<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
HOMESTEAD VILLAGE INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
2100 RiverEdge Parkway, 9th Floor
Atlanta, Georgia 30328
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 23, 1999
To the shareholders:
The 1999 annual meeting of shareholders of Homestead Village Incorporated
("Homestead") will be held on Wednesday, June 23, 1999, at the Renaissance
Waverly Hotel, 2450 Galleria Parkway, Atlanta, Georgia, at 9:00 a.m. (Eastern
Daylight Time) for the following purposes:
1. To elect two Class I Directors each to serve until the annual meeting
of shareholders in 2001, and until their successors are duly elected and
qualify; and to elect two Class II Directors each to serve until the annual
meeting of shareholders in 2002, and until their successors are duly
elected and qualify; and
2. To approve the adoption of Homestead's 1999 Long-Term Incentive Plan;
and
3. To transact such other business as may properly come before the
meeting and any adjournment or postponement thereof.
Further information regarding the business to be transacted at the meeting
is given in the accompanying Proxy Statement.
Shareholders of record at the close of business on May 28, 1999 are
entitled to notice of, and to vote at, the meeting.
Please help Homestead by promptly marking, dating, signing and returning
the enclosed proxy card in the envelope provided for your convenience. If you
attend the meeting and decide to vote in person, you may revoke your proxy.
Jeffrey A. Klopf
Secretary
June 4, 1999
YOUR VOTE IS IMPORTANT.
PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
2100 RiverEdge Parkway, 9th Floor
Atlanta, Georgia 30328
PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 23, 1999
GENERAL INFORMATION
This proxy statement is being sent on June 4, 1999, to solicit proxies on
behalf of the Board of Directors (the "Board") of Homestead Village
Incorporated ("Homestead" or the "Company") to be voted at the Homestead 1999
annual meeting of shareholders to be held on Wednesday, June 23, 1999, and to
provide information concerning the use of the proxy and the business to be
transacted at the meeting. The designated proxy holders will vote the shares
of Common Stock, par value $.01 per share (the "Shares"), represented by a
proxy which is received and not revoked. If the shareholder specifies a choice
with respect to any matter to be acted upon and for which a ballot is provided
in the proxy, the proxy holders will vote the Shares represented by the proxy
in accordance with the shareholder's specifications. If the shareholder signs
and returns an executed proxy without specifying choices, the proxy holders
will vote the Shares in accordance with the recommendations of the Board.
If you are a registered owner and plan to attend the meeting in person,
please detach and retain the admission ticket which is attached to your proxy
card. Beneficial owners whose ownership is registered under another party's
name and who plan to attend the meeting in person may obtain admission tickets
in advance by sending written requests, along with proof of ownership, such as
a bank or brokerage firm account statement, to: Kelly Lee, Investor Relations,
Homestead Village Incorporated, 2100 RiverEdge Parkway, 9th Floor, Atlanta,
Georgia 30328. Record owners and beneficial owners (including the holders of
valid proxies therefrom) who do not present admission tickets at the meeting
will be admitted upon verification of ownership at the admissions counter at
the annual meeting.
Any shareholder giving a proxy has the right to revoke it at any time
before it is voted by giving written notice to the Secretary of Homestead, by
delivering to the Secretary of Homestead a duly executed proxy bearing a later
date, or by attending and voting in person at the meeting.
Homestead will bear the cost of soliciting proxies. In addition to
solicitation by mail, and without additional compensation for such services,
proxies may be solicited personally, or by telephone, facsimile transmission
or other electronic means, by officers or employees of Homestead. Homestead
will also request banking institutions, brokerage firms, custodians, trustees,
nominees, fiduciaries and similar parties to forward the solicitation material
to the beneficial owners of Shares held of record by those persons, and
Homestead will, upon request of such record holders, reimburse forwarding
charges and expenses.
<PAGE>
SHARES OUTSTANDING AND VOTE REQUIRED
At the close of business on May 28, 1999, the record date for determination
of shareholders entitled to notice of, and to vote at, the 1999 annual meeting
of shareholders, there were 120,062,727 Shares outstanding. Each Share
outstanding on the record date is entitled to one vote. There is no right to
cumulative voting. A majority of the outstanding Shares represented in person
or by proxy will constitute a quorum at the meeting.
Assuming the presence of a quorum, a plurality of all the votes cast at the
meeting is required to approve the election of each nominee for Director. The
affirmative vote of a majority of the votes cast in person or by proxy at the
meeting is required to approve the adoption of Homestead's 1999 Long-Term
Incentive Plan. Representatives of Homestead's transfer agent will assist
Homestead in the tabulation of the votes. Abstentions and broker non-votes
will be counted as Shares represented at the meeting for purposes of
determining a quorum. An abstention or a broker non-vote has no effect with
respect to the election of Directors. An abstention has the effect of a vote
against approval of the 1999 Long-Term Incentive Plan. A broker non-vote has
no effect with respect to approval of the 1999 Long-Term Incentive Plan. As of
the record date, Security Capital Group Incorporated ("Security Capital") held
87.0% of the outstanding Shares. Assuming Security Capital votes its Shares in
favor of the proposals and the election of the nominees for director, the
adoption of the proposals and election of the nominees is assured.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of May 28, 1999, information concerning
the beneficial ownership of Shares for (i) each person known to Homestead to
be the beneficial owner of more than 5% of Shares outstanding (ii) each
Director and nominee for Director of Homestead, (iii) each Named Executive
Officer, who include the chief investment officer, the chief operating officer
and the three other most highly compensated officers during 1998 and (iv) the
directors and executive officers as a group. Unless otherwise indicated, all
of such Shares are owned directly, and the indicated person or entity has sole
voting and investment power and the address for each such person is Homestead
Village Incorporated, 2100 RiverEdge Parkway, 9th Floor, Atlanta, Georgia
30328.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name and Address of Beneficial Owner Beneficially Owned Shares(1)
- ------------------------------------ ------------------ ----------
<S> <C> <C>
Security Capital Group Incorporated.............. 123,759,576(2) 88.8%
125 Lincoln Avenue
Santa Fe, New Mexico 87501
Archstone Communities Trust...................... 19,246,402(3) 13.8%
7670 South Chester Street
Englewood, Colorado 80112
David C. Dressler, Jr............................ 89,709(4) *
Michael D. Cryan................................. 84,870(5) *
C. Ronald Blankenship............................ 7,311(6) *
John P. Frazee, Jr............................... 79,358(7) *
Manuel A. Garcia, III............................ 9,000(8) *
John C. Schweitzer............................... 17,122(9) *
Eugene B. Vesell................................. 87,546(10) *
Robert J. Morse.................................. 31,563(11) *
Robert C. Aldworth............................... -0- *
Gary A. DeLapp................................... 12,500(12) *
All directors and executive officers as a group
(23 persons).................................... 472,180 *
</TABLE>
- --------
* Less than 1%
(1) Assumes (i) in the case of Archstone Communities Trust ("Archstone"), that
Archstone has converted the principal amount of the convertible mortgage
notes held by it and that no other person has converted or exercised any
outstanding convertible or exercisable securities, (ii) in the case of
Security Capital, that
2
<PAGE>
Archstone has converted the principal amount of the convertible mortgage
notes held by Archstone, and that no other person has converted or
exercised any outstanding convertible or exercisable securities and (iii)
in the case of each other person, that such person has exercised all
options owned by him or her and that no other person has converted or
exercised any outstanding convertible or exercisable securities.
(2) Includes 66,500 Shares owned by Security Capital U.S. Realty ("USRealty").
As a result of its ownership of approximately 35.1% of USRealty's
outstanding common shares and Security Capital's contractual arrangements
with USRealty, Security Capital may be deemed to beneficially own all
Shares owned by USRealty. Also includes Shares beneficially owned by
Archstone under the convertible mortgage notes. As a result of its
ownership of approximately 39.3% of Archstone's outstanding common shares
and Security Capital's contractual arrangements with Archstone, Security
Capital may be deemed to beneficially own all Shares beneficially owned by
Archstone. SC Realty Incorporated, a wholly owned subsidiary of Security
Capital, owns of record 104,446,674 Shares.
(3) All such Shares are issuable upon conversion of the principal amount of
the convertible mortgage notes outstanding. See "Certain Relationships and
Transactions--Funding Commitment Agreements". As of April 28, 1999, the
principal amount of the Archstone mortgages was approximately $221
million, which is convertible into Shares at a conversion price of one
Share for each $11.50 principal amount of convertible mortgage notes.
(4) Includes 5,010 Shares held in trusts for Mr. Dressler's children of which
Mr. Dressler is a co-trustee and options to acquire 55,070 Shares.
(5) Includes options to acquire 54,070 Shares.
(6) Includes 2,895 shares held by Zebec Data Systems, Inc., a company in which
Mr. Blankenship is the controlling shareholder.
