carriers the
same day.
<PAGE>
(e) Reprographics Center
- Provide bulk copy services and
booklet preparation. Special copy needs
can be accommodated with 24 hour advance
notice.
- Assist in the maintenance of self serve
copy equipment throughout the facility.
(f) Other
- Receive, catalog, and file documentation for
storage in the El Paso Center.
- Provide facsimile services.
- Fax receipts, i.e. incoming documents, to be
delivered within one hour of receipt
during normal business hours.
- Assist in the maintenance of self serve fax
machines throughout the facility.
- Local purchasing responsibility for day to
day operations need, including office
supplies.
- Provide basic new hire and associates cube
supplies.
- Special Order Items will be billed directly
to the requesting department.
- Housekeeping and janitorial responsibilities
in the Operations and the MIS facilities.
- Prepare coffee between the hours of 7:30am
- 2:00pm.
- Relocation of equipment and cube renovation/
modification
- Conference room set-up and tear down
as required.
- General facility maintenance as required.
- Replacement of printer toner cartridges.
- Provide ground transportation needs
for guests/visitors.
- Provide pick up and delivery of items and
documents.
- Provide basic beverage service for
meetings (six people minimum).
The services listed, and the respective service levels have
been reviewed, staffed, and budgeted accordingly. Service
levels or requests that fall outside of this document may be
subject to additional charges.
6. Human Resources
6.1 Health Plan Administration
(a) Administer Health Plan
- Communicate and administer plan
designs.
- Evaluate plans for compliance with
Section 125, federal and state
requirements.
- Update and distribute Summary Plan
Descriptions.
- Field and resolve complex employee
benefit related issues that can not be
resolved by the customer service desk.
- Assist the health plans insurance broker in
the development of accruals.
<PAGE>
- Track enrollment information to ensure
compliance and that employees are
enrolled in a timely manner.
- COBRA administration. Develop
information packets; send notifications
to terminated employees in the required
time frame. Collect and track premium
payments.
- Reconcile premium statements, prepare
wires and allocate costs appropriately.
- Conduct enrollment meetings in the El
Paso office for all Company employees.
- Develop, distribute and convey annual
employee benefits survey results to
management.
- Coordinate and conduct Train the
Trainer sessions.
- Develop and distribute employee communication
packets and forms. Develop and produce
health plan videos for annual
enrollment and new hires.
- Develop presentation materials for all
companies on medical plans.
- Prepare and distribute employee communication
packets and forms for annual enrollment.
(b) Leaves of Absence Administration
- Administer leave plans.
- Determine eligibility for leaves.
- Ensure all proper notifications are
processed and employee is placed on
appropriate leave.
- Ensure legal compliance with any FMLA
leave.
- Ensure premium payments for
benefits are tracked and received.
- Monitor leave status.
- Process and forward claim paperwork
for STD and LTD.
- Work with carriers to ensure claims
processed timely and correctly.
(c) Vendor Management
- Negotiate contract and rate renewals.
- Manage vendors and ensure services
provided are meeting company standards.
(d) Items Not Covered
- Prepare presentation materials and
videos in foreign languages.
- Conduct welfare plan presentations outside of
El Paso.
- Ensure all name changes and mergers are
accurately reflected in benefit documents
and are handled properly and timely.
- Facilitate new companies joining plans.
- Coordinate and research alternate benefit
plans.
- Develop new plan designs or summary plan
descriptions.
6.2 401(k) & NSP Plan Administration
(a) Administer 401(k) plan & NSP plan.
- Track and audit eligibility status of
employees.
- Track and audit payroll deductions and
changes.
<PAGE>
- Coordinate loan processing for 401(k) plan.
Ensure loan amortization schedules are
entered into the payroll system.
- Approve hardship withdrawals and ensure
compliance with IRS regulations.
- Process and deposit rollovers in 401(k) plan.
Ensure rollovers are eligible to be received
by the Plan.
- Develop standard presentation materials for
all companies on 401(k) plans.
- Conduct enrollment meetings in the El Paso
office for all local SCG affiliated
companies.
- Ensure appropriate participation
eligibility and termination information
is distributed on a timely basis.
- Prepare necessary paperwork,
calculations and prepare distribution
checks from NSP plans.
(b) Communications
- Coordinate and conduct Train the
Trainer sessions.
- Develop and distribute employee
communication packets and forms.
- Develop and produce 401(k) for annual
enrollment and new hires.
(c) Vendor Management
- Negotiate contract and rate renewals.
- Manage vendors and ensure services
provided are meeting Company standards.
(d) Items Not Covered
- Prepare presentation materials and
videos in foreign languages.
- Conduct 401(k) plan presentations outside of
El Paso.
- Ensure all name changes and mergers are
accurately reflected in benefit documents
and are handled properly and timely.
- Facilitate new companies joining plans.
- Coordinate and research alternate benefit
plans.
- Develop new plan designs.
6.3 Pre-Employment Services
- Receive pre-employment forms.
- Review for completeness and correctness.
- Create pre-employment file.
- Evaluate results (credit, criminal, ssn,
employment, education, DL, drug test)
- Note results on pre-employment coversheet.
- Communicate results to hiring manager via
phone or e-mail.
- Communicate any questionable results via
phone to hiring manager or HR manager.
- Record recommendation for approval
or non-approval.
<PAGE>
- Communicate recommendation to hiring manager
via phone or e-mail.
- Track results in monthly activity report.
- Send report to appropriate HR personnel.
- Follow up on non-approved applicants that
show an active status in ADP.
- Set up property accounts with
pre-employment vendors.
- Verify charges on invoices from
pre-employment vendors.
(a) Other Customized Services
HOMESTEAD VILLAGE
- Drug testing done at property level only.
- Background information is only evaluated
going back four years.
- El Paso must communicate questionable
results directly to the applicant.
- Monthly activity report is sent to VP's of
Operation.
- Do not inquire on questionable credit.
6.4 Compliance
(a) Unemployment claims services.
- Receive and research unemployment claim.
- Contact appropriate manager for additional
information.
- Process claims.
- Notify manager when an appeal hearing is
scheduled.
- Arrange for consultation with vendor.
- Track activity in monthly report.
- Complete wage audits as received.
(b) HR File Room Services
- General customer support - retrieve
information from files. Receive and
facilitate orders for HR forms and
supplies, including transition boxes.
- Create personnel files as paperwork is
received.
- Process all filing received, including;
active, terminated, and benefits filing.
- Maintain current state and federal posters.
(c) Compliance Services
- Assist HR representatives with employee
relations issues.
- Manage employee relations issues within the
El Paso Center for all companies.
- Investigate and prepare
responses for EEOC claims for all
companies.
- Track and report all pending
claims monthly to each company, and Risk
Management.
- Coordinate all issues involving attorney
representation.
<PAGE>
(d) Other Customized Services
ALL COMPANIES
- Variations on standard new hire
packet/forms.
6.5 HR Help Desk
- Provide customer service via telephone,
e-mail, and voice mail.
- Track incoming calls by logging into
Utopia system.
- Requests processed within 24 hours of
receipt.
- Customer service calls returned
within 2 business hours. Research completed
and resolved within 48 business hours.
6.6 Performance Review & Compensation Services
(a) External and Internal Market Data Analysis
- Identify and participate in compensation
surveys.
- Prepare salary recommendations for
new-hires.
- Provide job matching and market
interpretation.
(b) Job Classification/Documentation
- Consult on classification of new/existing
positions.
- Provide advice and assistance on preparation
of job descriptions.
- Maintain organization-wide file of
descriptions/classifications currently in
use.
- Assist in implementation and maintenance of
position coding system on the HRIS.
(c) Data Management/Analysis
- Process and provide current and historical
employee compensation information.
- Serve as liaison between payroll, HRIS and
affiliates on year-end or other
periodic salary and bonus processing.
- International compensation process, initial
expatriate compensation schedule, and
quarterly updates.
(d) Items Not Covered
- Provide consulting on salary
administration, performance management,
compensation compliance (e.g. FLSA) and
related matters. (Most services require
significant involvement of appropriate line
and/or HR personnel within the affiliate.)
- Job Descriptions
- Design and Implementation of Job
Classification System Establishment of
Salary Ranges; Salary Administration
Guidelines Participation in Additional
Salary Surveys Requested by Affiliate
- Incentive Plan Design, Administration, or
Oversight
- Extensive, Fully-customized
Periodic Salary Increase or Bonus
Worksheets
- Ad-hoc Analyses of High
Complexity or Broad Scope and Duration
<PAGE>
- Establish expatriates with foreign payroll
company Consult with expatriates on variety
of issues; provide information to all
involved parties.
- Compensation Trend Analysis (limited by
available data and historical
consistency of job classification system)
6.7 Relocation Services
(a) Domestic and International Relocation Services
- Make initial contact with relocatee and
explain eligible benefits.
- Serve as the Company contact for all outside
vendors to apply Company policy.
- Set up all travel for relocating employees.
- Locally issue all relocation funds or stipends.
- Arrange for U-Haul moves.
- Oversee employee home buyout program.
- Sponsor all international secondment activities
for overseas assignments.
- Forward appropriate forms for expense
processing and audit all bills from
outsourced vendors.
- Prepare relocation accruals.
- Complete relocation data for budget forecasts.
- Facilitate the payroll department's
year-end tax gross-ups for all taxable
relocation expenses.
- Provide vendor management services.
- Provide or coordinate through vendor,
rental assistance, household goods,
move management, expense processing,
policy counseling, temporary living,
and home search assistance.
(b) Items Not Covered
- Resubmission of immigration paperwork
for employees re-seconded to a new
international sight while currently on
international assignment.
- Process international wire transfers
(international "swift" numbers) for
rent payments abroad.
- Rewriting or transferring incorrectly filed
relocation expense reports.
- Processing two or more homes through the Home
Buy Out program for one employee transfer.
- Processing requests for itemized
year-end tax "gross-up" information
beyond what the law requires us to
provide.
- Providing regional Cost of Living
Analysis (COLAS) acquired and charged
through the Associates Relocation
Management Group.
- Specialty Immigration Services.
- H1B's, processing of expired work or student
visas.
6.8 Database Management Services
- Maintain database information on employee
documentation.
<PAGE>
- System Administration for human resources,
benefits and payroll.
- Prepare and comply with government
reporting: EEO-1, VETS100 and Census Bureau.
- Process Employment Verifications.
- Review hiring paperwork for company
compliance (I-9's, W-4's, Applications,
etc.).
- Maintain current new hire forms via
public folders, corporate service intranet.
- Maintain company wide telephone directory.
- Administer exit surveys.
6.9 HRIS Reports
- Standard report processing delivered
by PeopleSoft as defined by the
HR/Payroll Implementation Team.
(a) Items Not Covered
- Additional reports not delivered by
PeopleSoft.
6.10 Recruitment Services (Where services are required to
be performed in a specific location, this agreement
refers to the El Paso, Texas office at 7777 Market
Center Avenue.)
(a) Resume Management
- Receive resumes, log into central database
and send notification cards to all
applicants.
(b) Employment Process
- Accept open position forms and post to the
weekly posting.
- Update the Career Opportunities Jobline,
Security Capital Group Incorporated
Web Page.
- Review and screen applicants for position
requirements.
- Schedule interviews with applicants,
prepare interview packets and forward to
hiring manager.
- If out of town applicant, ensure that all
receipts are received and expense form is
completed.
- In conjunction with hiring manager, make
conditional offers of employment to
candidate and generate offer letters.
- Schedule new hire for pre-employment
testing.
- Send rejection letters to
applicants after acceptance of offer.
(c) New Hire Process
- Ensure the candidate resume, offer letter,
and completed application are in employee's
file.
- Submit new hire to pre-employment for
processing.
- Create new hire agenda for orientation
(name, date, company, supervisor).
- Send out email announcing new hire (name,
title, supervisor, company, cube #).
- Notify candidate of pre-employment results
and new hire orientation.
- Conduct new hire orientation.
<PAGE>
- Ensure new employees complete all required
paperwork and forward to HR File Room.
(d) Advertisement and Recruitment Strategies
- Manage, develop and implement recruiting
strategies. In conjunction with hiring
manager, prepare and place all
advertisements for open positions.
- Review Monster Board Internet system for
appropriate candidates.
- Attend Professional and College Job Fairs to
source candidates.
- Coordinate College Relations and Recruiting
activities including: on-campus
interviews, Co-op/Internship program, mentor
program, scholarship program, and
student/faculty relationships.
- Act as liaison with external search
agencies.
(e) Temporary Employee Requests
- Coordinate with manager to discuss
temporary position requirements and contact
temporary agencies to request personnel.
- Interview temporary employee candidates.
Process all temporary employee invoices.
(f) Voluntary Exits
- Receive notification or letter of resignation
from employee.
- Process exit paperwork and provide HR
Customer Service Representative with
exiting employee name to generate a Cobra
letter, if needed.
- Conduct Exit Interview with employee.
- Obtain building access card, credit and phone
cards, office equipment and
forward to facilities.
- Provide exit survey information to manager,
as necessary.
7. Internal Audit
The Internal Audit Department provides services to Shared
Service Clients based upon detailed Internal Audit Plans (the
"Audit Plan"). The Audit Plan will explain the type of
services to be provided, specific audit objectives and cost
to complete the plan.
To ensure the highest risks of the organization are
adequately addresses, audit plans are based upon a
comprehensive risk assessment model and management input. All
Audit Plans are presented to client management for review and
approval, and then to the Audit Committee (for publicly
traded companies) for final approval.
To provide the highest level of service in meeting the Audit
Plan, Internal Audit takes the following steps:
- Audits will be performed in an objective manner with
due professional care. Audits are conducted in
accordance with the Institute of Internal Auditors
Professional Standards.
- Significant departures from the audit plan will be
communicated to management for approval in advance of
completing the audit work.
- We will strive to conduct the audits in the most
efficient and effective manner possible, both in the
utilization of audit staff and travel expenditures.
- For any audit requests outside the Audit Plan, we will
prepare detailed audit proposals for management approval
prior to the performance of any audit work.
- We will coordinate our work with the Company's external
audit firm to ensure maximum audit coverage and prevent
duplication of effort.
- If the Internal Audit Department does not possess
specialized skills necessary for any audit, we will
retain professionals with the required skills to perform
the work.
- We will strive to constantly improve internal audit
services, by seeking customer input and monitoring "best
practice" audit techniques.
8. Legal
- Coordination, negotiation and review of securities
offering documentation Coordination, negotiation and
review of loan agreements and other financing matters
- Coordination of NASD compliance matters Coordination of
- SEC compliance matters and reports Coordination of
shareholder matters
- Coordination of stock exchanges'
compliance matters
- Coordination, negotiation and review of transaction and
contract matters
- Coordination of documentation for meetings of board of
directors or board of trustees
- Drafting of resolutions
for board of directors or board of trustees
- Review of employee benefit matters
- Review of employment policies
and matters
- Litigation coordination
- Review of press
releases Liaison with outside law firms
- Coordination of legal billing
9. Management Information Systems
9.1 Applications Integration
(a) Projects/ Support services include:
- Technology solution planning, design,
development and implementation services
- Application production support services
- Third level help desk support and inquiry
resolution
(b) Service Level Standards:
- Post implementation customer satisfaction
reviews at an average minimum score of
3.5 out of a possible 5, on-time and
on-budget within 20% for new projects
started after 3/1/99
<PAGE>
9.2 Training
(a) Technology training services include:
- Conduct instructor-led classroom training
on desktop work products
- Administer training center classrooms for
internal and external technology-based classes
- Research, evaluate, administer, deploy and
maintain alternative training resources
to include computer based training,
video and audio based training
- Conduct off-site training as requested by
customer
- Administer third-party
instructors and curriculum
- Administer
computer training equipment pool
(b) Service Level Standards:
- For on-site training, post training
evaluations at an average minimum score
of 4 out of a possible 5.
9.3 Technical Writing
(a) A staff of three technical writers provide
services to customers including:
- Converting paper documents to professional
standard electronic, HTML format and
on-line help reference for electronic
publishing
- Develop and administer desktop
templates for document standards
- Work with applications integration
personnel in developing user training guides
(b) Service Level Standards
- Post implementation customer satisfaction
reviews at an average minimum score of
3.5 out of a possible 5, on-time and
on-budget within 20% for new projects
started after 3/1/99
9.4 Data Center Operations
(a) Data Center operations services include:
- Research, evaluate and support
enterprise-wide computer hardware and
software
- Install, monitor and maintain
network servers and systems software
- Integrate system hardware and software
with desktop hardware and software
- Disaster recovery planning Database
administration
- E-mail administration
- Internet access administration
<PAGE>
- LAN/ WAN
administration
- Password/ security
administration
9.5 Telecommunications Voice Networks
- Acquisition and standardization of voice,
voicemail, video, networks, wiring,
paging and cellular services
- Implementation and administration of all
telephony services (limited to long
distance admin. at homestead properties)
- Enterprise wide strategic planning for
voice and data services National vendor
contract negotiations and administration
Disaster recovery planning
9.6 Office Setup and Support
- New office opening technology planning
- New office opening
technology set up and coordination
9.7 Vendor Management and Administration
- Equipment Purchasing coordination
- Desktop support oversight/administration for
adds, moves and changes and break, fix
- Shipping and receiving coordination
- Sourcing management, including RFP,
evaluation, negotiation and transition and
implementation coordination
9.8 Second line help desk
- Provide second call resolution for technology
related problems and questions as
they occur
- Provide first call resolution for PeopleSoft
and Telecommunications related problems and
questions as they occur
- Participate in service center activities and
disaster recovery planning
9.9 PeopleSoft Operations
- Manage operations for HP servers
- Performance/ capacity planning
- PeopleSoft production support
- DBA support for Oracle database
- Post production application enhancements/
upgrades and custom reports\
- Also included in the PeopleSoft Operations
costs is the Unix server depreciation,
Oracle license amortization and related
maintenance fees
10. Payroll Processing
(a) Administrative Services
- Administrative Services as Payroll Agent for
the Company.
- Collect and process time and other
payroll data (bonuses, commissions, etc).
- Process Short Term Disability payments
- Process manual checks when necessary
- Maintain payroll
database
- Produce and distribute paychecks to
employees work location.
<PAGE>
- Maintain and process vacation and sick
balances by employee
- Process benefit deductions
- Process garnishments and
remit funds to proper agency
(b) Direct Deposit/Ready Pay Administration
- Assure direct deposits are set up with
employees's bank and properly prenoted.
- Produce and distribute statement of earnings
(c) Payroll Tax Services
- Process tax deductions and remit funds to
appropriate taxing agency
- Ensure tax returns and government regulatory
reportings are filed
- Complete state applications and set up
appropriate withholding, unemployment and
other accounts are set up.
- Process and distribute W-2's
- Assist in Payroll Audits
(d) Items Not Covered
- Items not included in the services set forth
above including, but not limited to,
distribution of pamplets and other documents
with paychecks, Home address or special mailing
of checks to other than the work location, and
duplicate W2's, or any services associated with
a special project are to be billed separately.
(e) Service Level Standards
- Shared Services Payroll Department shall use
its best efforts within reasonable limits to
insure the accuracy of services performed and
the timeliness of paychecks delivered.
11. Property Tax Administration
11.1 Appeal Management and Administration
(a) Administration and Tax Bill Payment
- Addition of all customer properties to the
database for tracking upon receipt of all
necessary data from customer, ongoing
maintenance of the Property Tax database.
- Securing and auditing of all property tax
bills prior to delinquency date.
- Posting of payments at the latest practical
date for optimal cash management.
- Property tax bills processed and paid timely.
- Send, receive and respond to all
correspondence with
assessing authorities and taxing entities.
- Track and ensure that all refunds are
collected.
- Provide status reports to customers on a
monthly basis, summarizing assessed,
proposed and final values, with
corresponding tax amounts, including appeal
status information, on a property by
property basis.
<PAGE>
(b) Appeal Management
- Annually review and negotiate consulting
agreements to ensure that the customer is
receiving the most comprehensive local
representation at the most reasonable cost.
- Coordinate with appropriate consultant or
governmental agency to ensure any necessary
personal property compliance and rendition
filing are completed timely.
- Request from customer all necessary
information and timely supply information to
designated consultant for review of appeal
possibilities.
- Analyze and determine the most aggressive
approach to limit customers property
tax liability
- Coordinate periodic meetings with
consultants to review appeal possibilities
and establish mutually agreed upon target
values.
- Monitor progress and communicate appeal
results to customer upon completion.
11.2 Research and Consulting
(a) Research - Pre-Acquisition/Development
- At customer's request, investigate and
inform customer units of certain proactive
options that can reduce or eliminate certain
taxes and fees.
- Assist in prorating calculations for
property closings.
(b) Consulting
- Provide budgeting and forecasting support
for customer units upon request. These
customized reports include but are not
limited to; cash flow projections, budget
and forecasts, accrual estimates and other
management reporting needs.
- Includes any requested services not
described in appeal management and
administration.
12. Risk Management
12.1 Insurance Policy Procurement
- Obtain new and renewal insurance quotations
for all property and casualty coverages Meet
with customer to determine coverage, limit,
deductible, and service
requirements
- Prepare underwriting submission and send to
markets
- Meet with key underwriters
- Answer underwriting questions
- Negotiate coverage, rates, policy terms and
conditions, and services
- Evaluate insurer reliability
- Prepare insurance proposal and present to
customer.
<PAGE>
- Review policies for accuracy and maintain them
- Verify policy terms and conditions are
consistent with quote
- Review policy endorsements for accuracy and
file
- Maintain original policy
- Process certificate of insurance requests
- Process premium invoices and provide breakdown
of premium by property, company or
as applicable
- Prepare annual insurance budget
- Review insurance contracts for compliance
- Review insurance contracts and make
recommendations concerning risk
acceptability.
(The Risk Management Department does not
make management decisions.)
- Answer coverage questions
- Maintain standard SCGroup Underwriting
Database for all existing properties to
include:
- Property name, address and location code
- Building and contents values
- Estimated annual rent/revenue
- Square footage/number of units
- Construction type Roof composition
- Year built
- Flood and earthquake zones
- Payroll Vehicles
- Update underwriting database on a quarterly
basis to reflect newly acquired and developed
properties, sales, and other activity
12.2 Claims Administration
(a) Manage claim and litigation process for all
insured claims and lawsuits
- Report claims to appropriate carrier or third
party adminstrator
- Notify customer of losses in excess of $25,000
and keep apprised of claim status
- Set up claim file
- Enter claim in RMIS OMEGA system
- Assist with coverage determination
- Assign legal counsel on lawsuits
- Complete interrogatories as needed
- Assist legal counsel in obtaining discovery
documents
- Review and maintain copies of all
correspondence and related documents
associated with claim/lawsuit
- Participate in claim settlement discussions
- Request settlement approval from customer on
general liability claims of $2,500
and above
- Monitor insured claims and lawsuits to
conclusion
<PAGE>
(b) Process Claim Payments
- Review invoices with claim documents to ensure
amounts are accurate and justified
- Obtain signatures for approval as required
- Complete check request form Enter invoice
data in RMIS OMEGA system
(c) Issue Loss Reports
- Issue monthly reports for workers'
compensation open claims
- Issue semi-annual
reports for property, casualty and workers'
compensation claims and lawsuits
(d) Maintain RMIS OMEGA claim database to include
- Claimant name
- Claim number
- Date of loss
- Property name and location code
- Claim amount (paid and reserved)
- Description of loss
- Status of claim (open or closed)
12.3 Bond Procurement and Maintenance
(a) Facilitate issuance and execution of bond
indemnification agreements
- Negotiate account rates annually
- Process requests for bonds
- Set up bond file and enter data in
RMIS OMEGA system
- Renew bonds as required by obligee
(b) Process Bond Invoices
- Review bond premium invoices for accuracy
- Enter invoice information in RMIS OMEGA system
- Complete check requests
(c) Maintain RMIS OMEGA bond database to include the
following
- Bond number
- Surety company
- Bond amount
- Bond type and description
- Property name and address
- Bond rate and premium
- Obligee name and address
- Effective dates of coverage
13. Special Projects
- Direction and support of all special
projects, as requested and authorized in
advance by the Company.
- Special projects are outside the scope of
services provided by SCGroup. If SCGroup and
Company determine that SCGroup has the personnel with the
qualifications and time necessary to complete the
special project requested by Company with due
professional care and competence, SCGroup and Company
will agree to an hourly billing rate for such services.
<PAGE>
APPENDIX A
APPENDIX TO SCHEDULE E OF THE ADMINISTRATIVE SERVICES AGREEMENT BETWEEN SCGROUP
INCORPORATED (SCGROUP) AND HOMESTEAD VILLAGE INCORPORATED (COMPANY), ORIGINAL
AGREEMENT DATED OCTOBER 15, 1996.
SCGroup Service Manager responsible for managing the respective rights and
obligations of the parties:
J. Robert Hutchison
SCGroup Incorporated
7777 Market Center Avenue
El Paso, TX 79912
Phone: 915-877-5941
Fax: 915-877-3301
Company Service Manager responsible for managing the respective rights and
obligations of the parties:
Bryan J. Flanagan
Homestead Village Incorporated
7777 Market Center Avenue
El Paso, TX 79912
Phone: 915-877-1891
Fax: 915-877-3301
SEPARATION AGREEMENT AND GENERAL RELEASE
THIS AGREEMENT made and entered by and between the undersigned Employee
and Homestead Village Incorporated (together with is directors, officers,
shareholders and other affiliates, collectively referred to hereinafter as
"Employer").
WHEREAS, Employee has been employed by the Employer; and
WHEREAS, the parties have engaged in discussions resulting in an
amicable and mutually satisfactory separation of Employee's employment with the
Employer.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth below, the parties hereby agree as follows:
1. Employer and Employee hereby mutually agree that because of a
reorganization of the Finance function, the effective date of Employee's
separation of employment shall be the close of business on JANUARY 8, 1999.
2. Upon execution of this Agreement by Employee, Employer shall be
obligated to Employee as set forth herein. Employer shall pay to Employee the
amount of Four Hundred Thousand Dollars ($400,000) which amount is referred to
herein as the "Separation Amount." The Separation Amount shall be paid
incrementally as follows. AN INITIAL, PAYMENT OF $90,000, SHALL BE PAID TO
EMPLOYEE ON JANUARY 15, 1999. An initial portion of the remaining unpaid balance
of the Separation Amount shall be paid to Employee on an annualized basis
according to Employer's normal payroll cycle for JANUARY, FEBRUARY, MARCH AND
THE FIRST WEEK OF APRIL 1999 (THROUGH PAY PERIOD ENDING ON APRIL 10, 1999),
provided, however, THAT NO PAYMENTS SHALL BE BEFORE THE DATE THIS AGREEMENT
BECOMES BINDING UPON EMPLOYEE IN ACCORDANCE WITH PARAGRAPHS 23 AND 24. THE
FINAL, REMAINING UNPAID BALANCE OF THE SEPARATION AMOUNT, AS OF APRIL 10, 1999,
SHALL BE PAID TO EMPLOYEE IN ONE LUMP SUM CASH PAYMENT ON APRIL 10, 1999. All
payments of the Separation Amount shall be subject to applicable deductions for
state and federal taxes on such amounts.
3. Employee will receive AN ADDITIONAL AMOUNT REPRESENTING ACCRUED AND
UNUSED VACATION THROUGH THE DATE OF EMPLOYEE'S SEPARATION.
4. Employee shall be entitled to maintain his telephone voice mailbox
until February 1, 1999.
5. Employee's continuous service under the Employer's 401(k) plan
shall cease as of the date of resignation, as set forth in Paragraph 1 herein.