(7) Includes 22,758 Shares held in an IRA, 600 Shares held by children, 50,000
Shares held by Bentley, Ltd. of which Mr. Frazee is an officer of the
company, and options to acquire 6,000 Shares.
(8) Includes options to acquire 4,000 Shares.
(9) Includes 5,000 Shares held by a partnership of which Mr. Schweitzer is a
general partner, 2,020 Shares held by a corporation that Mr. Schweitzer
owns, options to acquire 4,000 Shares, and 1,102 Shares held by Mr.
Schweitzer's wife.
(10) Includes 393 Shares held by Mr. Vesell's wife and 45,675 Shares held by a
trust for which Mr. Vesell is a trustee.
(11) Includes 31,250 Shares acquired under the Homestead Village Incorporated
1996 Long-Term Incentive Plan (the "1996 Long-Term Incentive Plan") at a
price of $16.00 per Share. Mr. Morse acquired the Shares with the
proceeds of a promissory note made to Homestead.
(12) Includes options to acquire 2,500 Shares.
ELECTION OF DIRECTORS
(Proposal 1)
The designated proxy holders, unless otherwise instructed, will vote Shares
represented by the proxy to elect Messrs. C. Ronald Blankenship and Eugene B.
Vesell as Class I Directors, and elect Messrs. John P. Frazee, Jr. and John C.
Schweitzer as Class II Directors. Michael D. Cryan resigned as a Director as
of May 11, 1999. The Board elected Mr. Blankenship to fill the vacancy. Any
vacancies occurring on the Board will be filled by the remaining Directors in
office. Any Director elected by the Directors to fill a vacancy will hold
office until the next annual meeting of shareholders, at which time the
shareholders will elect a Director to fill the unexpired term of the class of
Directors in which the vacancy occurred. Should the nominees named below
become unavailable for election, which is not anticipated, the Shares
represented by the accompanying proxy will be voted for the election of
another person recommended by the Board. The Board recommends that
shareholders vote FOR the election of each nominee.
3
<PAGE>
Nominees
<TABLE>
<CAPTION>
Business Experience and Director
Director Age Directorships of Publicly Held Companies Since
-------- --- ---------------------------------------- --------
<C> <C> <S> <C>
Eugene B. Vesell 59 Mr. Vesell was a senior equity portfolio
(Class I) manager and research analyst at Oppenheimer
Capital until his retirement in April 1999
and has over 30 years of investment
experience. Prior to joining Oppenheimer
Capital in 1990, Mr. Vesell was a partner
for ten years with David J. Greene &
Company where his responsibilities included
research and portfolio management. From
1970 to 1980, Mr. Vesell held equity
research and portfolio management positions
with American Reinsurance Company, H.C.
Wainwright & Co., and the College
Retirement Equities Fund.
C. Ronald Blankenship 49 Interim Chairman, Chief Executive Officer 1999
(Class I) and Director of Homestead since May 12,
1999. Mr. Blankenship is also Vice Chairman
and Chief Operating Officer of Security
Capital since May 1998, and was a Managing
Director of Security Capital from 1991
until 1998. Prior to June 1997, Mr.
Blankenship was the Chairman of Archstone.
He is an Advisory Trustee of Archstone and
a Director of Strategic Hotel Capital
Incorporated and Storage USA, Inc.
John P. Frazee, Jr. 54 Director, Chairman, President and Chief 1996
(Class II) Executive Officer of Paging Network
Incorporated since August 1997. Formerly,
President and Chief Operating Officer of
Sprint Corporation. Mr. Frazee is a
Director of Cable Satellite Public Affairs
Network, Nalco Chemical Company, Dean Foods
Company, and Security Capital. Mr. Frazee
is also a Director of the Foundation for
Independent Higher Education and a Life
Trustee of Rush-Presbyterian-St. Luke's
Medical Center. Mr. Frazee is also a
National Trustee of the Newberry Library.
John C. Schweitzer 54 Mr. Schweitzer is a Director of Regency 1997
(Class II) Realty Corporation. Since 1974, Mr.
Schweitzer has been President of Westgate
Corp., and general partner of Campbell
Capital Ltd. Mr. Schweitzer is a Trustee of
Archstone and Texas Christian University.
He is a Director of Chase Bank of Texas and
KLRU Public Television.
</TABLE>
Security Capital has the right to nominate up to two Directors. See
"Certain Relationships and Transactions--Security Capital Investor Agreement."
Mr. Blankenship is Security Capital's only current nominee. In addition,
Archstone has the right to nominate one Director. See "Certain Relationships
and Transactions--Archstone Investor Agreement." Mr. Schweitzer is Archstone's
nominee. Homestead's Amended and Restated Articles of Incorporation (the
"Charter") requires that a majority of the Directors be independent Directors.
Continuing Directors
The following persons will continue to hold positions as Directors:
David C. Dressler, Jr.--45--Co-Chairman and Chief Investment Officer from
May 1996 until May 1999, and President since January 1996. Mr. Dressler was
Co-Chairman of Security Capital Investment Research Incorporated from March
1995 to May 1996; Managing Director of SCG Multifamily Development from
January
4
<PAGE>
1994 to August 1995; and Managing Director of Archstone from May 1992 to May
1996. Mr. Dressler's term as Director expires in 2000.
Manuel A. Garcia III--55--Chief Executive Officer of Davgar Restaurants,
Inc., since May 1969. Mr. Garcia was a Director of Security Capital Atlantic
Incorporated ("Atlantic") prior to the merger of Atlantic into Archstone. Mr.
Garcia's term as Director expires in 2000.
Meetings and Committees
The Board held five meetings during 1998.
The Audit Committee of the Board consists of Messrs. Frazee and Schweitzer.
The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews the plans and results of the audit
engagement with the independent public accountants, approves professional
services provided by the independent public accountants, reviews the
independence of the independent public accountants, considers the range of
audit and non-audit fees and reviews the adequacy of Homestead's internal
accounting controls. The Audit Committee held one meeting during 1998.
The Management Development and Compensation Committee ("MDCC") consists of
Messrs. Frazee, Garcia and Schweitzer. The MDCC reviews and approves the
management development and compensation arrangements of Homestead and
administers the 1996 Long-Term Incentive Plan and will administer the 1999
Long-Term Incentive Plan. The MDCC held three meetings during 1998.
The Board does not have a nominating committee.
During 1998, each Director attended at least 75 percent of the total number
of meetings of the Board and the committees on which such Director served.
Director Compensation
During 1998, Directors who were not employees of Homestead or Security
Capital ("Outside Directors") received $14,000 per year for serving as a
Director and are reimbursed for their travel and other expenses incurred in
connection with attending meetings of the Board or committees thereof. Outside
directors also received grants of options to acquire Shares. For 1998, Messrs.
Frazee, Garcia and Schweitzer, each an Outside Director, received $14,000, as
well as options to purchase 2,000 Shares, for their services as Directors.
During 1999, Outside Directors will receive an annual retainer of $22,000;
meeting fees of $1,000 for each Board meeting attended in person and $500 for
each Board meeting attended by telephone. For committee meetings, each Outside
Director receives $500 for each committee meeting attended in person and $250
for each committee meeting attended by telephone. Each Outside Director
receives a fee of $3,000 annually if the director is a chairman of any
committee of the board. Both the retainer and meeting fees will be paid
quarterly. Directors who are employees of Homestead or Security Capital are
not separately compensated for serving as Directors.
Outside Directors Plan
Homestead adopted the Homestead Village Incorporated 1996 Outside Directors
Plan, under which up to 100,000 Shares may be subject to options (the "Outside
Directors Plan"). Options granted under the Outside Directors Plan have a five
year term and are immediately exercisable in whole or in part. Options are
granted to each outside director as of the date of each annual meeting of
shareholders of Homestead at an exercise price equal to the fair market value
of the Shares as of those dates. In 1998, options to purchase 2,000 Shares
each, at an exercise price of $14.53125 per Share, were granted to Messrs.
Frazee, Garcia and Schweitzer. Options granted under the Outside Directors
Plan provide that the option holder may, in the event of the acquisition of
50% or more of the outstanding Shares as a result of any cash tender offer or
exchange offer (other than one made by Homestead), exercise the options
immediately or surrender the options, or any unexercised option thereof, to
Homestead and receive cash from Homestead equal to the difference between the
exercise price of
5
<PAGE>
each option and the per Share price of the tender offer or exchange offer,
multiplied by the number of Shares for which options are held.