Within four (4) to six (6) weeks of Employee's written request and pursuant to
the terms of the plan, Employee shall be entitled to a distribution of all of
the contributions to the Employee's 401(k) account made by the Employee, plus
earnings thereon, or a transfer of such amount to another plan at Employee's
request. All distributions will be net of applicable withholding taxes, if any.
Any options granted Employee under Employer's stock option plan or under any
Security Capital Group Stock Option Plan shall expire on the third month
anniversary of the date of separation, as set forth in Paragraph 1 herein.
6. The Employer shall extend to Employee the right to continue health
insurance at Employee's own expense as may be required by and pursuant to the
terms and conditions of the Consolidated Omnibus Budget Reconciliation Act of
1986.
7. Employer shall provide Employee WITH OUTPLACEMENT SERVICES OF RIGHT
ASSOCIATES provided that such services shall not extend beyond July 30, 1999.
<PAGE>
8. In consideration of the promises contained in this Agreement, the
Employee and Employer hereby mutually agree to do the following:
A. Except for a claim based upon a breach of this Agreement,
Employee and Employer hereby release and forever discharge the other (including,
in the case of the Employer, its related and affiliated entities, and each of
their officers, directors, shareholders, representatives, agents, employees and
insurers (Employee, Employer and said related parties are hereinafter
collectively and individually "said Releases") from any and all rights, claims,
demands, debts, dues, sums of money, accounts, attorneys' fees, complaints,
judgements, executions, actions and causes of action of any nature whatsoever,
cognizable at law or equity, which Employee and Employer have or claim, or might
hereafter have or claim against said Releasee(s) based upon or arising out of
any matter or thing whatsoever, from the beginning of the world through the
effective date of this Agreement, including but not limited to any rights,
claims, complaints or actions or causes of action which were or could have been
asserted by Employee or Employer arising out of or related to Employee's
employment by the Employer or Employee's separation and/or resignation
therefrom, the purchase (or sale to Employer) of any Employer securities by
Employee, or under any local, state, or federal law dealing with employment
discrimination including, without limitation, Title VII of the Civil Rights Act
of 1964, and the Americans with Disabilities Act. Notwithstanding the forgoing,
no such release shall be applicable to any existing indemnity agreements
including those under the indemnification agreement entered into between the
Employer and Employee or any insurance rights including directors and officers
policies in favor of Employee.
B. Upon written request of the Employer, Employee shall
promptly provide the Employer with a written report and verbal briefings
concerning all current business activities engaged in by Employee on behalf of
the Employer, which obligation shall expire 90 days after the date of this
Agreement.
C. Employee shall cooperate reasonably with the Employer in
the transition of Employee's responsibilities to other employees of the Employer
including, without limitation, responding within a week by telephone to answer
questions and to assist other employees or designees of the Employer, during the
term of severance payments.
D. Employee shall promptly submit to the Employer an expense
account report accounting for all business expenses charged by Employee to the
Employer and all advances received, and repay the Employer for all advances and
all non-business related items charged by Employee to the Employer, if any.
Employee hereby agrees that such advances and non-business related expenses may,
at the option of the Employer, be deducted by the Employer from any of its
payments to Employee under this Agreement.
E. The Employee further covenants and acknowledges that
neither the Employee, nor any person, organization or other entity acting on the
Employee's behalf has or will sue or cause or permit suit against the Employer
upon any claim released herein or to participate in any way in any suit or
proceeding or to execute, seek to impose, collect or recover upon or otherwise
enforce or accept any judgment, decision, award, warranty or attachment upon any
claim released herein.
F. It is understood and agreed that this Agreement is executed
by the Employee knowingly and voluntarily and is not based upon any
representations or statements of any kind by any person as to the merits, legal
liabilities or value of the Employee's claim.
G. The Employee also acknowledges that no promise or
inducement has been offered or made except as herein set forth. The Employee
further acknowledges that consideration for this Agreement consists of financial
payments and benefits to which the Employee otherwise has no legal entitlement.
<PAGE>
9. Confidential and Proprietary Information
A. Employee acknowledges and agrees that in the course of
employment with the Company, Employee had access to certain confidential and
proprietary information owned by and related to the Employer (hereinafter such
information is referred to as "Confidential Information") including, but not
limited to Confidential Information relating to:
(ii) the past and present clientele and customers of the Employer
as well as the persons, firms and corporation who are active
prospective clients for services;
(ii) suppliers from which the Employer obtains products for their
clientele and customers;
(iii) the types of services provided and the
internal corporate policies related thereto;
(iv) the individual services purchased by or for the clientele
and customers of the Employer.
(v) individual client's and customer's specifications or
characteristics;
(vi) Confidential Information, including names, addresses and
telephone numbers of clients, customers and suppliers of the
Employer; and
(viii) information relating to the Employer's inventions or
products, research and development, production processes,
manufacturing and engineering processes, machines and
equipment, finances, employees, marketing, and production
and future business plans.
B. Employee agrees and covenants that following Employee's
termination, Employee will not for one (1) year following the date of this
Agreement disseminate, disclose, communicate, publish or otherwise divulge,
directly or indirectly, any Confidential Information of the Company. All duties
and obligations set forth herein shall be in addition to those which exist at
common law and pursuant to statute.
10. Employee hereby agrees to immediately turn over to Employer all
Confidential Information, notes, offering materials, slide shows, investment
summaries, memoranda, records, documents and all other information, no matter
how produced or reproduced, kept by Employee or in Employees' possession or
control, used in or pertaining to the business of the Employer it being hereby
acknowledged that all of said items are the sole and exclusive property of the
Employer.
11. Employee further agrees that upon the written request of the
Company Employee shall cooperate fully with Company and its counsel with respect
to any matter (including but not limited to litigation, investigation, or
governmental proceeding) which relates to matters with which Employee was
involved during the term of his employment with the Company. Company shall
reimburse Employee for Employee's time so expended at reasonably agreed rates
and reasonable and verified out-of-pocket costs and expenses incurred, but only
to the extent expended or incurred pursuant to such request of the Company and
subject to any conditions or requirements imposed by the Company. Such
cooperation shall include attendance at conferences and interviews and in
general providing Company and its counsel with the full benefit of the
Employee's knowledge about those matters. Employee agrees to so cooperate
promptly and at times reasonably agreeable to the Company. Employee shall
provide these services as an independent contractor and not as an employee of
the Company.
<PAGE>
12. Except as may be required to the contrary by a final order issued
by a court of competent jurisdiction and except for any communication with
members of Employee's immediate family and any attorney or accountant rendering
advice to Employee in connection with this Agreement, Employee shall not,
directly or indirectly, discuss or communicate the facts of this Agreement, or
any of its terms and provisions with any third party.
13. Employer agrees not to contest Employee's claim for unemployment
benefits.
14. From and after the date of presentment of this Agreement, Employee
shall not, directly or indirectly, take any action which is in fact, or is
intended to be, contrary to the material interests of Employer or any affiliate
of Employer, nor will Employee disparage or make negative, derogatory or
defamatory statements about Employer, its related and affiliated entities, its
directors, officers, employees, shareholders, agents or representative, or any
of them, to any other person or business entity, except as may be required by
process or court order. Employer shall not voluntarily make any negative,
derogatory or defamatory statements about Employee, except as may be required by
process or court order.
15. Nothing in this Agreement shall be deemed an admission of
wrongdoing or any kind of liability by either party.
16. In the event Employee engages in a material breach of any of the
terms or provisions of this Agreement, all of Employee's obligations shall
remain and shall be enforceable, but the Employer's obligations under this
Agreement shall immediately terminate, including, without limitation, all
remaining monetary obligations of the Employer to Employee which are outstanding
at the time of said breach. Similarly, Employee shall be relieved of any further
obligation under this Agreement if Employer materially breaches its covenants in
this Agreement.
17. This Agreement shall be binding upon and inure to the benefit of
both parties, their successor and assigns, and any affiliated or related entity,
as well as Employee's heirs, assigns, administrators, executors and legal
representatives.
18. This instrument constitutes the entire Agreement between the
parties, and may not be modified or amended in any way except by a subsequent,
written agreement between the parties.
19. If any provision, section, subsection or other portion of this
Agreement shall be determined by any court of competent jurisdiction to be
invalid, illegal or unenforceable in whole or in part, and such determination
shall become final, such provision or portion shall be deemed to be severed or
limited, but only to the extent required to render the remaining provisions and
portions of this Agreement enforceable. This Agreement as thus amended shall be
enforced so as to give effect to the intention of the parties insofar as this is
possible. In addition, the parties hereby expressly empower a court of competent
jurisdiction to modify any term or provision of this Agreement to the extent
necessary to comply with existing law and to enforce this Agreement as modified.
20. This Agreement shall be construed in accordance with the laws
of the State of Georgia.
21. The language used in this Agreement shall be deemed to be the
language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction shall be applied against any person.
<PAGE>
22. This Agreement may be signed in multiple counterparts, each
of which shall be deemed to be an original for all purposes.
23. Employee may revoke this Agreement within seven days of Employee's
executing this Agreement with his signature.
24. EMPLOYEE AFFIRMS THAT EMPLOYEE HAS BEEN GIVEN A REASONABLE PERIOD
OF 21 DAYS WITHIN WHICH TO CONSIDER WHETHER TO EXECUTE THIS AGREEMENT, AND THAT
EMPLOYEE HAS CAREFULLY READ AND REVIEWED ALL THE TERMS AND CONDITIONS CONTAINED
IN THIS AGREEMENT AND FULLY UNDERSTANDS THIS AGREEMENT TO BE A RELEASE OF ALL
CLAIMS, KNOWN OR UNKNOWN, PRESENT OR FUTURE, THAT EMPLOYEE HAS OR MAY HAVE
AGAINST EMPLOYER ARISING OUT OF EMPLOYEE'S EMPLOYMENT BY EMPLOYER OR ITS
TERMINATION. EMPLOYEE ALSO AFFIRMS THAT EMPLOYEE HAS BEEN ADVISED TO CONSULT
WITH AN ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT AND THAT EMPLOYEE HAS, IN
FACT, BEEN GIVEN FULL OPPORTUNITY TO REVIEW THIS AGREEMENT WITH COUNSEL, AND
THAT EMPLOYEE SIGNS IT VOLUNTARILY OF HIS OWN VOLITION, WITHOUT DURESS OR
COERCION. EMPLOYEE REPRESENTS THAT EMPLOYEE IS SIGNING THIS AGREEMENT BECAUSE OF
THE COMPENSATION TO BE PAID BY EMPLOYER UNDER THIS AGREEMENT WHICH EXCEEDS
SEPARATION COMPENSATION GENERALLY AVAILABLE UNDER EMPLOYER'S POLICIES.
<PAGE>
IN WITNESS THEREOF, the parties have executed this Agreement on the
date(s) set forth below.
HOMESTEAD VILLAGE INCORPORATED
By
Title
Date
Employee
Employee
(Signature)
Date
State of Georgia
County of )
On ____________________, 19 _____, ____________________ personally appeared
before me,
_____ who is personally known to me
_____ whose identity I proved on the basis of ____________________
_____ whose identity I proved on the oath/affirmation of
____________________, a credible witness
to be the signer of the above instrument, and he/she acknowledged that he/she
signed it.
Notary Public
My Commission expires
State of )
) ss
County of )
On ____________________, 19 _____, ____________________ personally appeared
before me,
_____ who is personally known to me
_____ whose identity I proved on the basis of ____________________
_____ whose identity I proved on the oath/affirmation of
____________________, a credible witness
to be the signer of the above instrument, and he/she acknowledged that he/she
signed it.
Notary Public
My Commission expires
SEPARATION AGREEMENT AND GENERAL RELEASE
THIS AGREEMENT is made and entered by and between Michael D. Cryan
("Employee") and Homestead Village Incorporated (together with is directors,
officers, shareholders and other affiliates, collectively referred to
hereinafter as "Employer").
WHEREAS, Employee has been employed by the Employer; and
WHEREAS, the parties have engaged in discussions resulting in an
amicable and mutually satisfactory separation of Employee's employment with the
Employer.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth below, the parties hereby agree as follows:
1. Employee hereby resigns as an officer and director of Employer. The
effective date of Employee's separation of employment with Employer shall be the
close of business on May 11, 1999 (the "Separation Date").
2. Employer acknowledges and agrees that he has received all unpaid
salary through and including the Separation Date. Employer shall pay Employee
the aggregate amount of One Million Two Hundred Forty Five Thousand Eight
Hundred Thirty Three Dollars ($1,245,833.00) (the "Separation Amount"), which
shall be paid in twelve equal amounts of One Hundred and Three Thousand Eight
Hundred Nineteen Dollars and Forty Two Cents ($103,819.42) on the last day of
each month commencing June 30, 1999 and ending May 31, 2000; provided that the
first payment of the Separation Agreement shall be Ninety Three Thousand Fifty
Dollars and Nineteen Cents ($93,050.19) to reflect the receipt of a salary
payment of Ten Thousand Seven Hundred Sixty Nine Dollars and Twenty Three Cents
($10,769.23) for the period May 12 through May 22, 1999. All payments under this
Agreement shall be subject to applicable deductions for state and federal taxes.
3. Employee agrees that payments under this Agreement shall be deemed
to include any amounts due Employee for accrued and unused vacation through the
Separation Date.
4. Employer shall maintain Employee's telephone voice mailbox until
September 30, 1999. Employer shall deliver to Employee the equipment listed on
Exhibit A without additional consideration.