EXECUTIVE COMPENSATION
The following table presents the compensation for 1998, 1997 and 1996 paid
to the Named Executive Officers:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
- ------------------------------------------------------------- ----------------------------------------------------
Shares of
Shares Security Capital Restricted
Other Annual Underlying Class A Common Stock All Other
Compensation Stock Stock Underlying Awards (#) Compensation
Name and Position Year Salary($) Bonus ($) ($) (1) Options (#) Options (#)(2) (3) ($) (4)
----------------- ---- --------- --------- ------------ ----------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David C. Dressler, Jr. 1998 261,218 427,000 -- 90,900 -- -- 270
Co-Chairman, President 1997 250,000 300,000 -- 258,058 -- -- 270
& Chief Investment 1996 195,000 285,000 -- 60,000 439 25,000 270
Officer
Michael D. Cryan (5) 1998 268,974 419,200 -- 90,900 -- -- 4,124
Co-Chairman & Chief 1997 260,000 290,000 157,098 258,058 -- -- 4,820
Operating Officer 1996 85,635 65,000 -- 50,000 455 25,000 23
Robert J. Morse(6) 1998 278,526 277,000 -- 37,950 -- 31,250 5,248
Managing Director 1997 10,577 100,000 -- 123,552 -- -- --
1996 -- -- -- -- -- -- --
Robert C. Aldworth(7) 1998 261,346 92,000 -- -- -- -- 3,150
Senior Vice President 1997 157,500 60,000 -- 100,019 -- -- 113
& Chief Financial
Officer 1996 -- -- -- -- -- -- --
Gary A. DeLapp (8) 1998 200,000 90,000 -- 22,750 -- -- 3,576
Senior Vice President 1997 200,000 75,000 -- 74,710 -- -- 3,716
1996 127,452 70,000 -- 25,000 132 10,000 112
</TABLE>
- --------
(1) Includes relocation costs paid or reimbursed to each Named Executive
Officer if such amounts exceed the lesser of either $50,000 or 10% of the
executive's total combined annual salary and bonus.
(2) In connection with their employment with Security Capital prior to
Homestead becoming an independent company on October 17, 1996, Security
Capital granted Messrs. Dressler, Cryan and DeLapp options to acquire
$500,000 (at $1,139 per Class A Share), $500,000 ($290,000 at $1,057 per
Class A Share and $210,000 at $1,163 per Class A Share), and $150,000 (at
$1,139 per Class A share), respectively, of Class A Shares.
(3) Under the stock purchase program portion of the 1996 Long-Term Incentive
Plan, Homestead permitted the following individuals to purchase Shares,
subject to restrictions on transfer and encumbrance. Mr. Cryan, Mr.
Dressler, and Mr. DeLapp acquired their Shares at a price of $10.00 per
Share (the fair market value per Share on the purchase date) on October
15, 1996. On October 15, 1998, the second anniversary of the purchases,
the restrictions on transfer and encumbrance expired. Mr. Morse acquired
his Shares at a price of $16.00 per Share in March 1998 with the proceeds
of a promissory note made to Homestead.
(4) Includes contributions made by the Company in 1998 under its Non-Qualified
Savings Plan as follows: Mr. Cryan $631; Mr. Aldworth $480; and Mr. DeLapp
$960. Also includes the dollar value of insurance premiums paid by the
Company with respect to term life insurance for the benefit of Named
Executive Officer as follows: Mr. Dressler $270 in 1998, $270 in 1997, and
$270 in 1996; Mr. Cryan $270 in 1998, $270 in 1997, and $23 in 1996; Mr.
Morse $248 in 1998; Mr. Aldworth $270 in 1998, and $113 in 1997; and Mr.
DeLapp $216 in 1998, $216 in 1997, and $112 in 1996. Beginning in 1997,
the Company matches up to 50% of the first 6% of compensation contributed
by the employee under the 401(k) Savings Plan with Common Stock as
follows: Mr. Cryan $3,223 in 1998 and $4,550 in 1997; Mr. Morse $5,000 in
1998; Mr. Aldworth $2,400 in 1998; and Mr. DeLapp $2,400 in 1998 and
$3,500 in 1997.
6
<PAGE>
(5) Mr. Cryan joined Homestead on September 1, 1996 and the 1996 compensation
figures reflect the portion of the year he was employed by Homestead. Mr.
Cryan resigned as Co-Chairman and Director on May 12, 1999.
(6) Mr. Morse joined Homestead on December 1, 1997 and the 1997 compensation
figures reflect the portion of the year he was employed with Homestead.
Mr. Morse resigned as Managing Director on May 12, 1999.
(7) Mr. Aldworth resigned as Senior Vice President and Chief Financial Officer
on January 8, 1999.
(8) Mr. DeLapp joined Homestead on February 26, 1996 and the 1996 compensation
figures reflect the portion of the year he was employed by Homestead.
Option Grants
During 1998, options for 1,791,482 Shares were granted to 329 employees and
officers of Homestead. The Options vest twenty-five percent in each of the
first, second, third and fourth anniversaries the date of grant. All options
expire ten years after the date of grant. The following table sets forth
certain information with respect to individual grants of options to each of
the Named Executive Officers.
Individual Grants
<TABLE>
<CAPTION>
Percent of
Shares Total Options
Underlying Granted to Exercise or Grant
Options Employees in Base Price Expiration Date Present
Name Granted (#) 1998 (%) ($/share) Date Value ($) (1)
- ---- ----------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
David C. Dressler, Jr... 90,900 5.07 4.28125 12/18/08 189,608
Michael D. Cryan........ 90,900 5.07 4.28125 12/18/08 189,608
Robert J. Morse......... 37,950 2.12 4.28125 12/18/08 79,160
Robert C. Aldworth...... -- -- -- -- --
Gary A. DeLapp.......... 22,750 1.27 4.28125 12/18/08 47,454
</TABLE>
- --------
(1) The amounts shown are based on the Black-Scholes option pricing model. The
material assumptions incorporated in the Black-Scholes model in estimating
the value of the options include the following: an expected option life of
4.5 years; a risk-free interest rate of 4.66%; no expected dividend yield;
and expected volatility of 53%. The actual value, if any, an optionee will
realize upon exercise of an option will depend on the excess of the market
value of the Shares over the exercise price on the date the option is
exercised. There can be no assurance that the value realized by an
optionee will be at or near the value estimated by using the Black-Scholes
model.
Option Exercises in 1998 and Year-End Option Values
None of the Named Executive Officers exercised options during 1998. The
following table sets forth certain information concerning the year-end value
of unexercised options owned by such executive officers.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised in-
Underlying Options the-money Options at
Shares at Year-End (#) December 31, 1998 ($) (1)
Acquired ------------------------- -------------------------
on Exercise Value Shares Shares
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David C. Dressler, Jr... -- -- 55,070 353,888 -- 19,884
Michael D. Cryan........ -- -- 54,070 344,888 -- 19,884
Robert J. Morse......... -- -- -- 161,502 -- 8,302
Robert C. Aldworth...... -- -- -- 100,019 -- --
Gary A. DeLapp.......... -- -- 2,500 119,960 -- 4,977
</TABLE>
- --------
(1) Based on the December 31, 1998 closing price on the New York Stock
Exchange ("NYSE").
7
<PAGE>
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
Homestead has no employment contracts with any Named Executive Officer.
Under the Homestead 1996 Long-Term Incentive Plan, if a change in control (as
defined in the 1996 Long-Term Incentive Plan) of Homestead occurs, all
unexpired options will become immediately exercisable.
In addition, Homestead expects to enter into change in control agreements
with each of its current officers. The agreements will provide that if the
officer is terminated or constructively terminated other than for cause within
two years after a change in control of Homestead, the officer will be entitled
to receive a lump-sum severance payment (which amount depends upon the
individual's responsibility level within Homestead), together with certain
payments and benefits, including continuation of certain employee benefits. An
additional payment will be required to compensate certain officers for excise
taxes imposed upon severance payments under these agreements. The severance
amounts for the two most senior officers would equal two times the sum of base
salary and target bonus for the year in which termination occurs, plus target
bonus through the date of termination, plus forgiveness of any outstanding
loans from Homestead. The severance amounts for other officers would be one
times salary, plus pro-rated target bonus through the date of termination.
Loans to Executive Officers
See "Certain Relationships and Transactions" for a description of loans
made to executive officers of Homestead.
1996 Long-Term Incentive
The 1996 Long-Term Incentive Plan authorizes the establishment of one or
more qualified and non-qualified option programs and authorizes the award of
share grants, any of which may be subject to restriction. Shares issued under
the 1996 Long-Term Incentive Plan may be authorized and unissued Shares or
treasury Shares. In the event of certain transactions affecting the type or
number of outstanding Shares, the number of Shares subject to the 1996 Long-
Term Incentive Plan, the number or type of Shares subject to outstanding
awards and the exercise price thereof will be appropriately adjusted. The 1996
Long-Term Incentive Plan authorizes the award of stock grants (which may be
subject to restrictions), and performance stock and authorizes the
establishment of one or more stock purchase programs. The MDCC administers the
Plan. Subject to the terms of the 1996 Long-Term Incentive Plan, the MDCC
determines which employees or other individuals providing services to
Homestead shall be eligible to receive awards under the 1996 Long-Term
Incentive Plan, and the amount, price, timing and other terms and conditions
applicable to such awards. A total of 4,000,000 Shares are reserved for
issuance under the plan.