5. Upon the date this Agreement becomes binding upon Employee in
accordance with Paragraphs 23 and 24, the principal and interest on the loan to
Employee, evidenced by the Secured Promissory Note, dated October 15, 1996,
shall be reduced to $62,500, and thereafter the remaining unpaid principal and
interest on the Secured Promissory Note shall be forgiven, and all 25,000 shares
of Common Stock of Employer purchased by Employee with the proceeds of such note
shall be released from the security interest of Employer and delivered to
Employee. It is intended that this loan adjustment from the outstanding
principal and interest on June 18, 1999, to $62,500 qualify under Section
108(e)(5) of the Internal Revenue Code. In addition to the foregoing, Employer
agrees that for the tax year 1999, Employer shall cause the accounting firm of
Arthur Andersen, LLP to prepare and file Employee's income tax return which
income tax return shall take the position that Employee has incurred no taxable
income consequences as a result of the adjustment in the outstanding principal
<PAGE>
and interest under the Secured Promissory Note from the outstanding principal
and interest on June 18, 1999, to $62,500, and Employer shall pay all fees
charged by Arthur Andersen, LLP for so preparing and filing such income tax
return of Employee. The content of such income tax return shall be subject to
Employee's review and approval.
6. Employee's continuous service under Employer's 401(k) plan and
Employer's Non-Qualified Savings Plan shall cease as of the Separation Date.
Within four (4) to six (6) weeks of Employee's written request and pursuant to
the terms of the 401(k) plan, Employee shall be entitled to a distribution of
all the contributions to Employee's 401(k) account made by Employee, plus
earnings thereon, plus Employer matching contributions to the extent vested, or
a transfer of such amounts to another plan at Employee's request. All
distributions will be net of applicable withholding taxes, if any. Pursuant to
the terms of the Employer's Non-Qualified Savings Plan and any deferral
elections made by Employee under the Non-Qualified Savings Plan, Employee shall
be entitled to a distribution of all deferrals made by Employee under the
Non-Qualified Savings Plan, plus earnings thereon, plus Employer matching
contributions to the extent vested. All distributions will be net of applicable
withholding taxes, if any. Any options granted Employee under Employer's stock
option plan or under any Security Capital Group Incorporated Stock Option Plan
shall expire on the ninetieth day after the Separation Date.
7. Employer shall extend to Employee the right to continue health
insurance for up to eighteen (18) months, as may be required by and pursuant to
the terms and conditions of the Consolidated Omnibus Budget Reconciliation Act
of 1986. Employer will provide coverage to Employee at Employer's expense to the
extent of any COBRA premium for the first twelve months. Employee shall pay the
COBRA premium and other expenses of such health insurance for any remaining
period of coverage.
8. At the election of Employee, Employer shall provide Employee with
professional tax and legal services, selected by Employee in Employee's sole
discretion, for a review of this agreement prior to its effectiveness in
accordance with paragraphs 23 and 24, and shall provide outplacement services of
an experienced firm selected by Employer and acceptable to Employee in the
Atlanta, Georgia area, provided that the cost of such tax, legal and
outplacement services shall not exceed in the aggregate $25,000, and such tax
and legal services shall not extend beyond the effective date of this Agreement,
and such outplacement services shall not extend beyond May 31, 2000.
9. In consideration of the promises contained in this Agreement,
Employee and Employer hereby mutually agree to do the following:
a. Except for a claim based upon a breach of this Agreement,
Employee and Employer hereby release and forever discharge the other
(including, in the case of Employer, its related and affiliated
entities, and each of their officers, directors, shareholders,
representatives, agents, employees and insurers (Employee, Employer and
said related parties are hereinafter collectively and individually "the
<PAGE>
Releasees")) from any and all rights, claims, demands, debts, dues,
sums of money, accounts, attorneys' fees, complaints, judgements,
executions, actions and causes of action of any nature whatsoever,
cognizable at law or equity, which Employee and Employer have or claim,
or might hereafter have or claim against the Releasees based upon or
arising out of any matter or thing whatsoever, from the beginning of
the world through the date of this Agreement, including but not limited
to any rights, claims, complaints or actions or causes of action which
were or could have been asserted by Employee or Employer arising out of
or related to Employee's employment by the Employer or Employee's
resignation therefrom, the purchase (or sale to Employer) of any
Employer securities by Employee, or under any local, state, or federal
law dealing with employment discrimination including, without
limitation, Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act and the Americans with Disabilities
Act. Notwithstanding the foregoing, no such release shall be applicable
to any existing indemnity rights of Employee as an officer or employee
of Employer through the Separation Date, including those under
Employer's Amended Articles of Incorporation, Employer's Bylaws, the
Indemnification Agreement entered into as of October 16, 1996, between
Employer and Employee or any insurance rights in favor of Employee
including the Directors and Officers Liability Policy of Employer dated
November 1, 1998, with Reliance National.
b. Employee shall promptly submit to Employer an expense
account report accounting for all business expenses charged by Employee
to Employer and all advances received, and repay Employer for all
advances and all non-business related items charged by Employee to
Employer, if any. Employee hereby agrees that such advances and
non-business related expenses may, at the option of Employer, be
deducted by Employer from any of its payments to Employee under this
Agreement.
10. In consideration of the promises contained in this Agreement,
Employee agrees to each of the following:
a. Except as may be required by the lawful order of a court
or agency of competent jurisdiction, Employee agrees to keep secret
and confidential indefinitely all non-public information concerning
Employer or any affiliate thereof which was acquired by or disclosed
to Employee during the course of Employee's employment with Employer,
and not to disclose the same, either directly or indirectly, to any
other person, firm or business entity or to use it in any way.
b. For a period of one (1) year from the date this Agreement
is signed by Employee, Employee covenants and agrees that Employee
will not, whether for Employee or for any other person, business,
partnership, association, firm, company or corporation, initiate
contact with, solicit, divert or take away any of the employees of
Employer or any affiliate thereof who were employees of Employer from
time to time during Employee's employment with Employer or any
affiliate thereof and are employees of Employer at the time of such
initiation, solicitation or diversion.
<PAGE>
11. Employee agrees to immediately turn over to Employer all notes,
offering materials, slide shows, investment summaries, memoranda, records,
documents and all other information, no matter how produced or reproduced, kept
by Employee or in Employee's possession or control, used in or pertaining to the
business of Employer, it being hereby acknowledged that all of said items are
the sole and exclusive property of the Employer.
12. Except as may be required to the contrary by an order issued by a
court of competent jurisdiction and except for any communication with members of
Employee's immediate family and any attorney or accountant rendering advice to
Employee in connection with this Agreement, Employee shall not, directly or
indirectly, discuss or communicate the facts of this Agreement, or any of its
terms and provisions with any third party.
13. Employer agrees not to contest Employee's claim for unemployment
benefits.
14. From and after the date of presentment of this Agreement,
neither party shall, directly or indirectly, take any action which is in fact,
or is intended to be, contrary to the material interests of the other party or
any affiliate of the other party, nor will either party disparage or make
negative, derogatory or defamatory statements about the other party, its related
and affiliated entities, its directors, officers, employees, shareholders,
agents or representative, or any of them, to any other person or business
entity, except as may be required by legal process or court order.
15. Nothing in this Agreement shall be deemed an admission of
wrongdoing or any kind of liability by either party.
<PAGE>
16. In the event Employee engages in a material breach of any of the
terms or provisions of this Agreement, then Employer shall provide to Employee
written notice of such claimed breach by Employee, and Employee shall have
thirty (30) days from receipt of such written notice from Employer to cease any
such conduct which Employer claims to be a material breach. If Employee fails to
cure such breach within such thirty (30) day period, then all of Employee's
obligations shall remain and shall be enforceable, but Employer's obligations
under this Agreement shall immediately terminate, including, without limitation,
all remaining monetary obligations of Employer to Employee which are outstanding
at the time of said breach. Similarly, Employee shall be relieved of any further
obligation under this Agreement if Employer materially breaches its convenants
in this Agreement.
17. This Agreement shall be binding upon and inure to the benefit of
both parties, their successor and assigns, and any affiliated or related entity,
as well as Employee's heirs, assigns, administrators, executors and legal
representatives.
18. This instrument constitutes the entire Agreement between the
parties, and may not be modified or amended in any way except by a subsequent,
written agreement between the parties.
19. If any term or provision of this Agreement shall be determined by
any court of competent jurisdiction to be invalid, illegal or unenforceable in
whole or in part, and such determination shall become final, such term or
provision shall be deemed to be severed or limited, but only to the extent
required to render the remaining terms and provisions of this Agreement
enforceable. This Agreement as thus amended shall be enforced so as to give
effect to the intention of the parties insofar as this is possible. In addition,
the parties hereby expressly empower a court of competent jurisdiction to modify
any term or provision of this Agreement to the extent necessary to comply with
existing law and to enforce this Agreement as modified.
20. This Agreement shall be construed in accordance with the laws of
the State of Georgia.
21. The language used in this Agreement shall be deemed to be the
language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction shall be applied against any person.
22. This Agreement may be signed in multiple counterparts, each of
which shall be deemed to be an original for all purposes.
23. Employee may revoke this Agreement within twenty-one days of
Employee's signing it. If Employee revokes this Agreement, Employee shall return
any benefits Employee has received and all other provisions of this Agreement
shall not be effective or enforceable. Revocation, along with a cashier's check
for any benefits Employee may have received hereunder, should be delivered to
Employer's offices at 2100 RiverEdge Parkway, Atlanta, Georgia 30328, Attn:
Chief Executive Officer. For such revocation to be effective, the notice and the
cashier's check must be received no later than 5:00 p.m. on the twenty-first
calendar day after Employee signs this Agreement.
<PAGE>
24. EMPLOYEE AFFIRMS THAT EMPLOYEE HAS BEEN GIVEN A PERIOD OF AT
LEAST TWENTY-EIGHT DAYS WITHIN WHICH TO CONSIDER THIS AGREEMENT, AND THAT
EMPLOYEE HAS CAREFULLY READ AND REVIEWED ALL THE TERMS AND CONDITIONS CONTAINED
IN THIS AGREEMENT AND FULLY UNDERSTANDS THIS AGREEMENT TO BE A RELEASE OF ALL
CLAIMS, KNOWN OR UNKNOWN, PRESENT OR FUTURE, THAT EMPLOYEE HAS OR MAY HAVE
AGAINST EMPLOYER ARISING OUT OF EMPLOYEE'S EMPLOYMENT BY EMPLOYER OR ITS
TERMINATION. EMPLOYEE ALSO AFFIRMS THAT EMPLOYEE HAS BEEN ADVISED TO CONSULT
WITH AN ATTORNEY PRIOR TO EXECUTING THIS AGREEMENT AND THAT EMPLOYEE HAS, IN
FACT, BEEN GIVEN FULL OPPORTUNITY TO REVIEW THIS AGREEMENT WITH COUNSEL, AND
THAT EMPLOYEE SIGNS IT VOLUNTARILY OF HIS OWN VOLITION, WITHOUT DURESS OR
COERCION. EMPLOYEE REPRESENTS THAT EMPLOYEE IS SIGNING THIS AGREEMENT BECAUSE OF
THE COMPENSATION TO BE PAID BY EMPLOYER UNDER THIS AGREEMENT WHICH EXCEEDS
SEPARATION COMPENSATION GENERALLY AVAILABLE UNDER EMPLOYER'S POLICIES.
<PAGE>
IN WITNESS THEREOF, the parties have executed this Agreement on the
date(s) set forth below.
HOMESTEAD VILLAGE INCORPORATED
By
Title
Date
MICHAEL D. CRYAN
(Signature)
Date
<PAGE>
EXHIBIT A
to
Separation Agreement and General Release
of
Michael D. Cryan
Equipment
1. Compaq computer presently in Employee's office.
2. Telephone presently in in Employee's possession.
<PAGE>
State of )
) ss
County of )
On ____________________, 1999, ____________________ personally appeared
before me,
_____ who is personally known to me
_____ whose identity I proved on the basis of ____________________
_____ whose identity I proved on the oath/affirmation of
____________________, a credible witness
to be the signer of the above instrument, and he/she acknowledged that he/she
signed it.
Notary Public
My Commission expires
State of )
) ss
County of )
On ____________________, 1999, ____________________ personally appeared
before me,
_____ who is personally known to me
_____ who is personally known to me
_____ whose identity I proved on the basis of ____________________
_____ whose identity I proved on the oath/affirmation of
____________________, a credible witness
to be the signer of the above instrument, and he/she acknowledged that he/she
signed it.
Notary Public
My Commission expires
SEPARATION AGREEMENT AND GENERAL RELEASE
THIS AGREEMENT is made and entered by and between Robert J. Morse
("Employee") and Homestead Village Incorporated (together with is directors,
officers, shareholders and other affiliates, collectively referred to
hereinafter as "Employer").
WHEREAS, Employee has been employed by the Employer; and
WHEREAS, the parties have engaged in discussions resulting in an
amicable and mutually satisfactory separation of Employee's employment with the
Employer.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth below, the parties hereby agree as follows:
1. Employee hereby resigns as an officer of Employer. The effective
date of Employee's separation of employment with Employer shall be the close of
business on May 11, 1999 (the "Separation Date").
2. Employee acknowledges and agrees that he has received all unpaid
salary through and including the Separation Date. Employer shall pay Employee
the aggregate amount of Nine Hundred Fifty Thousand Dollars ($950,000.00) (the
"Separation Amount"), which shall be paid in twelve equal amounts of Seventy
Nine Thousand One Hundred Sixty Six Dollars and Sixty Seven Cents ($79,166.67)
on the fifteenth of each month commencing June 15, 1999 and ending May 15, 2000;
provided that the first payment of the Separation Amount shall be Sixty Nine
Thousand Nine Hundred Thirty Five Dollars and Ninety Cents ($69,935.90) to
reflect the receipt of a salary payment of Nine Thousand Two Hundred Thirty
Dollars and Seventy Seven Cents ($9,230.77) for the period May 12 through May
22, 1999. All payments under this Agreement shall be subject to applicable
deductions for state and federal taxes.
3. Employee agrees that payments under this Agreement shall be deemed
to include any amounts due Employee for accrued and unused vacation through the
Separation Date.
4. Employer shall maintain Employee's telephone voice mailbox until
September 30, 1999.
5. Upon the date this Agreement becomes binding upon Employee in
accordance with Paragraphs 23 and 24, the Stock Purchase Agreement, dated March
31, 1998, and the loan evidenced by the Secured Promissory Note, dated March 31,
1998, shall be amended to provide that the purchase price for the 31,250 shares
of Common Stock of Employer purchased by Employee under the Stock Purchase
Agreement shall be reduced to $2.375 per share, and the principal amount of the
Secured Promissory Note shall be adjusted to $74,218.75. It is intended that
this purchase price adjustment qualify under Section 108(e)(5) of the Internal
Revenue Code. In addition to the foregoing, Employer agrees that for the tax
year 1999, Employer shall cause the accounting firm of Arthur Andersen, LLP to
prepare and file Employee's income tax return which income tax return shall take
the position that Employee has incurred no taxable income consequences as a
result of the adjustment in the outstanding principal under the Secured
Promissory Note, and Employer shall pay all fees charged by Arthur Andersen, LLP
for so preparing and filing such income tax return of Employee. The content of
such income tax return shall be subject to Employee's review and approval.
<PAGE>
6. Employee's continuous service under Employer's 401(k) plan shall
cease as of the Separation Date. Within four (4) to six (6) weeks of Employee's
written request and pursuant to the terms of the plan, Employee shall be
entitled to a distribution of all the contributions to Employee's 401(k) account
made by Employee, plus earnings thereon, or a transfer of such amount to another
plan at Employee's request. All distributions will be net of applicable
withholding taxes, if any. Any options granted Employee under Employer's stock
option plan shall expire on the ninetieth day after the Separation Date.
7. Employer shall extend to Employee the right to continue health
insurance for up to eighteen (18) months, as may be required by and pursuant to
the terms and conditions of the Consolidated Omnibus Budget Reconciliation Act
of 1986. Employer will provide coverage to Employee at Employer's expense to the
extent of any COBRA premium for the first twelve months. Employee shall pay the
COBRA premium and other expenses of such health insurance for any remaining
period of coverage.
8. At the election of Employee, Employer shall provide Employee with
professional tax and legal services, selected by Employee in Employee's sole
discretion, for a review of this Agreement prior to its effectiveness in
accordance with Paragraphs 23 and 24, and shall provide outplacement services of
an experienced firm selected by Employer and acceptable to Employee in the
Atlanta, Georgia area, provided that the cost of such tax, legal and
outplacement services shall not exceed in the aggregate $25,000, and such tax
and legal services shall not extend beyond the effective date of this Agreement,
and such outplacement services shall not extend beyond May 31, 2000.
9. In consideration of the promises contained in this Agreement,
Employee and Employer hereby mutually agree to do the following:
a. Except for a claim based upon a breach of this Agreement or
the Secured Promissory Note, as amended by this Agreement, Employee and
Employer hereby release and forever discharge the other (including, in
the case of Employer, its related and affiliated entities, and each of
their officers, directors, shareholders, representatives, agents,
employees and insurers (Employee, Employer and said related parties are
hereinafter collectively and individually "the Releasees")) from any
and all rights, claims, demands, debts, dues, sums of money, accounts,
attorneys' fees, complaints, judgements, executions, actions and causes
of action of any nature whatsoever, cognizable at law or equity, which
Employee and Employer have or claim, or might hereafter have or claim
against the Releasees based upon or arising out of any matter or thing
whatsoever, from the beginning of the world through the date of this
Agreement, including but not limited to any rights, claims, complaints
or actions or causes of action which were or could have been asserted
by Employee or Employer arising out of or related to Employee's
employment by the Employer or Employee's resignation therefrom, the
purchase (or sale to Employer) of any Employer securities by Employee,
or under any local, state, or federal law dealing with employment
discrimination including, without limitation, Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act and the
Americans with Disabilities Act. Notwithstanding the foregoing, no such
release shall be applicable to any existing indemnity rights of
Employee as an officer or employee of Employer through the Separation
Date, including those under Employer's Amended Articles of
Incorporation , Employer's Bylaws, the Indemnification Agreement
entered into as of January 8, 1998, between Employer and Employee or
any insurance rights in favor of Employee including the Directors and
Officers Liability Policy of Employer dated November 1, 1998, with
Reliance National.
b. Employee shall promptly submit to Employer an expense
account report accounting for all business expenses charged by Employee
to Employer and all advances received, and repay Employer for all
advances and all non-business related items charged by Employee to
Employer, if any. Employee hereby agrees that such advances and
non-business related expenses may, at the option of Employer, be
deducted by Employer from any of its payments to Employee under this
Agreement.
<PAGE>
10. In consideration of the promises contained in this Agreement,
Employee agrees to each of the following:
a. Except as may be required by the lawful order of a court or
agency of competent jurisdiction, Employee agrees to keep secret and
confidential indefinitely all non-public information concerning
Employer or any affiliate thereof which was acquired by or disclosed to
Employee during the course of Employee's employment with Employer, and
not to disclose the same, either directly or indirectly, to any other
person, firm or business entity or to use it in any way.
b. For a period of one (1) year from the date this Agreement
is signed by Employee, Employee covenants and agrees that Employee will
not, whether for Employee or for any other person, business,
partnership, association, firm, company or corporation, initiate
contact with, solicit, divert or take away any of the employees of
Employer or any affiliate thereof who were employees of Employer from
time to time during Employee's employment with Employer or any
affiliate thereof and are employees of Employer at the time of such
initiation, solicitation or diversion.
11. Employee agrees to immediately turn over to Employer all
notes, offering materials, slide shows, investment summaries, memoranda,
records, documents and all other information, no matter how produced or
reproduced, kept by Employee or in Employee's possession or control, used in or
pertaining to the business of Employer, it being hereby acknowledged that all of
said items are the sole and exclusive property of the Employer.
12. Except as may be required to the contrary by an order issued by a
court of competent jurisdiction and except for any communication with members of
Employee's immediate family and any attorney or accountant rendering advice to
Employee in connection with this Agreement, Employee shall not, directly or
indirectly, discuss or communicate the facts of this Agreement, or any of its
terms and provisions with any third party.
13. Employer agrees not to contest Employee's claim for unemployment
benefits.
14. From and after the date of presentment of this Agreement, neither
party shall, directly or indirectly, take any action which is in fact, or is
intended to be, contrary to the material interests of the other party or any
affiliate of the other party, nor will either party disparage or make negative,
derogatory or defamatory statements about the other party, its related and
affiliated entities, its directors, officers, employees, shareholders, agents or
representative, or any of them, to any other person or business entity, except
as may be required by legal process or court order.
15. Nothing in this Agreement shall be deemed an admission of
wrongdoing or any kind of liability by either party.
16. In the event Employee engages in a material breach of any of the
terms or provisions of this Agreement, then Employer shall provide to Employee
written notice of such claimed breach by Employee, and Employee shall have
thirty (30) days from receipt of such written notice from Employer to cease any
such conduct which Employer claims to be a material breach. If Employee fails to
cure such breach within such thirty (30) day period, then all of Employee's
obligations shall remain and shall be enforceable, but Employer's obligations
under this Agreement shall immediately terminate, including, without limitation,
all remaining monetary obligations of Employer to Employee which are outstanding
at the time of said breach. Similarly, Employee shall be relieved of any further
obligation under this Agreement if Employer materially breaches its covenants in
this Agreement.
17. This Agreement shall be binding upon and inure to the benefit of
both parties, their successor and assigns, and any affiliated or related entity,
as well as Employee's heirs, assigns, administrators, executors and legal
representatives.
<PAGE>
18. This instrument constitutes the entire Agreement between the
parties, and may not be modified or amended in any way except by a subsequent,
written agreement between the parties.
19. If any term or provision of this Agreement shall be determined by
any court of competent jurisdiction to be invalid, illegal or unenforceable in
whole or in part, and such determination shall become final, such term or
provision shall be deemed to be severed or limited, but only to the extent
required to render the remaining terms and provisions of this Agreement
enforceable. This Agreement as thus amended shall be enforced so as to give
effect to the intention of the parties insofar as this is possible. In addition,
the parties hereby expressly empower a court of competent jurisdiction to modify
any term or provision of this Agreement to the extent necessary to comply with
existing law and to enforce this Agreement as modified.
20. This Agreement shall be construed in accordance with the laws of
the State of Georgia.
21. The language used in this Agreement shall be deemed to be the
language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction shall be applied against any person.
22. This Agreement may be signed in multiple counterparts, each of
which shall be deemed to be an original for all purposes.
23. Employee may revoke this Agreement within twenty-one days of
Employee's signing it. If Employee revokes this Agreement, Employee shall return
any benefits Employee has received and all other provisions of this Agreement
shall not be effective or enforceable. Revocation, along with a cashier's check
for any benefits Employee may have received hereunder, should be delivered to
Employer's offices at 2100 RiverEdge Parkway, Atlanta, Georgia 30328, Attn:
Chief Executive Officer. For such revocation to be effective, the notice and the
cashier's check must be received no later than 5:00 p.m. on the twenty-first
calendar day after Employee signs this Agreement.
24. EMPLOYEE AFFIRMS THAT EMPLOYEE HAS BEEN GIVEN A PERIOD OF AT LEAST
TWENTY-EIGHT DAYS WITHIN WHICH TO CONSIDER THIS AGREEMENT, AND THAT EMPLOYEE HAS
CAREFULLY READ AND REVIEWED ALL THE TERMS AND CONDITIONS CONTAINED IN THIS
AGREEMENT AND FULLY UNDERSTANDS THIS AGREEMENT TO BE A RELEASE OF ALL CLAIMS,
KNOWN OR UNKNOWN, PRESENT OR FUTURE, THAT EMPLOYEE HAS OR MAY HAVE AGAINST
EMPLOYER ARISING OUT OF EMPLOYEE'S EMPLOYMENT BY EMPLOYER OR ITS TERMINATION.
EMPLOYEE ALSO AFFIRMS THAT EMPLOYEE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY
PRIOR TO EXECUTING THIS AGREEMENT AND THAT EMPLOYEE HAS, IN FACT, BEEN GIVEN
FULL OPPORTUNITY TO REVIEW THIS AGREEMENT WITH COUNSEL, AND THAT EMPLOYEE SIGNS
IT VOLUNTARILY OF HIS OWN VOLITION, WITHOUT DURESS OR COERCION. EMPLOYEE
REPRESENTS THAT EMPLOYEE IS SIGNING THIS AGREEMENT BECAUSE OF THE COMPENSATION
TO BE PAID BY EMPLOYER UNDER THIS AGREEMENT WHICH EXCEEDS SEPARATION
COMPENSATION GENERALLY AVAILABLE UNDER EMPLOYER'S POLICIES.
<PAGE>
IN WITNESS THEREOF, the parties have executed this Agreement on the
date(s) set forth below.
HOMESTEAD VILLAGE INCORPORATED
By
Title
Date
ROBERT J. MORSE
(Signature)
Date
<PAGE>
State of )
) ss
County of )
On ____________________, 1999, ____________________ personally appeared
before me,
_____ who is personally known to me
_____ whose identity I proved on the basis of ____________________
_____ whose identity I proved on the oath/affirmation of
____________________, a credible witness
to be the signer of the above instrument, and he/she acknowledged that he/she
signed it.
Notary Public
My Commission expires
State of )
) ss
County of )
On ____________________, 1999, ____________________ personally appeared
before me,
_____ who is personally known to me
_____ whose identity I proved on the basis of ____________________
_____ whose identity I proved on the oath/affirmation of
____________________, a credible witness
to be the signer of the above instrument, and he/she acknowledged that he/she
signed it.
Notary Public
My Commission expires
CHANGE IN CONTROL AGREEMENT
This Agreement entered into as of the 24th day of May, 1999, by and
between Homestead Village Incorporated, a Maryland corporation (the "Company"),
and David C. Dressler, Jr. (the "Executive").
WHEREAS, the Company wishes to assure itself of the continuity of the
Executive's services in the event of any actual change in control of the
Company; and
WHEREAS, the Company and the Executive accordingly desire to enter into
this Agreement on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, it is hereby agreed by and between the parties as follows:
1. Term of Agreement. The "Term" of this Agreement shall commence on the date
hereof and shall continue through December 31, 2001; provided, however, that on
such date and on each December 31 thereafter, the Term of this Agreement shall
automatically be extended for one additional year unless, not later than the
preceding January 1 either party shall have given notice that such party does
not wish to extend the Term; and provided, further, that if a Change in Control
(as defined in paragraph 3 below) shall have occurred during the original or any
extended Term of this Agreement, the Term of this Agreement shall continue for a
period of twenty-four calendar months beyond the calendar month in which such
Change in Control occurs.
2. Employment After a Change in Control. If the Executive is in the employ of
the Company on the date of a Change in Control, the Company hereby agrees to
continue the Executive in its employ for the period commencing on the date of
the Change in Control and ending on the last day of the Term of this Agreement.
During the period of employment described in the foregoing provisions of this
paragraph 2 (the "Employment Period"), the Executive shall hold such position
with the Company and exercise such authority and perform such executive duties
as are commensurate with the Executive's position, authority and duties
immediately prior to the Change in Control. The Executive agrees that during the
Employment Period the Executive shall devote full business time exclusively to
the executive duties described herein and perform such duties faithfully and
efficiently; provided, however, that nothing in this Agreement shall prevent the
Executive from voluntarily resigning from employment upon 60 days' written
notice to the Company under circumstances which do not constitute a Termination
(as defined below in paragraph 5).