Options awarded under the 1996 Long-Term Incentive Plan may be either
incentive stock options which are intended to satisfy the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options which are not intended to satisfy Section 422 of
the Code. Options become exercisable in accordance with the terms established
by the MDCC, which may include conditions relating to completion of a
specified period of service or achievement of performance standards. Options
expire on the date determined by the MDCC which shall not be later than the
earliest to occur of (i) the tenth anniversary of the grant date, (ii) the
first anniversary of the participant's termination of employment by reason of
death, disability or retirement or (iii) the date three months after the date
of the participant's termination of employment for any other reason. Shares
transferred to a participant pursuant to the exercise of an option may be
subject to such additional restrictions or limitations as the MDCC may
determine.
Under the 1996 Long-Term Incentive Plan, the MDCC may grant awards of
Shares to participants, which are subject to such conditions and restrictions,
if any, as the MDCC determines. During the period a stock award is subject to
restrictions or limitations, the MDCC may award the participant dividend
rights with respect to such Shares. The 1996 Long-Term Incentive Plan also
provides that the MDCC may establish one or more stock programs which may
permit purchases of Shares.
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The MDCC may award participants performance stock, the distribution of
which is subject to achievement of performance objectives. The number of
Shares and the performance measures and periods shall be established by the
MDCC at the time the award is made.
The 1996 Long-Term Incentive Plan provides for, and Homestead has granted,
nonqualified options to acquire Shares. Beginning in 1998, such options become
exercisable twenty-five percent in each of the first, second, third and fourth
years after the date of grant, and expire ten years after the date of grant.
The participants have no rights as shareholders with respect to the Shares
subject to his or her options until the option is exercised. No income will be
recognized by a participant at the time of the options are granted. The
exercise of a nonqualified stock option is generally a taxable event that
requires the participant to recognize, as ordinary income, the difference
between the fair market value of the Shares at the time of exercise and the
option price. Homestead ordinarily will be entitled to claim a federal income
tax deduction on account of the exercise of a nonqualified option. The amount
of the deduction is equal to the ordinary income recognized by a participant.
Homestead has adopted Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for its stock options. Therefore, any excess of fair value of the
Shares at the date of grant over the option price has been treated as
compensation expense, recorded over the vesting period.
See "Adoption of the Homestead 1999 Long-Term Incentive Plan" (Proposal 2)
for a description of the proposed plan.
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The MDCC consists entirely of non-employee directors and is responsible for
acting on behalf of the Board of Directors with respect to (i) Homestead's
compensation practices, (ii) Homestead's benefits programs, (iii) review and
approval of salaries and other compensation of Homestead's senior executive
officers and (iv) adopting, administering and approving awards under incentive
compensation and stock plans. The MDCC determines the compensation of the
Named Executive Officers and other executive officers of Homestead, based upon
the recommendations of senior management.
Compensation Philosophy
Homestead's compensation program is designed to:
. Attract, reward and retain highly qualified executives.
. Align shareholder and employee interests.
. Reward long-term career contributions to Homestead.
. Emphasize the variable portion of total compensation (cash and stock) as
an individual's level of responsibility increases.
. Encourage teamwork focused on customer loyalty and employee
satisfaction, as well as financial performance.
The MDCC is committed to a compensation philosophy that rewards employees
for achieving individual financial and qualitative performance objectives, and
for Homestead's success in attaining corporate financial objectives and
increasing customer loyalty and satisfaction.
With respect to 1998 compensation for individual executive officers, the
MDCC reviewed Homestead's financial performance and other objective factors to
assist with the assessment of each executive's performance. Circumstances
unique to each individual, such as increased responsibilities or extraordinary
effort, were also considered. Performance in Homestead's executive
compensation program was measured by financial/
9
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profitability goals, guest satisfaction indices, brand awareness (to position
Homestead for brand dominance and growth in market share), and stock price
performance.
During 1998, Homestead conducted a review of Homestead's executive
compensation program. This review included a comprehensive report from
independent compensation consultants assessing the effectiveness of the
programs and relative competitiveness versus companies of similar size,
business characteristics, and industries. The comparable companies were
selected from the hospitality and lodging industries, representing the most
direct competitors for executive talent.
Homestead's compensation objective for 1998 was to provide market-level pay
opportunities for positions with similar responsibilities, based on a review of
the comparable companies mentioned above. Based on the study results,
competitive posture varies by position.
Key Elements of Compensation
Base Salary
The MDCC bases salary decisions primarily on an overall assessment of the
executive's potential contribution to Homestead, both short-term and long-term,
and competitive market data. Formal salary reviews occur every two years, but
the MDCC may adjust individual salaries earlier on an as-needed basis.
Annual Bonus
Homestead's annual bonus plan measures performance based on key management
objectives for the year, including profitability measures such as earnings
before interest, taxes, depreciation, and amortization (EBITDA) and other
qualitative measures such as guest satisfaction and customer loyalty. Top
management submits their performance objectives for Board approval at the
beginning of each fiscal year. For 1998, actual bonuses paid to executives were
above targeted levels based on the MDCC's assessment that Homestead performed
at or above budgeted performance levels in 1998.
Target bonus opportunities are formally reviewed every two years, but the
MDCC may adjust individual targets earlier on an as-needed basis. Actual
bonuses may vary above or below targeted pay levels based on performance.
Long-Term Incentives
Since Homestead was founded, non-qualified stock options have been the
primary long-term incentive program. The purpose of stock options is to furnish
a longer-term incentive for executives to build shareholder value and to
motivate and retain key talent. Stock options are awarded annually and vest
over four years.
Stock options directly align the executives' interests with shareholder's
interests. Gains are realized only if Homestead's Share price appreciates.
Stock options are granted at the fair market value on the date of grant, with
the size of annual awards based on the executive's responsibility band,
competitive award levels at the study companies, assessment of individual
performance, and the incumbent's potential impact on future results.
In late 1998, the Company implemented a performance unit plan under the 1996
Long-Term Incentive Plan to diversify its long-term incentive portfolio. The
purpose of the program is to motivate and reward selected executives for
achieving growth in the guest satisfaction index and growth in EBITDA over a
three-year period. Performance Units will be awarded in the form of shares. The
first award of performance units will be in 2001, based upon performance during
1999 and 2000. Only officers and employees of Homestead as of the date of the
awards will be eligible for awards.
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Chief Investment (Dressler) and Chief Operating (Cryan) Officer Pay
The MDCC has met annually without the Chief Investment Officer or the Chief
Operating Officer present to evaluate their individual performance and to
determine their compensation. In considering Mr. Dressler's and Mr. Cryan's
compensation, the MDCC considered their principal responsibilities, which are
to provide the overall vision and strategic direction for Homestead, to
attract and retain highly qualified employees, and to develop and maintain key
capital relationships for Homestead.
Salary adjustments were made in 1998 for Mr. Dressler and Mr. Cryan, based
on their individual contributions, Homestead's overall performance, and their
below-market competitive posture with regard to total compensation
opportunities. Mr. Dressler's base salary for 1998 was $261,218 and Mr.
Cryan's was $268,974.
For 1998, the MDCC determined that Homestead's performance and their
individual performance was at budgeted levels. In light of this, Mr.
Dressler's bonus was $427,000 and Mr. Cryan's was $419,200, both being above
targeted award levels.
Mr. Dressler and Mr. Cryan were awarded 90,900 stock options each. These
option grants represent less than forty percent of a normal award size, due to
the limited availability of authorized shares. The grants to Mr. Dressler and
Mr. Cryan are identical in structure to those granted to Homestead's other
officers and key employees.
Section 162(m)
The MDCC is aware of the limitations imposed by Section 162(m) of the
Internal Revenue Code on the deductibility of compensation paid to certain
senior executives to the extent it exceeds $1 million per executive. The law
exempts compensation paid under plans that is performance-based. Although
Homestead's plans are designed as performance-based certain elements do not
meet the tax law's requirements because they allow the MDCC to exercise
discretion in setting compensation. It may be appropriate in the future to
recommend changes to Homestead's compensation program to take account of the
tax law. However, at this time, the MDCC believes it is in the best interests
of Homestead to retain discretion. The MDCC notes that in 1998, no tax
deductions were lost due to this requirement.
* * * * *
This report is submitted by the members of the MDCC: John P. Frazee, Jr.,
Manuel A. Garcia III, and John C. Schweitzer.
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PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Shares against the cumulative
total return of the Standard & Poor's Composite--500 Stock Index and the S&P
Hotel Index for the period commencing October 31, 1996, the date that the
Shares were first traded on a when-issued basis, and ending December 31, 1998.
The Share price performance shown on the graph is not necessarily indicative
of future price performance.
[CHART APPEAR HERE]
<TABLE>
<CAPTION>
October 31, December 31, December 31, December 31,
1996(2) 1996 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Homestead................... $100.00 $104.35 $87.32 $26.09
S&P 500..................... 100.00 105.43 140.60 180.78
S&P Hotel................... 100.00 96.36 129.93 104.42
</TABLE>
- --------
(1) Assumes that the value of the investment in Shares and each index was $100
on October 31, 1996 and that all dividends were reinvested.
(2) The Shares commenced trading on October 31, 1996 on a when-issued basis.
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ADOPTION OF 1999 LONG-TERM INCENTIVE PLAN
(Proposal 2)
A proposal will be presented at the annual meeting to approve the 1999
Long-Term Incentive Plan, which was adopted by the Board on June 1, 1999,
subject to shareholder approval. The shares represented by the accompanying
proxy will be voted to adopt the 1999 Long-Term Incentive Plan, unless
otherwise indicated on the proxy. A summary of the material provisions of the
1999 Long-Term Incentive Plan is set forth below and is qualified in its
entirety by reference to the full text of the 1996 Long-Term Incentive Plan
which is attached as an exhibit to this Proxy Statement. The Board recommends
that shareholders vote FOR the adoption of the 1999 Long-Term Incentive Plan.
The goal of the 1999 Long-Term Incentive Plan, as with the existing
Homestead incentive plan, is to align employee and officer compensation with
the financial performance of Homestead and the investment of shareholders in
Homestead. Shares available for award under the existing 1996 Long-Term
Incentive Plan have been substantially depleted. Adoption of the 1999 Long-
Term Incentive Plan will provide Homestead with continued flexibility to
provide effective recruitment, motivation, and retention of superior caliber
employees and officers and to focus employees and officers on increasing
shareholder value.
The 1999 Long-Term Incentive Plan authorizes the establishment of one or
more qualified and non-qualified option programs and authorizes the award of
share grants (any of which may be subject to restrictions). A total of
6,000,000 Shares will be reserved for issuance (representing approximately
5.0% of the outstanding Shares and having a market value as of May 28, 1999 of
approximately $17.6 million in the aggregate). Shares awarded in the aggregate
under the 1999 Long-Term Incentive Plan to any one individual may not exceed
500,000 Shares in any one-year period. Shares issued under the 1999 Long-Term
Incentive Plan may be authorized and unissued shares, or treasury shares. In
the event of certain transactions affecting the type or number of outstanding
Shares, the number of Shares subject to the 1999 Long-Term Incentive Plan, the
number or type of Shares subject to outstanding awards and the exercise price
thereof will be appropriately adjusted. In the event that the participant's
employment is terminated or the 1999 Long-Term Incentive Plan is terminated as
a result of a Change in Control (as defined in the 1999 Long-Term Incentive
Plan) of Homestead, all unexpired options and awards will become immediately
exercisable or fully vested, as the case may be. All employees of Homestead or
any of its affiliates are eligible to participate in the 1999 Long-Term
Incentive Plan. Subject to the terms of the 1999 Long-Term Incentive Plan, the
MDCC determines which employees and other persons providing advisory services
to Homestead and its affiliates are eligible to receive awards under the 1999
Long-Term Incentive Plan, and the amount, price, timing and other terms and
conditions applicable to those awards. Non-employee directors of Homestead are
not eligible to participate in the 1999 Long-Term Incentive Plan.
Approximately 175 officers and employees will be eligible to participate in
the 1999 Long-Term Incentive Plan.
Options awarded under the 1999 Long-Term Incentive Plan may be either
Incentive Options or Non-Qualified Options which are not intended to satisfy
Section 422 of the Code. Options become exercisable in accordance with the
terms established by the MDCC, which may include conditions relating to
completion of a specified period of service or achievement of performance
standards or such other criteria as the MDCC deems appropriate. Options expire
on the date determined by the MDCC which will not be later than the earliest
to occur of (i) the tenth anniversary of the grant date, (ii) the first
anniversary of the date on which the participant ceases to be an employee and
ceases to perform services (the "Date of Termination") by reason of death,
disability or retirement, (iii) the Date of Termination of employment of the
participant, if the termination is for cause or (iv) the date three months
after the Date of Termination for any other reason. Shares transferred to a
participant pursuant to the exercise of an option may be subject to such
additional restrictions or limitations as the MDCC may determine. The
participants have no rights as shareholders with respect to Shares subject to
their options until the option is exercised.
The 1999 Long-Term Incentive Plan authorizes the award of Share grants in a
maximum number of Shares equal to 20% of the Shares reserved for issuance
under the Plan. The MDCC may provide that any Share award is subject to
performance or other conditions determined by the MDCC. The MDCC may also
provide that a
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<PAGE>
recipient of a Share award has dividend rights with respect to the Shares
awarded prior to the vesting or delivery of such Shares. The dividend right is
equal to the dividends declared and payable per Share multiplied by the Shares
subject to an award. Dividend rights are payable in cash or Shares.
The MDCC may establish share purchase programs under the 1999 Long-Term
Incentive Plan. Any share purchase under the 1999 Long-Term Incentive Plan
will be subject to conditions, including price, established by the MDCC. The
MDCC may also provide for the award of matching Shares with respect to any
Share purchase award or for Homestead to provide the recipient with a loan for
all or a portion of the purchase price. Any loan must be full recourse and be
secured by a pledge of the Shares purchased. No loan may have a term of longer
than 10 years.
Subject to obtaining any approvals required by applicable law or NYSE
requirements, the Board may amend or terminate the 1999 Long-Term Incentive
Plan at any time, provided that no amendment or termination may materially
adversely affect the rights of participants under any award made under the
plan prior to the date that the amendment is adopted by the Board.
No income will be recognized by a participant at the time an option is
granted. The exercise of a Non-Qualified Option is generally a taxable event
which requires the participants to recognize, as ordinary income, the
difference between the fair market value of the Shares at the time of exercise
and the option price. Homestead ordinarily will be entitled to claim a federal
income tax deduction on account of the exercise of a Non-Qualified Option. The
amount of the deduction is equal to the ordinary income recognized by a
participant. Homestead has adopted the provisions of statement of Financial
Accounting Standards No. 123 ("SFAS No. 123") "Accounting for Stock Based
Compensation." Under the provisions of this statement, Security Capital will
continue to account for its share options under the provisions of Accounting
Principles Board Option No. 25, "Accounting for Stock Issued to Employees" and
related interpretations.
No income will be recognized by a participant at the time a restricted
stock award is granted. The vesting of the Shares subject to the award is
generally a taxable event which requires the participant to recognize, as
ordinary income, the then fair market value of the Shares. Homestead
ordinarily will be entitled to claim a federal income tax deduction in an
amount equal to the ordinary income recognized by the participant. A
participant may elect pursuant to Section 83(b) of the Code to have the income
recognized at the date the award is granted on the then fair market value of
the Shares. In the case of an 83(b) election, Homestead will be entitled to a
corresponding deduction at the time of the grant.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Mergers
In October 1996, Security Capital Pacific Trust ("PTR") and Security
Capital Atlantic Incorporated ("Atlantic"), which companies have merged to
form Archstone, and Security Capital, sold through a series of merger
transactions, all of their respective assets relating to Homestead Village
properties to Homestead, and PTR and Atlantic entered into funding commitment
agreements with Homestead (see "--Archstone Funding Commitment"). The
transactions resulted in PTR and Atlantic owning Shares and warrants to
purchase Shares at a $10.00 per Share exercise price. PTR and Atlantic
distributed the Shares and Warrants they received to their shareholders in
November 1996.
Homestead also issued approximately four million Shares to Security
Capital. Approximately 2.15 million of these Shares were placed in escrow and
have been released over time as PTR and Atlantic fulfilled their funding
commitments. All of the Shares remaining in escrow were released to Security
Capital during 1998.
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<PAGE>
Protection of Business Agreement
Each of Archstone and Security Capital have entered into a protection of
business agreement, dated as of October 17, 1996 (the "Protection of Business
Agreement"), with Homestead which prohibits Archstone, Security Capital and
their respective affiliates from engaging, directly or indirectly, in the
extended-stay lodging business in the continental United States except through
Homestead and its subsidiaries. The Protection of Business Agreement also
prohibits Homestead from, directly or indirectly, engaging in the ownership,
operation, development, management or leasing of multifamily properties. The
Protection of Business Agreement does not prohibit Archstone from: (i) owning
securities of Homestead; (ii) owning up to 5% of the outstanding securities of
another person engaged in owning, operating, developing, managing or leasing
extended-stay lodging properties, so long as they do not actively participate
in the business of such person; (iii) owning the outstanding securities of
another person, a majority owned subsidiary, division, group, franchise or
segment of which is engaged in owning, operating, developing, managing or
leasing extended-stay lodging properties, so long as not more than 5% of such
person's consolidated revenues are derived from such properties; and (iv)
owning securities of another person primarily engaged in business other than a
business owning, operating, developing, managing or leasing extended-stay
lodging properties, including a person primarily engaged in business as an
owner, operator or developer of hotel properties, whether or not such person
owns, operates, develops, manages or leases extended-stay lodging properties.