3. Change in Control. For purposes of the Plan, a "Change in Control" means the
happening of any of the following:
a. the stockholders of the Company approve a definitive agreement to merge the
<PAGE>
Company into or consolidate the Company with another entity, sell or
otherwise dispose of all or substantially all of its assets or adopt a plan
of liquidation, provided, however, that a Change in Control shall not be
deemed to have occurred by reason of a transaction, or a substantially
concurrent or otherwise related series of transactions, upon the completion
of which 50% or more of the beneficial ownership of the voting power of the
Company, the surviving corporation or corporation directly or indirectly
controlling the Company or the surviving corporation, as the case may be,
is held by the same persons (as defined below) (although not necessarily in
the same proportion) as held the beneficial ownership of the voting power
of the Company immediately prior to the transaction or the substantially
concurrent or otherwise related series of transactions, except that upon
the completion thereof, employees or employee benefit plans of the Company
may be a new holder of such beneficial ownership; provided, further, that a
transaction with an AAffiliate@ of the Company (as defined in the
Securities Exchange Act of 1934, as amended (the AExchange Act@)) shall not
be treated as a Change in Control; or
b. the "beneficial ownership" (as defined in Rule 13d-3 under the Exchange
Act) of securities representing 50% or more of the combined voting power of
the Company is acquired, other than from the Company, by any "person" as
defined in Sections 13(d) and 14(d) of the Exchange Act (other than by an
Affiliate or any trustee or other fiduciary holding securities under an
employee benefit or other similar stock plan of the Company); or
c. at any time during any period of two consecutive years, individuals who at
the beginning of such period were members of the Board of Directors of the
Company cease for any reason to constitute at least a majority thereof
(unless the election, or the nomination for election by the Company's
stockholders, of each new Director was approved by a vote of at least
two-thirds of the Directors still in office at the time of such election or
nomination who were Directors at the beginning of such period).
4. Compensation During the Employment Period. During the Employment Period, the
Executive shall be compensated as follows:
a. the Executive shall receive an annual salary which is not less than his
annual salary immediately prior to the Employment Period and shall be
eligible to receive an increase in annual salary which is not materially
less favorable to the Executive than increases in salary granted by the
Company for executives with comparable duties;
b. the Executive shall be eligible to participate in short-term and long-term
cash-based incentive compensation plans which, in the aggregate, provide
bonus opportunities which are not materially less favorable to the
<PAGE>
Executive than the greater of (i) the opportunities provided by the Company
for executives with comparable duties; and (ii) the opportunities provided
to the Executive under all such plans in which the Executive was
participating prior to the Employment Period;
c. the Executive shall be eligible to participate in stock option, performance
awards, restricted stock and other equity-based incentive compensation
plans on a basis not materially less favorable to the Executive than that
applicable (i) to the Executive immediately prior to the Employment Period
or (ii) to other executives of the Company with comparable duties; and
d. the Executive shall be eligible to receive employee benefits (including,
but not limited to, tax-qualified and nonqualified savings plan benefits,
medical insurance, disability income protection, life insurance coverage
and death benefits) and perquisites which are not materially less favorable
to the Executive than (i) the employee benefits and perquisites provided by
the Company to executives with comparable duties or (ii) the employee
benefits and perquisites to which the Executive would be entitled under the
Company's employee benefit plans and perquisites as in effect immediately
prior to the Employment Period.
5. Termination. For purposes of this Agreement, the term "Termination" shall
mean termination of the employment of the Executive during the Employment Period
(i) by the Company, for any reason other than death, Disability (as defined
below), or Cause (as described below), or (ii) by resignation of the Executive
upon the occurrence of one of the following events:
a. a significant change in the nature or scope of the Executive's authorities
or duties from those described in paragraph 2 above, a breach of any of the
subparagraphs of paragraph 4 above, or the breach by the Company of any
other provision of this Agreement;
b. the relocation of the Executive's office to a location more than fifty
miles from the location of the Executive's office immediately prior to the
Employment Period;
c. a reasonable determination by the Executive that, as a result of a Change
in Control and a change in circumstances thereafter significantly affecting
the nature and scope of Executive's authorities and duties from those
described in paragraph 2 above, the Executive is unable to exercise the
authorities, powers, functions or duties associated with the Executive's
position as contemplated by paragraph 2 above; or
d. the failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement as contemplated in
paragraph 18 below.
The date of the Executive's Termination under this paragraph 5 shall be the date
specified by the Executive or the Company, as the case may be, in a written
notice to the other party complying with the requirements of paragraph 14 below.
For purposes of this Agreement, the Executive shall be considered to have a
<PAGE>
"Disability" during the period in which the Executive is unable, by reason of a
medically determinable physical or mental impairment, to engage in the material
and substantial duties of his regular occupation, which condition is expected to
be permanent. For purposes of this Agreement, the term "Cause" means, in the
reasonable judgment of the Board of Directors of the Company, (i) the willful
and continued failure by the Executive to substantially perform the Executive's
duties with the Company after written notification by the Company, (ii) the
willful engaging by the Executive in conduct which is demonstrably injurious to
the Company, monetarily or otherwise, or (iii) the engaging by the Executive in
egregious misconduct involving serious moral turpitude. For purposes of this
Agreement, no act, or failure to act, on the Executive's part shall be deemed
"willful" unless done, or omitted to be done, by the Executive not in good faith
and without reasonable belief that such action was in the best interest of the
Company.
6. Severance Payments. Subject to the provisions of paragraph 10 below, in the
event of a Termination described in paragraph 5 above, in lieu of the amount
otherwise payable under paragraph 4 above, the Executive shall continue to
receive medical insurance, disability income protection, life insurance coverage
and death benefits and perquisites in accordance with subparagraph 4(d) above
for a period of 24 months after the date of Termination, and shall be entitled
to a lump sum payment in cash no later than ten business days after the date of
Termination equal to the sum of:
a. the Executive's unpaid salary, accrued vacation pay and unreimbursed
business expenses through and including the date of Termination;
b. an amount equal to two times the Executive's annual salary rate in effect
immediately prior to the date of Termination;
c. an amount equal to two times the target bonus award for the Executive for
the year of Termination;
d. an amount equal to the assigned target bonus for the Executive for the year
of Termination prorated through the date of Termination.
6A. Loan. In the event of a Termination described in paragraph 5 above,
the loan to the Executive, pursuant to the Secured Promissory Note, dated
October 15, 1996, shall terminate and all outstanding and unpaid principal and
interest shall be forgiven and all shares of Common Stock of the Company
purchased by the Executive with the proceeds of such note shall be released from
any security interest of the Company.
7. Make-Whole Payments.If any payment or benefit to which the Executive is
entitled, whether under this Agreement or otherwise, in connection with a Change
in Control or the Executive's termination of employment (a "Payment") is subject
to any tax under section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any similar federal or state law (an "Excise Tax"), the Company
shall pay to the Executive an additional amount (the "Make-Whole Amount") which
is equal to (i) the amount of the Excise Tax, plus (ii) the aggregate amount of
any interest, penalties, fines or additions to any tax which are imposed in
connection with the imposition of such Excise Tax, plus (iii) all income, excise
and other applicable taxes imposed on the Executive under the laws of any
Federal, state or local government or taxing authority by reason of the payments
required under clause (i) and clause (ii) and this clause (iii).
<PAGE>
Such Make-Whole Amount will not be paid to the Executive if the Payment is less
than 10 percent above the maximum amount that may be paid without incurring
Excise Tax. In the event that the Payment is greater than the maximum amount
that may be paid without incurring Excise Tax, but less than 10 percent greater
than the maximum amount, then the Payments shall be capped at the maximum amount
that may be paid without incurring Excise Tax. In such event, the cash severance
payments provided in paragraph 6 above and/or the outplacement services provided
in paragraph 8 below, at the Executive's election, shall be reduced to a level
that results in the total Payment being equal to the maximum amount that may be
paid without incurring Excise Tax.
a. For purposes of determining the Make-Whole Amount, the Executive shall be
deemed to be taxed at the highest marginal rate under all applicable local,
state, federal and foreign income tax laws for the year in which the
Make-Whole Amount is paid. The Make-Whole Amount payable with respect to an
Excise Tax shall be paid by the Company coincident with the Payment with
respect to which such Excise Tax relates.
b. All calculations under this paragraph 7 shall be made initially by the
Company and the Company shall provide prompt written notice thereof to the
Executive to enable the Executive to timely file all applicable tax
returns. Upon request of the Executive, the Company shall provide the
Executive with sufficient tax and compensation data to enable the Executive
or his tax advisor to independently make the calculations described in
subparagraph (a) above and the Company shall reimburse the Executive for
reasonable fees and expenses incurred for any such verification.
c. If the Executive gives written notice to the Company of any objection to
the results of the Company's calculations within 60 days of the Executive's
receipt of written notice thereof, the dispute shall be referred for
determination to tax counsel selected by the independent auditors of the
Company ("Tax Counsel"). The Company shall pay all reasonable fees and
expenses of such Tax Counsel. Pending such determination by Tax Counsel,
the Company shall pay the Executive the Make-Whole Amount as determined by
it in good faith. The Company shall pay the Executive any additional amount
determined by Tax Counsel to be due under this paragraph 7 (together with
interest thereon at a rate equal to 120% of the Federal short-term rate
determined under section 1274(d) of the Code) promptly after such
determination.
d. The determination by Tax Counsel shall be conclusive and binding upon all
parties unless the Internal Revenue Service, a court of competent
jurisdiction, or such other duly empowered governmental body or agency (a
"Tax Authority") determines that the Executive owes a greater or lesser
amount of Excise Tax with respect to any Payment than the amount determined
by Tax Counsel.
e. If a Taxing Authority makes a claim against the Executive which, if
successful, would require the Company to make a payment under this
paragraph 7, the Executive agrees to contest the claim, with counsel
reasonably satisfactory to the Company, on request of the Company subject
to the following conditions:
<PAGE>
(i) The Executive shall notify the Company of any such claim within 10
days of becoming aware thereof. In the event that the Company desires
the claim to be contested, it shall promptly (but in no event more
than 30 days after the notice from the Executive or such shorter time
as the Taxing Authority may specify for responding to such claim)
request the Executive to contest the claim. The Executive shall not
make any payment of any tax which is the subject of the claim before
the Executive has given the notice or during the 30-day period
thereafter unless the Executive receives written instructions from the
Company to make such payment together with an advance of funds
sufficient to make the requested payment plus any amounts payable
under this paragraph 7 determined as if such advance were an Excise
Tax, in which case the Executive will act promptly in accordance with
such instructions.
(ii) If the Company so requests, the Executive will contest the claim by
either paying the tax claimed and suing for a refund in the
appropriate court or contesting the claim in the United States Tax
Court or other appropriate court, as directed by the Company;
provided, however, that any request by the Company for the Executive
to pay the tax -------- ------- shall be accompanied by an advance
from the Company to the Executive of funds sufficient to make the
requested payment plus any amounts payable under this paragraph 7
determined as if such advance were an Excise Tax. If directed by the
Company in writing the Executive will take all action necessary to
compromise or settle the claim, but in no event will the Executive
compromise or settle the claim or cease to contest the claim without
the written consent of the Company; provided, however, that --------
------- the Executive may take any such action if the Executive waives
in writing his right to a payment under this paragraph 7 for any
amounts payable in connection with such claim. The Executive agrees to
cooperate in good faith with the Company in contesting the claim and
to comply with any reasonable request from the Company concerning the
contest of the claim, including the pursuit of administrative
remedies, the appropriate forum for any judicial proceedings, and the
legal basis for contesting the claim. Upon request of the Company, the
Executive shall take appropriate appeals of any judgment or decision
that would require the Company to make a payment under this paragraph
7. Provided that the Executive is in compliance with the provisions of
this section, the Company shall be liable for and indemnify the
Executive against any loss in connection with, and all costs and
expenses, including attorneys' fees, which may be incurred as a result
of, contesting the claim, and shall provide to the Executive within 30
days after each written request therefor by the Executive cash
advances or reimbursement for all such costs and expenses actually
incurred or reasonably expected to be incurred by the Executive as a
result of contesting the claim.
<PAGE>
f. Should a Tax Authority finally determine that an additional Excise Tax is
owed, then the Company shall pay an additional Make-Up Amount to the
Executive in a manner consistent with this paragraph 7 with respect to any
additional Excise Tax and any assessed interest, fines, or penalties. If
any Excise Tax as calculated by the Company or Tax Counsel, as the case may
be, is finally determined by a Tax Authority to exceed the amount required
to be paid under applicable law, then the Executive shall repay such excess
to the Company within 30 days of such determination; provided that such
repayment shall be reduced by the amount of any taxes paid by the Executive
on such excess which is not offset by the tax benefit attributable to the
repayment.
8. Outplacement Services. If the Executive's Termination occurs during the
Employment Period, at the election of the Executive, the Company shall provide
the Executive with outplacement service of an experienced firm selected by the
Company and acceptable to the Executive located not more than fifty miles from
the location of Executive's office immediately prior to the Employment Period,
provided that the cost of such services shall not exceed $25,000 and such
services shall not extend beyond 24 months from Executive's Termination
9. Pooling of Interests Accounting Treatment. If the application of any
provision of this Agreement, or of the Agreement in its entirety, would preclude
the use of pooling of interests accounting treatment with respect to a
transaction for which such treatment otherwise is available and to be adopted by
the Company, this Agreement, upon the determination of the Board, shall be
modified as it applies to such transaction, to the minimum extent necessary to
prevent such impact.
10. Withholding. All payments to the Executive under this Agreement will be
subject to all applicable withholding of state and federal taxes.
11. Confidentiality, Non-Solicitation and Non-Competition. The Executive agrees
that:
a. Except as may be required by the lawful order of a court or
agency of competent jurisdiction, or except to the extent that
the Executive has express authorization from the Company, the
Executive agrees to keep secret and confidential indefinitely all
non-public information concerning the Company or any affiliate
thereof which was acquired by or disclosed to the Executive
during the course of the Executive's employment with the Company
or any affiliate thereof, and not to disclose the same, either
directly or indirectly, to any other person, firm or business
entity or to use it in any way.
b. While the Executive is employed by the Company or any entity
controlled by the Company and for a period of one year after the
date of the Executive's Termination, the Executive covenants and
agrees that Executive will not, whether for Executive or for any
other person, business, partnership, association, firm, company
or corporation, initiate contact with, solicit, divert or take
away any of the customers (entities or individuals from which the
Company or any of its affiliates receives rents or payment for
services) of the Company or any affiliate thereof or employees of
the Company or any affiliate thereof in existence from time to
time during Executive's employment with the Company or any
affiliate thereof and at the time of such initiation,
solicitation or diversion.