The Protection of Business Agreement does not prohibit Homestead from: (i)
owning securities of Archstone or Security Capital; (ii) owning up to 5% of
the outstanding securities of another person engaged in owning, operating,
developing, managing or leasing garden style multifamily properties; and (iii)
owning the outstanding securities of another person, a majority owned
subsidiary, division, group, franchise or segment of which is engaged in
owning, operating, developing, managing or leasing garden style multifamily
properties, so long as not more than 5% of such person's consolidated revenues
are derived from such properties. The Protection of Business Agreement
terminates in the event of an acquisition, directly or indirectly (other than
by purchase from Archstone and Security Capital or their respective
affiliates), by any person (or group of associated persons acting in concert),
other than Archstone, Security Capital or their respective affiliates, of 25%
or more of the outstanding shares of voting stock of Homestead, without the
prior written consent of the Board. Subject to earlier termination pursuant to
the preceding sentence, the Protection of Business Agreement will terminate on
October 17, 2006.
Security Capital Investor Agreement
Homestead and Security Capital are parties to an Investor Agreement, dated
as of October 17, 1996, and amended as of April 5, 1999 (the "Security Capital
Investor Agreement"), which provides Security Capital with a variety of rights
regarding the management of Homestead. Under the Security Capital Investor
Agreement, for so long as Security Capital beneficially owns at least 50.1% of
Homestead's outstanding Shares, Security Capital has the right to approve,
among other things: (i) Homestead's annual budget; (ii) the incurrence of
expenses in any year exceeding (A) any line item in the annual budget by
$500,000 or 10% and (B) the total expenses set forth in the annual budget by
5%; (iii) the offer or sale of any Shares or any securities convertible into
or exchangeable for Shares other than pursuant to (A) an employee benefit plan
approved by Homestead's shareholders, (B) previously issued warrants, options
or rights, (C) a dividend reinvestment plan or share purchase plan approved by
the Board or (D) an issuance of rights, options, or warrants for Shares issued
to all shareholders; (iv) the issuance or sale of securities that are subject
to mandatory redemption or redemption at the option of the holder; (v) the
adoption of any employee benefit plan pursuant to which Shares may be issued
and any action with respect to senior officers' compensation; (vi) the
incurrence, restructuring, renegotiation or repayment of indebtedness in which
the aggregate amount involved exceeds $1,000,000; (vii) the declaration or
payment of any dividend or other distribution; (viii) the acquisition or
disposition in a single transaction or group of related transactions where the
purchase price exceeds $1 million; (ix) the entering into of service contracts
(A) for property management, investment management or leasing services, or (B)
that contemplate annual payments in excess of $500,000; (x) the entering into
of any new contract, including for construction, development, or other capital
expenditure, for which the total cost is reasonably expected to exceed
$1,000,000 for any contract or $5,000,000 in the aggregate; (xi) the entering
into of any joint venture for the development of
15
<PAGE>
any properties owned by Homestead in which the book value of any property to
be contributed by Homestead exceeds $1,000,000 individually or $5,000,000 in
the aggregate; (xii) the entering into of any franchising or licensing
agreements; (xiii) the amendment of the articles of incorporation or bylaws of
Homestead; and (xiv) the waiver of antitakeover provisions of Maryland law or
Homestead's Charter.
In addition, so long as Security Capital owns at least 50% of the
outstanding Shares, Homestead will maintain an operating committee consisting
of the two senior Homestead officers and two nominees of Security Capital that
will meet weekly to review all operations of Homestead.
The Security Capital Investor Agreement also provides that, so long as
Security Capital owns at least 10% of the outstanding Shares, Homestead may
not increase the number of directors on the Board to more than seven without
the approval of Security Capital. Security Capital also is entitled to
designate one or more persons as directors of Homestead, as follows: so long
as Security Capital owns at least 10% but less than 25% of the outstanding
Shares, it is entitled to nominate one person; and (ii) so long as Security
Capital owns at least 25% of the outstanding Shares, it is entitled to
nominate that number of persons as shall bear approximately the same ratio to
the total number of members of the Board as the number of Shares beneficially
owned by Security Capital bears to the total number of outstanding Shares,
provided that Security Capital shall be entitled to designate no more than two
persons so long as the Homestead Board consists of no more than seven members.
Security Capital currently has no designees on the Board.
The Security Capital Investor Agreement also provides Security Capital with
registration rights pursuant to which, in certain specified circumstances,
Security Capital may request, on not more than three occasions, registration
of all of Security Capital's Shares pursuant to Rule 415 under the Securities
Act of 1933.
Archstone Funding Commitment
Pursuant to a funding commitment agreement entered into upon the formation
of Homestead, PTR agreed to make loans to Homestead, secured by mortgages on
certain properties of Homestead, of up to $198.8 million. The proceeds of the
loans were used to finance the development of properties acquired by Homestead
from PTR in the merger transaction. Archstone, formed upon the merger of
Atlantic with and into PTR, has fully funded its $198.8 million commitment and
has received convertible notes in respect of such fundings in stated amounts
of $221.3 million. The notes are collateralized by Homestead properties. Each
note issued by Homestead is convertible into Shares on the basis of one Share
for every $11.50 of principal outstanding on the mortgage loan. Interest on
the notes accrues at the rate of 9% per annum on the unpaid principal amount,
payable every six months. The notes are scheduled to mature on October 31,
2006, and are callable after May 28, 2001.
Atlantic Mortgages
In July, 1998, Homestead entered into a mortgage loan purchase agreement
with Atlantic and Merrill Lynch Mortgage Capital Inc. ("MLMC"), under which
the $98 million of Homestead convertible notes held by Atlantic were modified
to, among other things, eliminate their convertibility feature in exchange for
a payment of $21.4 million from Homestead to Atlantic. The amount paid to
Atlantic was based on trailing market prices of Shares at the time the
agreement was entered into, which exceeded the conversion price of the
convertible mortgage notes at that date. The elimination of the conversion
option attached to the mortgage notes reduced Homestead's contingently
issuable shares of common stock by approximately 8.5 million shares. Homestead
funded the payment with the proceeds received from the sale of $24 million of
7.5% convertible subordinated debentures. Also pursuant to the mortgage loan
purchase agreement Atlantic sold the amended notes to MLMC for $98 million. In
August 1998, Homestead converted the $98 million of mortgage notes and the $24
million of 7.5% convertible subordinated debentures into $122 million mortgage
of a newly formed special purpose subsidiary of Homestead. The note was
collateralized by 26 Homestead properties which were formerly collateral for
the Atlantic notes. The $122 million mortgage note had a maturity date of June
30, 1999 and provided for interest only monthly payments of LIBOR plus 1.70%
through September 30, 1998, LIBOR plus 2.0% through
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<PAGE>
November 30, 1998, and LIBOR plus 2.25% thereafter. MLMC had the right to
extend the maturity of the mortgage note. Homestead has repaid and discharged
the mortgage note with the proceeds of a sale leaseback transaction
consummated in February 1999, under the terms of which Homestead sold 18 of
the properties that were the collateral for the note payable to MLMC, and
leased the properties from the purchaser.
The transaction with MLMC resulted in an early extinguishment of debt
measured as the difference between the $98 million carrying amount of the
original mortgage notes to Atlantic and the amount paid to extinguish the
debt, including transaction costs. Such loss on extinguishment of debt was
$25.3 million and was recorded as an extraordinary item in third quarter 1998.
Archstone Investor Agreement
Archstone has entered into an investor and registration rights agreement
with Homestead (the "Archstone Investor Agreement") pursuant to which
Archstone is entitled to designate one person for nomination to the Board, and
Homestead will use its best efforts to cause the election of such nominee, for
so long as Archstone has the right to convert in excess of $20 million in
principal amount of loans made pursuant to Archstone's funding commitment
agreement. Such nominee may, but need not, be a person also nominated by
Security Capital pursuant to the Security Capital Investor Agreement. In
addition, Homestead has granted to Archstone registration rights with respect
to the issuance upon conversion and the distribution of all of the Shares
issuable upon conversion of the convertible mortgage notes. Archstone may
request three registrations pursuant to Rule 415 promulgated under the
Securities Act of all Shares issued or issuable upon conversion of the
convertible mortgage notes. Such registrations, except for the fees and
disbursements of counsel to Archstone, shall be at the expense of Homestead.
Commerzbank Loan Agreements, Security Capital Subscription Agreement and
Rights Offering
Homestead has entered into three credit facilities with Commerzbank AG, New
York Branch ("CAG"), as the arranger or agent, and other lenders. CAG holds
all of the outstanding shares of Security Capital Series B Preferred Stock,
which is convertible into Security Capital common stock. On March 18, 1999,
two of the credit facilities, one in the maximum principal amount of $170
million and secured by mortgages on Homestead's suburban properties (the
"Suburban Line") and the other in the maximum principal amount of $30 million
and secured by mortgages on Homestead's urban properties (the "Urban Line")
were extended to December 31, 2000, from April 23, 1999. Borrowings under the
Suburban Line bear interest at rates equal to 2.0% to 3.0% over LIBOR, 1% to
2% over the prime rate or 1.5% to 2.5% over the federal funds rate, with the
margin depending upon the ratio of outstanding indebtedness to the amount of
qualifying collateral. Borrowings under the Urban Line bear interest at the
rate of 3.0% over LIBOR, 2.0% over the prime rate or 2.5% over the federal
funds rate. Additionally, the Suburban Line calls for a commitment fee of
.375% per annum of the average undrawn amount under the Suburban Line.
On June 15, 1998, Homestead entered into a third credit facility, which had
a maximum principal amount of $200 million (the "Bridge Facility"). Borrowings
under the Bridge Facility incurred interest at the Eurodollar rate plus 1.25%
or at a base rate of prime plus 0.25%. The line was scheduled to expire on
October 31, 1999, and was secured by a subscription agreement with Security
Capital for $200 million of convertible subordinated debentures. The
subscription obligation was terminated upon the repayment of all amounts owed
under the Bridge Facility on May 28, 1999. In conjunction with Security
Capital's entering into the subscription agreement, Homestead paid an
arrangement fee to Security Capital of $600,000.
On March 25, 1999, Homestead announced a rights offering for $225 million
of Shares. The offering expired on May 21, 1999, and closed on May 28, 1999.
Security Capital purchased 77,749,220 Shares at $2.75 per Share in the rights
offering on the same terms and at the same price as all other investors.
Security Capital's participation in the rights offering satisfied Security
Capital's obligations under the subscription agreement. The
17
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rights offering was originally scheduled to close by the end of April, but was
rescheduled to expire on May 21, 1999 and close on May 28, 1999. In connection
with the rescheduling, Security Capital agreed to provide Homestead with a $25
million line of credit. Homestead paid Security Capital a $31,944 arrangement
fee for the line of credit.
Administrative Services Agreement
Homestead has entered into an administrative services agreement with
Security Capital (the "Administrative Services Agreement"), pursuant to which
Security Capital provides Homestead with administrative services with respect
to certain aspects of Homestead's business. These services include, but are
not limited to, insurance administration, accounts payable administration,
internal audit, cash management, human resources, management information
systems, tax and legal administration, research, shareholder communications
and investor relations. The fees payable to Security Capital are fixed fees
for particular services provided. Any arrangements under the Administrative
Services Agreement for the provision of services are required to be
commercially reasonable and on terms not less favorable than those which could
be obtained from unaffiliated third parties. The Administrative Services
Agreement, which expires on December 31, 1999, is renewable each year for a
one-year term, subject to approval by a majority of the disinterested members
of the Board. Homestead incurred fees of $4,213,000 for administrative
services provided by Security Capital in the year ended December 31, 1998.
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 research, information
systems, insurance, cash management and legal support provided at substantial
economies of scale.
Other Transactions with Affiliates
On January 15, 1998, Security Capital purchased 8,429,225 Shares at a price
of $15 per Share. Such purchase was made in connection with a subscription
rights offering by Homestead and on the same terms and at the same time as
made available to other shareholders and investors. In connection with this
offering, Homestead paid a fee of $1,564,026 to Security Capital Markets Group
Incorporated, a wholly-owned subsidiary of Security Capital, for its services
as placement agent for the Shares being sold, and also reimbursed Security
Capital Markets Group Incorporated for approximately $45,000 of out-of-pocket
expenses that it incurred in connection therewith.
Separation Agreement
In January 1999, upon Robert Aldworth's resignation from Homestead,
Homestead and Mr. Aldworth entered into a separation agreement. Under the
agreement Homestead agreed to pay Mr. Aldworth $400,000 in consideration for a
general release by Mr. Aldworth of Homestead and its affiliates from all
claims of Mr. Aldworth arising prior to and through the date of the agreement.
Mr. Aldworth also agreed to cooperate with Homestead with regard to his
departure from Homestead.
Loans to Executive Officers
Homestead loaned each of Mr. Cryan and Mr. Dressler $250,000 on October 15,
1996. Each person used the proceeds of such loans to purchase 25,000
restricted Shares under the 1996 Long-Term Incentive Plan. The Shares vested
on October 15, 1998. Mr. Dressler's loan is due on January 5, 2006, and is
secured by the Shares purchased with the loan proceeds and interest accrues at
the lowest rate charged by Morgan Guaranty Trust Company on maturities of 90
days or less, plus 0.25%. At April 20, 1999, the outstanding principal amounts
of the loans and accrued interest due from Mr. Cryan and Mr. Dressler were
$240,598 and $255,735, respectively.
In addition, Homestead loaned Robert J. Morse $500,000 on March 31, 1998.
Mr. Morse used the proceeds of the loan to purchase 31,250 restricted Shares
under the 1996 Long-Term Incentive Plan.
18
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Security Capital has also entered into an amended and restated secured
promissory note and related pledge agreement with Mr. Dressler. Under the
terms of the note, Security Capital has agreed to loan Mr. Dressler up to
$962,113, which amount is due on the earlier of December 31, 2000 or 120 days
after Mr. Dressler is no longer an officer of an affiliate of Security
Capital. Interest on the unpaid balance accrues at 7.50% per year and is
payable annually on January 15 each year the note is outstanding. The proceeds
of the note were used to pay personal obligations of Mr. Dressler. The note is
secured by Class A Shares of Security Capital and options to purchase Class A
Shares of Security Capital owned by Mr. Dressler. The note is also secured by
a life insurance policy on Mr. Dressler in the amount of $1,300,000. Mr.
Dressler has also agreed that if he exercises any options for Security Capital
securities prior to repayment of the note, any securities obtained upon
exercise of such options shall become subject to the pledge agreement. The net
proceeds (after payment of minimum withholding taxes) of any securities
obtained upon exercise of such options and disposed of by Mr. Dressler shall
be immediately applied to the outstanding and unpaid interest and principal on
the note.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Homestead
directors, officers and beneficial owners of more than 10% of the outstanding
Shares to file reports of ownership and changes in ownership of the Shares
with the Securities and Exchange Commission and to send copies of such reports
to Homestead. Based solely upon a review of such reports and amendments
thereto furnished to Homestead and upon written representations of certain of
such persons that they were not required to file certain of such reports,
Homestead believes that no such person failed to file any such report on a
timely basis during 1998, except that Paul Burke, Ken W. Pierce, Brian M.
Fraser, Robert J. Morse, James C. Potts, Gary A. DeLapp, David C. Dressler,
Jr., and John P. Frazee, Jr., each filed one late report with respect to one
transaction.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected Arthur Andersen LLP, certified public accountants
("Arthur Andersen"), who have served as auditors for Homestead since December
5, 1997, to serve as the auditors of Homestead's books and records for the
coming year. A representative of Arthur Andersen is expected to be present at
the annual meeting and will be given an opportunity to make a statement if he
or she desires to do so and will be available to respond to appropriate
questions.
On December 5, 1997, Homestead dismissed the firm of Ernst & Young LLP
("Ernst & Young") as Homestead's principal accountant to audit Homestead's
financial statements and engaged Arthur Andersen as Homestead's principal
accountant to audit Homestead's financial statements for the fiscal year
ending December 31, 1997. The decision to change accountants was approved by
the Audit Committee of the Board of Directors of Homestead.
Ernst and Young's report on the financial statements of Homestead for the
fiscal year ending December 31, 1996 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope, or accounting principles. In connection with the audit of
Homestead's financial statements for the fiscal year ended December 31, 1996,
and in subsequent interim periods through the date of dismissal, there has
never been any disagreement with Ernst & Young on any matter of accounting
principle or practice, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not resolved to the satisfaction of Ernst &
Young, would have caused it to make reference to the subject matter of the
disagreement in connection with its report. In addition, there has never been
a reportable event as described in paragraph (a)(1)(v) of Item 304 of
Regulation S-K, promulgated under the Securities Exchange Act of 1934 (a
"Reportable Event").
Prior to engaging Arthur Andersen, Homestead had never consulted Arthur
Andersen concerning either (i) the application of accounting principles to a
specified completed or uncompleted transaction; (ii) the type of audit
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opinion that might be rendered on Homestead's financial statements; (iii) a
written report or oral advice that the new accountant concluded was an
important factor considered by Homestead in reaching a decision as to an
accounting, auditing or financial reporting issue; or (iv) any matter that was
the subject of a Reportable Event.
ANNUAL REPORT
Homestead's 1998 Annual Report, which includes financial statements, has
previously been mailed to shareholders or is being mailed to shareholders
together with this Proxy Statement. The Annual Report does not constitute a
part of the proxy solicitation material.
SHAREHOLDER PROPOSALS
Any proposal by a shareholder of Homestead intended to be presented at the
2000 annual meeting of shareholders must be received by Homestead at its
principal executive offices not later than January 26, 2000, for inclusion in
Homestead's proxy statement and form of proxy relating to that meeting.