<PAGE>
c. While the Executive is employed by the Company or any entity
controlled by the Company and for a period of one year after
Executive's Termination, the Executive covenants and agrees that
Executive will not, directly or indirectly, engage in, assist,
perform services for, plan for, establish or open, or have any
financial interest (other than (i) ownership of 1% or less of the
outstanding stock of any corporation listed on the New York or
American Stock Exchange or included in the National Association
of Securities Dealers Automated Quotation System or (ii)
ownership of securities in any entity affiliated with the
Company) in any person, firm, corporation, or business entity
(whether as an employee, officer, director of consultant) that
engages as its principal business in the operation, development,
management or financing of moderate priced, extended-stay lodging
facilities that compete directly with the Company or any entity
controlled by the Company.
12. Arbitration of All Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be settled by arbitration
in Chicago, Illinois, in accordance with the laws of the State of Illinois, by
three arbitrators appointed by the parties. If the parties cannot agree on the
appointment of the arbitrators, one shall be appointed by the Company and one by
the Executive and the third shall be appointed by the first two arbitrators. If
the first two arbitrators cannot agree on the appointment of a third arbitrator,
then the third arbitrator shall be appointed by the Chief Judge of the United
States Court of Appeals for the Seventh Circuit. The arbitration shall be
conducted in accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as provided
in this paragraph 12. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the event that it shall be
necessary or desirable for the Executive to retain legal counsel or incur other
costs and expenses in connection with enforcement of his rights under this
Agreement, the Company shall pay (or the Executive shall be entitled to recover
from the Company, as the case may be) his reasonable attorneys' fees and costs
and expenses in connection with enforcement of his rights (including the
enforcement of any arbitration award in court). Payments shall be made to the
Executive at the time such fees, costs and expenses are incurred. If, however,
the arbitrators shall determine that, under the circumstances, payment by the
Company of all or a part of any such fees and costs and expenses would be
unjust, the Executive shall repay such amounts to the Company in accordance with
the order of the arbitrators. Any award of the arbitrators shall include
interest at a rate or rates considered just under the circumstances by the
arbitrators.
<PAGE>
13. Mitigation and Set-Off. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise. The Company shall not be entitled to set off against the amounts
payable to the Executive under this Agreement any amounts owed to the Company by
the Executive, any amounts earned by the Executive in other employment after
termination of his employment with the Company, or any amounts which might have
been earned by the Executive in other employment had he sought such other
employment.
14. Notices. Any notice of Termination of the Executive's employment by the
Company or the Executive for any reason shall be upon no less than 15 days' and
no greater than 45 days' advance written notice to the other party. Any notices,
requests, demand and other communications provided for by this Agreement shall
be sufficient if in writing and if sent by registered or certified mail to the
Executive at the last address he has filed in writing with the Company or, in
the case of the Company, to the attention of the Secretary of the Company, at
its principal executive offices.
15. Non-Alienation. The Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien upon any amounts provided
under this Agreement; and no benefits payable hereunder shall be assignable in
anticipation of payment either by voluntary or involuntary acts, or by operation
of law. Nothing in this paragraph shall limit the Executive's rights or powers
to dispose of his property by will or limit any rights or powers which his
executor or administrator would otherwise have. This Agreement shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. If the Executive should die while any amount is still
payable to the Executive hereunder had the Executive continued to live, all such
amounts, shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee, or if there is no such
designee, to the Executive's estate.
16. Governing Law. The provisions of this Agreement shall be construed in
accordance with the laws of the State of Illinois, without application of
conflict of laws provisions thereunder.
17. Amendment. This Agreement may be amended or canceled by mutual agreement of
the parties in writing without the consent of any other person and, so long as
the Executive lives, no person, other than the parties hereto, shall have any
rights under or interest in this Agreement or the subject matter hereof.
18. Successors to the Company. This Agreement shall be binding upon and inure to
the benefit of the Company and any successor of the Company. The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no succession had taken place.
<PAGE>
19. Employment Status. Nothing herein contained shall be deemed to create an
employment agreement between the Company and the Executive, providing for the
employment of the Executive by the Company for any fixed period of time. The
Executive's employment with the Company is terminable at will by the Company or
the Executive and each shall have the right to terminate the Executive's
employment with the Company at any time, with or without Cause, subject to (i)
the notice provisions of paragraphs 2, 5 and 14, and (ii) the Company's
obligation to provide severance payments as required by paragraph 6. Upon a
termination of the Executive's employment prior to the date of a Change in
Control, there shall be no further rights under this Agreement.
20. Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
21. Counterparts. This Agreement may be executed in two or more counterparts,
any one of which shall be deemed the original without reference to the others.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name and on its behalf, all as of
the day and year first above written.
------------------------------------
David C. Dressler, Jr.
HOMESTEAD VILLAGE
INCORPORATED
By: J.R. Patterson
Its: Senior Vice President
<PAGE>
CHANGE IN CONTROL AGREEMENT
This Agreement entered into as of the 9th_ day of July, 1999, by and
between Homestead Village Incorporated, a Maryland corporation (the "Company"),
and Gary DeLapp (the "Executive").
WHEREAS, the Company wishes to assure itself of the continuity of the
Executive's services in the event of any actual change in control of the
Company; and
WHEREAS, the Company and the Executive accordingly desire to enter into
this Agreement on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, it is hereby agreed by and between the parties as follows:
1. Term of Agreement. The "Term" of this Agreement shall commence on the date
hereof and shall continue through December 31, 2001; provided, however, that on
such date and on each December 31 thereafter, the Term of this Agreement shall
automatically be extended for one additional year unless, not later than the
preceding January 1 either party shall have given notice that such party does
not wish to extend the Term; and provided, further, that if a Change in Control
(as defined in paragraph 3 below) shall have occurred during the original or any
extended Term of this Agreement, the Term of this Agreement shall continue for a
period of twenty-four calendar months beyond the calendar month in which such
Change in Control occurs.
2. Employment After a Change in Control. If the Executive is in the employ of
the Company on the date of a Change in Control, the Company hereby agrees to
continue the Executive in its employ for the period commencing on the date of
the Change in Control and ending on the last day of the Term of this Agreement.
During the period of employment described in the foregoing provisions of this
paragraph 2 (the "Employment Period"), the Executive shall hold such position
with the Company and exercise such authority and perform such executive duties
as are commensurate with the Executive's position, authority and duties
immediately prior to the Change in Control. The Executive agrees that during the
Employment Period the Executive shall devote full business time exclusively to
the executive duties described herein and perform such duties faithfully and
efficiently; provided, however, that nothing in this Agreement shall prevent the
Executive from voluntarily resigning from employment upon 60 days' written
notice to the Company under circumstances which do not constitute a Termination
(as defined below in paragraph 5).
3. Change in Control. For purposes of this Agreement, a "Change in Control"
means the happening of any of the following:
a. the stockholders of the Company approve a definitive agreement to merge the
Company into or consolidate the Company with another entity, sell or
otherwise dispose of all or substantially all of its assets or adopt a plan
<PAGE>
of liquidation, provided, however, that a Change in Control shall not be
deemed to have occurred by reason of a transaction, or a substantially
concurrent or otherwise related series of transactions, upon the completion
of which 50% or more of the beneficial ownership of the voting power of the
Company, the surviving corporation or corporation directly or indirectly
controlling the Company or the surviving corporation, as the case may be,
is held by the same persons (as defined below) (although not necessarily in
the same proportion) as held the beneficial ownership of the voting power
of the Company immediately prior to the transaction or the substantially
concurrent or otherwise related series of transactions, except that upon
the completion thereof, employees or employee benefit plans of the Company
may be a new holder of such beneficial ownership; provided, further, that a
transaction with an "Affiliate" of the Company (as defined in the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall not
be treated as a Change in Control; or
b. the "beneficial ownership" (as defined in Rule 13d-3 under the Exchange
Act) of securities representing 50% or more of the combined voting power of
the Company is acquired, other than from the Company, by any "person" as
defined in Sections 13(d) and 14(d) of the Exchange Act (other than by an
Affiliate or any trustee or other fiduciary holding securities under an
employee benefit or other similar stock plan of the Company); or
c. at any time during any period of two consecutive years, individuals who at
the beginning of such period were members of the Board of Directors of the
Company cease for any reason to constitute at least a majority thereof
(unless the election, or the nomination for election by the Company's
stockholders, of each new Director was approved by a vote of at least
two-thirds of the Directors still in office at the time of such election or
nomination who were Directors at the beginning of such period).
4. Compensation During the Employment Period. During the Employment Period, the
Executive shall be compensated as follows:
a. the Executive shall receive an annual salary which is not less than his
annual salary immediately prior to the Employment Period and shall be
eligible to receive an increase in annual salary which is not materially
less favorable to the Executive than increases in salary granted by the
Company for executives with comparable duties;
b. the Executive shall be eligible to participate in short-term and long-term
cash-based incentive compensation plans which, in the aggregate, provide
bonus opportunities which are not materially less favorable to the
Executive than the greater of (i) the opportunities provided by the Company
for executives with comparable duties; and (ii) the opportunities provided
to the Executive under all such plans in which the Executive was
participating prior to the Employment Period;
<PAGE>
c. the Executive shall be eligible to participate in stock option, performance
awards, restricted stock and other equity-based incentive compensation
plans on a basis not materially less favorable to the Executive than that
applicable (i) to the Executive immediately prior to the Employment Period
or (ii) to other executives of the Company with comparable duties; and
d. the Executive shall be eligible to receive employee benefits (including,
but not limited to, tax-qualified and nonqualified savings plan benefits,
medical insurance, disability income protection, life insurance coverage
and death benefits) and perquisites which are not materially less favorable
to the Executive than (i) the employee benefits and perquisites provided by
the Company to executives with comparable duties or (ii) the employee
benefits and perquisites to which the Executive would be entitled under the
Company's employee benefit plans and perquisites as in effect immediately
prior to the Employment Period.
5. Termination. For purposes of this Agreement, the term "Termination" shall
mean termination of the employment of the Executive during the Employment Period
(i) by the Company, for any reason other than death, Disability (as defined
below), or Cause (as described below), or (ii) by resignation of the Executive
upon the occurrence of one of the following events:
a. a significant change in the nature or scope of the Executive's authorities
or duties from those described in paragraph 2 above, a breach of any of the
subparagraphs of paragraph 4 above, or the breach by the Company of any
other provision of this Agreement;
b. the relocation of the Executive's office to a location more than fifty
miles from the location of the Executive's office immediately prior to the
Employment Period;
c. a reasonable determination by the Executive that, as a result of a Change
in Control and a change in circumstances thereafter significantly affecting
the nature and scope of Executive's authorities and duties from those
described in paragraph 2 above, the Executive is unable to exercise the
authorities, powers, functions or duties associated with the Executive's
position as contemplated by paragraph 2 above; or
d. the failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform this Agreement as contemplated in
paragraph 18 below.
The date of the Executive's Termination under this paragraph 5 shall be the date
specified by the Executive or the Company, as the case may be, in a written
notice to the other party complying with the requirements of paragraph 14 below.
For purposes of this Agreement, the Executive shall be considered to have a
"Disability" during the period in which the Executive is unable, by reason of a
medically determinable physical or mental impairment, to engage in the material
and substantial duties of his regular occupation, which condition is expected to
be permanent. For purposes of this Agreement, the term "Cause" means, in the
reasonable judgment of the Board of Directors of the Company, (i) the willful
and continued failure by the Executive to substantially perform the Executive's
duties with the Company after written notification by the Company, (ii) the
willful engaging by the Executive in conduct which is demonstrably injurious to
<PAGE>
the Company, monetarily or otherwise, or (iii) the engaging by the Executive in
egregious misconduct involving serious moral turpitude. For purposes of this
Agreement, no act, or failure to act, on the Executive's part shall be deemed
"willful" unless done, or omitted to be done, by the Executive not in good faith
and without reasonable belief that such action was in the best interest of the
Company.
6. Severance Payments. Subject to the provisions of paragraph 10 below, in the
event of a Termination described in paragraph 5 above, in lieu of the amount
otherwise payable under paragraph 4 above, the Executive shall continue to
receive medical insurance, disability income protection, life insurance coverage
and death benefits and perquisites in accordance with subparagraph 4(d) above
for a period of twelve months after the date of Termination, and shall be
entitled to a lump sum payment in cash no later than ten business days after the
date of Termination equal to the sum of:
a. the Executive's unpaid salary, accrued vacation pay and unreimbursed
business expenses through and including the date of Termination;
b. an amount equal to one times the Executive's annual salary rate in
effect immediately prior to the date of Termination;
c. an amount equal to one times the target bonus award for the Executive
for the year of Termination;
d. an amount equal to the assigned target bonus for the Executive for the
year of Termination prorated through the date of Termination.
7. Make-Whole Payments. Subject to the last three sentences of this paragraph 7,
if any payment or benefit to which the Executive is entitled, whether under this
Agreement or otherwise, in connection with a Change in Control or the
Executive's termination of employment (a "Payment") is subject to any tax under
section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any similar federal or state law (an "Excise Tax"), the Company shall pay to the
Executive an additional amount (the "Make-Whole Amount") which is equal to (i)
the amount of the Excise Tax, plus (ii) the aggregate amount of any interest,
penalties, fines or additions to any tax which are imposed in connection with
the imposition of such Excise Tax, plus (iii) all income, excise and other
applicable taxes imposed on the Executive under the laws of any Federal, state
or local government or taxing authority by reason of the payments required under
clause (i) and clause (ii) and this clause (iii). Such Make-Whole Amount will
not be paid to the Executive if the Payment is less than 10 percent above the
maximum amount that may be paid without incurring Excise Tax. In the event that
the Payment is greater than the maximum amount that may be paid without
incurring Excise Tax, but less than 10 percent greater than the maximum amount,
then the Payments shall be capped at the maximum amount that may be paid without
incurring Excise Tax. In such event, the cash severance payments provided in
paragraph 6 above and/or the outplacement services provided in paragraph 8
below, at the Executive's election, shall be reduced to a level that results in
the total Payment being equal to the maximum amount that may be paid without
incurring Excise Tax.
<PAGE>
a. For purposes of determining the Make-Whole Amount, the Executive shall be
deemed to be taxed at the highest marginal rate under all applicable local,
state, federal and foreign income tax laws for the year in which the
Make-Whole Amount is paid. The Make-Whole Amount payable with respect to an
Excise Tax shall be paid by the Company coincident with the Payment with
respect to which such Excise Tax relates.
b. All calculations under this paragraph 7 shall be made initially by the
Company and the Company shall provide prompt written notice thereof to the
Executive to enable the Executive to timely file all applicable tax
returns. Upon request of the Executive, the Company shall provide the
Executive with sufficient tax and compensation data to enable the Executive
or his tax advisor to independently make the calculations described in
subparagraph (a) above and the Company shall reimburse the Executive for
reasonable fees and expenses incurred for any such verification.
c. If the Executive gives written notice to the Company of any objection to
the results of the Company's calculations within 60 days of the Executive's
receipt of written notice thereof, the dispute shall be referred for
determination to tax counsel selected by the independent auditors of the
Company ("Tax Counsel"). The Company shall pay all reasonable fees and
expenses of such Tax Counsel. Pending such determination by Tax Counsel,
the Company shall pay the Executive the Make-Whole Amount as determined by
it in good faith. The Company shall pay the Executive any additional amount
determined by Tax Counsel to be due under this paragraph 7 (together with
interest thereon at a rate equal to 120% of the Federal short-term rate
determined under section 1274(d) of the Code) promptly after such
determination.
d. The determination by Tax Counsel shall be conclusive and binding upon all
parties unless the Internal Revenue Service, a court of competent
jurisdiction, or such other duly empowered governmental body or agency (a
"Tax Authority") determines that the Executive owes a greater or lesser
amount of Excise Tax with respect to any Payment than the amount determined
by Tax Counsel.
e. If a Taxing Authority makes a claim against the Executive which, if
successful, would require the Company to make a payment under this
paragraph 7, the Executive agrees to contest the claim, with counsel
reasonably satisfactory to the Company, on request of the Company subject
to the following conditions:
(i) The Executive shall notify the Company of any such claim within
10 days of becoming aware thereof. In the event that the Company
desires the claim to be contested, it shall promptly (but in no
event more than 30 days after the notice from the Executive or
such shorter time as the Taxing Authority may specify for
responding to such claim) request the Executive to contest the
claim. The Executive shall not make any payment of any tax which
is the subject of the claim before the Executive has given the
notice or during the 30-day period thereafter unless the
Executive receives written instructions from the Company to make
<PAGE>
such payment together with an advance of funds sufficient to make
the requested payment plus any amounts payable under this
paragraph 7 determined as if such advance were an Excise Tax, in
which case the Executive will act promptly in accordance with
such instructions.
(ii) If the Company so requests, the Executive will contest the claim
by either paying the tax claimed and suing for a refund in the
appropriate court or contesting the claim in the United States
Tax Court or other appropriate court, as directed by the Company;
provided, however, that any request by the Company for the
Executive to pay the tax shall be accompanied by an advance from
the Company to the Executive of funds sufficient to make the
requested payment plus any amounts payable under this paragraph 7
determined as if such advance were an Excise Tax. If directed by
the Company in writing the Executive will take all action
necessary to compromise or settle the claim, but in no event will
the Executive compromise or settle the claim or cease to contest
the claim without the written consent of the Company; provided,
however, that the Executive may take any such action if the
Executive waives in writing his right to a payment under this
paragraph 7 for any amounts payable in connection with such
claim. The Executive agrees to cooperate in good faith with the
Company in contesting the claim and to comply with any reasonable
request from the Company concerning the contest of the claim,
including the pursuit of administrative remedies, the appropriate
forum for any judicial proceedings, and the legal basis for
contesting the claim. Upon request of the Company, the Executive
shall take appropriate appeals of any judgment or decision that
would require the Company to make a payment under this paragraph
7. Provided that the Executive is in compliance with the
provisions of this section, the Company shall be liable for and
indemnify the Executive against any loss in connection with, and
all costs and expenses, including attorneys' fees, which may be
incurred as a result of, contesting the claim, and shall provide
to the Executive within 30 days after each written request
therefor by the Executive cash advances or reimbursement for all
such costs and expenses actually incurred or reasonably expected
to be incurred by the Executive as a result of contesting the
claim.
f. Should a Tax Authority finally determine that an additional Excise Tax is
owed, then the Company shall pay an additional Make-Up Amount to the
Executive in a manner consistent with this paragraph 7 with respect to any
additional Excise Tax and any assessed interest, fines, or penalties. If
any Excise Tax as calculated by the Company or Tax Counsel, as the case may
be, is finally determined by a Tax Authority to exceed the amount required
to be paid under applicable law, then the Executive shall repay such excess
to the Company within 30 days of such determination; provided that such
repayment shall be reduced by the amount of any taxes paid by the Executive
on such excess which is not offset by the tax benefit attributable to the
repayment.
<PAGE>
8. Outplacement Services. If the Executive's Termination occurs during the
Employment Period, at the election of the Executive, the Company shall provide
the Executive with outplacement service of an experienced firm selected by the
Company and acceptable to the Executive located not more than fifty miles from
the location of Executive's office immediately prior to the Employment Period,
provided that the cost of such services shall not exceed $10,000 and such
services shall not extend beyond 12 months from Executive's Termination
9. Pooling of Interests Accounting Treatment. If the application of any
provision of this Agreement, or of the Agreement in its entirety, would preclude
the use of pooling of interests accounting treatment with respect to a
transaction for which such treatment otherwise is available and to be adopted by
the Company, this Agreement, upon the determination of the Board, shall be
modified as it applies to such transaction, to the minimum extent necessary to
prevent such impact.
10. Withholding. All payments to the Executive under this Agreement will be
subject to all applicable withholding of state and federal taxes.
11. Confidentiality, Non-Solicitation and Non-Competition. The Executive agrees
that:
a. Except as may be required by the lawful order of a court or agency of
competent jurisdiction, or except to the extent that the Executive has
express authorization from the Company, the Executive agrees to keep secret
and confidential indefinitely all non-public information concerning the
Company or any affiliate thereof which was acquired by or disclosed to the
Executive during the course of the Executive's employment with the Company
or any affiliate thereof, and not to disclose the same, either directly or
indirectly, to any other person, firm or business entity or to use it in
any way.
b. While the Executive is employed by the Company or any affiliate and for a
period of one year after the date of the Executive's Termination, the
Executive covenants and agrees that Executive will not, whether for
Executive or for any other person, business, partnership, association,
firm, company or corporation, initiate contact with, solicit, divert or
take away any of the customers (entities or individuals from which the
Company or any of its affiliates receives rents or payment for services) of
the Company or any affiliate thereof or employees of the Company or any
affiliate thereof in existence from time to time during Executive's
employment with the Company or any affiliate thereof and at the time of
such initiation, solicitation or diversion.
c. While the Executive is employed by the Company or any entity controlled by
the Company and for a period of one year after Executive's Termination, the
Executive covenants and agrees that Executive will not, directly or
indirectly, engage in, assist, perform services for, plan for, establish or
<PAGE>
open, or have any financial interest (other than (i) ownership of 1% or
less of the outstanding stock of any corporation listed on the New York or
American Stock Exchange or included in the National Association of
Securities Dealers Automated Quotation System or (ii) ownership of
securities in any entity affiliated with the Company) in any person, firm,
corporation, or business entity (whether as an employee, officer, director
of consultant) that engages as its principal business in the operation,
development, management or financing of moderate priced, extended-stay
lodging facilities that compete directly with the Company or any entity
controlled by the Company.
12. Arbitration of All Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be settled by arbitration
in Chicago, Illinois, in accordance with the laws of the State of Illinois, by
three arbitrators appointed by the parties. If the parties cannot agree on the
appointment of the arbitrators, one shall be appointed by the Company and one by
the Executive and the third shall be appointed by the first two arbitrators. If
the first two arbitrators cannot agree on the appointment of a third arbitrator,
then the third arbitrator shall be appointed by the Chief Judge of the United
States Court of Appeals for the Seventh Circuit. The arbitration shall be
conducted in accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as provided
in this paragraph 12. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In the event that it shall be
necessary or desirable for the Executive to retain legal counsel or incur other
costs and expenses in connection with enforcement of his rights under this
Agreement, the Company shall pay (or the Executive shall be entitled to recover
from the Company, as the case may be) his reasonable attorneys' fees and costs
and expenses in connection with enforcement of his rights (including the
enforcement of any arbitration award in court). Payments shall be made to the
Executive at the time such fees, costs and expenses are incurred. If, however,
the arbitrators shall determine that, under the circumstances, payment by the
Company of all or a part of any such fees and costs and expenses would be
unjust, the Executive shall repay such amounts to the Company in accordance with
the order of the arbitrators. Any award of the arbitrators shall include
interest at a rate or rates considered just under the circumstances by the
arbitrators.
13. Mitigation and Set-Off. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise. The Company shall not be entitled to set off against the amounts
payable to the Executive under this Agreement any amounts owed to the Company by
the Executive, any amounts earned by the Executive in other employment after
termination of his employment with the Company, or any amounts which might have
been earned by the Executive in other employment had he sought such other
employment.
<PAGE>
14. Notices. Any notice of Termination of the Executive's employment by the
Company or the Executive for any reason shall be upon no less than 15 days' and
no greater than 45 days' advance written notice to the other party. Any notices,
requests, demand and other communications provided for by this Agreement shall
be sufficient if in writing and if sent by registered or certified mail to the
Executive at the last address he has filed in writing with the Company or, in
the case of the Company, to the attention of the Secretary of the Company, at
its principal executive offices.
15. Non-Alienation. The Executive shall not have any right to pledge,
hypothecate, anticipate or in any way create a lien upon any amounts provided
under this Agreement; and no benefits payable hereunder shall be assignable in
anticipation of payment either by voluntary or involuntary acts, or by operation
of law. Nothing in this paragraph shall limit the Executive's rights or powers
to dispose of his property by will or limit any rights or powers which his
executor or administrator would otherwise have. This Agreement shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. If the Executive should die while any amount is still
payable to the Executive hereunder had the Executive continued to live, all such
amounts shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee, or if there is no such
designee, to the Executive's estate.
16. Governing Law. The provisions of this Agreement shall be construed in
accordance with the laws of the State of Illinois, without application of
conflict of laws provisions thereunder.
17. Amendment. This Agreement may be amended or canceled by mutual agreement of
the parties in writing without the consent of any other person and, so long as
the Executive lives, no person, other than the parties hereto, shall have any
rights under or interest in this Agreement or the subject matter hereof.
18. Successors to the Company. This Agreement shall be binding upon and inure to
the benefit of the Company and any successor of the Company. The Company shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no succession had taken place.
19. Employment Status. Nothing herein contained shall be deemed to create an
employment agreement between the Company and the Executive, providing for the
employment of the Executive by the Company for any fixed period of time. The
Executive's employment with the Company is terminable at will by the Company or
the Executive and each shall have the right to terminate the Executive's
employment with the Company at any time, with or without Cause, subject to (i)
the notice provisions of paragraphs 2, 5 and 14, and (ii) the Company's
obligation to provide severance payments as required by paragraph 6. Upon a
termination of the Executive's employment prior to the date of a Change in
Control, there shall be no further rights under this Agreement.
<PAGE>
20. Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
21. Counterparts. This Agreement may be executed in two or more counterparts,
any one of which shall be deemed the original without reference to the others.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name and on its behalf, all as of
the day and year first above written.
------------------------------------------
Gary DeLapp
HOMESTEAD VILLAGE INCORPORATED
------------------------------------------
By: J.R. Patterson
Its: Senior Vice President
To Homestead Village Incorporated:
We are aware that Homestead Village Incorporated and subsidiaries has
incorporated by reference in its previously filed Registration Statement File
No. 333-37803, Registration Statement File No. 333-67039, Registration Statement
File No. 333-17243, Registration Statement File No. 333-17245, and Registration
Statement File No. 333-48163, its Form 10-Q for the quarter ended June 30, 1999,
which includes our report dated April 23, 1999 covering the unaudited interim
financial information contained therein. Pursuant to Regulation C of the
Securities Act of 1933 (the "Act"), that report is not considered a part of the
Registration Statement prepared or certified by our firm or a report prepared or
certified by our firm within the meaning of Sections 7 and 11 of the Act.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
July 22, 1999
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER>1
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 15,388,000 14,312,000
<SECURITIES> 0 0
<RECEIVABLES> 7,584,000 4,287,000
<ALLOWANCES> 422,000 65,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 23,748,000 18,991,000
<PP&E> 1,178,840,000 998,182,000
<DEPRECIATION> 51,867,000 30,148,000
<TOTAL-ASSETS> 1,219,759,000 1,053,671,000
<CURRENT-LIABILITIES> 59,972,000 234,178,000
<BONDS> 0 0
0 0
0 0
<COMMON> 1,200,000 383,000
<OTHER-SE> 591,366,000 491,680,000
<TOTAL-LIABILITY-AND-EQUITY> 1,219,759,000 1,053,671,000
<SALES> 0 0
<TOTAL-REVENUES> 105,731,000 61,145,000
<CGS> 0 0
<TOTAL-COSTS> 153,552,000 49,468,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 25,274,000 7,119,000
<INCOME-PRETAX> (72,739,000) 5,062,000
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (72,739,000) 5,062,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> (14,230,000) 0
<NET-INCOME> (86,969,000) 5,062,000
<EPS-BASIC> (1.62) .14
<EPS-DILUTED> (1.62) .14
<FN>
Certain amounts for the six month period ended June 30, 1998 have been
reclassified to conform to the 1999 presentation.
</FN>
</TABLE>