In addition, shareholders may present proposals which are proper subjects
for consideration at an annual meeting, even if the proposal is not submitted
by the deadline for inclusion in the proxy statement. To do so, the
shareholder must comply with the procedures specified by Homestead's bylaws.
Homestead's bylaws require that all shareholders who intend to make proposals
at an annual shareholders' meeting submit their proposals to Homestead during
the period 60 to 90 days before the anniversary date of the previous year's
annual meeting. To be eligible for consideration at the 2000 annual meeting,
proposals which have not been submitted by the deadline for inclusion in the
proxy statement must be received by Homestead between March 25 and April 24,
2000.
OTHER MATTERS
Homestead is not aware of any business or matter other than those indicated
above which may properly be presented at the meeting. If, however, any other
matter properly comes before the meeting, the proxy holders will, in their
discretion, vote thereon in accordance with their best judgment.
By Order of the Board of Directors
Jeffrey A. Klopf
Secretary
June 4, 1999
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Exhibit A
HOMESTEAD VILLAGE INCORPORATED
1999 LONG-TERM INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1................................................................... 1
GENERAL................................................................... 1
1.1. Purpose............................................................ 1
1.2. Participation...................................................... 1
SECTION 2................................................................... 1
OPTIONS................................................................... 1
2.1. Definition......................................................... 1
2.2. Eligibility........................................................ 1
2.3. Price.............................................................. 2
2.4. Exercise........................................................... 2
2.5. Post-Exercise Limitations.......................................... 3
2.6. Expiration Date.................................................... 3
SECTION 3................................................................... 3
STOCK AWARDS.............................................................. 3
3.1. Definition......................................................... 3
3.2. Eligibility........................................................ 4
3.3. Terms and Conditions of Awards..................................... 4
SECTION 4................................................................... 4
STOCK PURCHASE PROGRAM.................................................... 4
4.1. Purchase of Stock.................................................. 4
4.2. Matching Shares.................................................... 5
4.3. Restrictions on Shares............................................. 5
4.4. Purchase Loans..................................................... 5
SECTION 5................................................................... 5
OPERATION AND ADMINISTRATION.............................................. 5
5.1. Effective Date..................................................... 5
5.2. Shares Subject to Plan............................................. 5
5.3. Individual Limits on Awards........................................ 6
5.4. Adjustments to Shares.............................................. 6
5.5. Change in Control.................................................. 7
5.6. Limit on Distribution.............................................. 8
5.7. Liability for Cash Payments........................................ 9
5.8. Performance-Based Compensation..................................... 9
5.9. Withholding........................................................ 9
5.10. Transferability................................................... 9
5.11. Notices........................................................... 9
5.12. Form and Time of Elections........................................ 9
5.13. Agreement With Company............................................ 10
5.14. Limitation of Implied Rights...................................... 10
5.15. Evidence.......................................................... 10
5.16. Action by Company or Related Company.............................. 10
5.17. Gender and Number................................................. 10
5.18. Applicable Law.................................................... 10
5.19. Foreign Employees................................................. 10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 6................................................................... 10
COMMITTEE................................................................. 10
6.1. Administration..................................................... 10
6.2. Selection of Committee............................................. 11
6.3. Powers of Committee................................................ 11
6.4. Delegation by Committee............................................ 11
6.5. Information to be Furnished to Committee........................... 11
6.6. Liability and Indemnification of Committee......................... 11
SECTION 7................................................................... 12
AMENDMENT AND TERMINATION................................................. 12
</TABLE>
2
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HOMESTEAD VILLAGE INCORPORATED
1999 LONG-TERM INCENTIVE PLAN
SECTION 1
GENERAL
1.1. Purpose. The Homestead Village Incorporated 1999 Long-Term Incentive
Plan (the "Plan") has been established by Homestead Village Incorporated (the
"Company") to:
(a) attract and retain employees and other persons providing services to
the Company and the Related Companies (as defined below);
(b) motivate Participants (as defined in subsection 1.2), by means of
appropriate incentives, to achieve long-range goals;
(c) provide incentive compensation opportunities that are competitive with
those of other corporations; and
(d) further identify Participants' interests with those of the Company's
other stockholders through compensation that is based on the value of
the Company's common stock;
and thereby promote the long-term financial interest of the Company and the
Related Companies, including the growth in value of the Company's equity and
enhancement of long-term stockholder return. The term "Related Company" means
any company during any period in which it is a "subsidiary corporation" (as
that term is defined in section 424(f) of the Internal Revenue Code of 1986,
as amended (the "Code")), with respect to the Company or any affiliate of the
Company which is designated as a Related Company by the Committee.
1.2. Participation. Subject to the terms and conditions of the Plan, the
Committee (as described in Section 6) shall determine and designate, from time
to time, from among the Eligible Individuals (as defined below), those persons
who will be granted one or more awards under Sections 2, 3 or 4 of the Plan
(an "Award"), and thereby become "Participants" in the Plan. In the discretion
of the Committee, and subject to the terms of the Plan, a Participant may be
granted any Award permitted under the provisions of the Plan, and more than
one Award may be granted to a Participant. Except as otherwise agreed by the
Company and the Participant, or except as otherwise provided in the Plan, an
Award under the Plan shall not affect any previous Award under the Plan or an
award under any other plan maintained by the Company or the Related Companies.
For purposes of the Plan, the term "Eligible Individual" shall mean any
employee of the Company or a Related Company, and any other person providing
material services to the Company or a Related Company; provided, however, that
a member of the Board who is not an employee of the Company or a Related
Company shall not be an "Eligible Individual".
SECTION 2
OPTIONS
2.1. Definition. The grant of an "Option" under this Section 2 entitles the
Participant to purchase shares of common stock of the Company ("Stock") at a
price fixed at the time the Option is granted, subject to the terms of this
Section. Options granted under this Section may be either Incentive Stock
Options or Non-Qualified Stock Options, as determined in the discretion of the
Committee. An "Incentive Stock Option" is an Option that is intended to
satisfy the requirements applicable to an "incentive stock option" described
in section 422 of the Code. A "Non-Qualified Stock Option" is an Option that
is not intended to be an Incentive Stock Option.
2.2. Eligibility. The Committee shall designate the Participants to whom
Options are to be granted under this Section and shall determine the number of
shares of Stock subject to each such Option. If the Committee grants Incentive
Stock Options, to the extent that the aggregate fair market value of Stock
with respect to which Incentive Stock Options are exercisable for the first
time by any individual during any calendar year (under all
<PAGE>
plans of the Company and all related companies within the meaning of section
424(f) of the Code) exceeds $100,000, such options shall be treated as Non-
Qualified Stock Options, to the extent required by section 422 of the Code.
2.3. Price. The determination and payment of the purchase price of a share
of Stock under each Option granted under this Section shall be subject to the
following:
(a) The purchase price shall be established by the Committee at the time
the Option is granted; provided, however, that in no event shall such
price be less than the par value of a share of Stock on such date;
further, provided, in no event shall the purchase price of a share of
Stock under an Incentive Stock Option be less than the Fair Market
Value (defined below) of a share of Stock at the time the Option is
granted.
(b) Subject to the following provisions of this subsection, the full
purchase price of each share of Stock purchased upon the exercise of
any Option shall be paid at the time of such exercise (or such later
date as may be permitted by the Committee in the case of a cashless
exercise) and, as soon as practicable thereafter (subject to an
election under subsection 2.4), a certificate representing the shares
so purchased shall be delivered to the person entitled thereto.
(c) The purchase price shall be payable in cash or by tendering shares of
Stock by actual delivery or attestation (valued at Fair Market Value as
of the day of exercise) that have been held by the Participant at least
six months, or in any combination thereof, as determined by the
Committee.
(d) The "Fair Market Value" of a share of Stock of the Company as of any
date shall be determined in accordance with the following rules:
(i) If the Stock is at the time listed or admitted to trading on any
stock exchange, then the Fair Market Value shall be the average of
the highest and lowest sales price per share of the Stock on such
date on the principal exchange on which the Stock is then listed or
admitted to trading or, if no such sale is reported on that date,
on the last preceding date on which a sale was so reported.
(ii) If the Stock is not at the time listed or admitted to trading on a
stock exchange, the Fair Market Value shall be the average of the
lowest reported bid price and highest reported asked price of the
Stock on the date in question in the over-the-counter market, as
such prices are reported in a publication of general circulation
selected by the Committee and regularly reporting the market price
of Stock in such market.
(iii) If the Stock is not listed or admitted to trading on any stock
exchange or traded in the over-the- counter market, the Fair
Market Value shall be as determined by the Committee in good
faith.
(iv) For purposes of determining the Fair Market Value of Stock that is
sold pursuant to a cashless exercise program, Fair Market Value
shall be the price at which such Stock is sold.
2.4. Exercise. Except as otherwise expressly provided in the Plan, an
Option granted under this Section shall be exercisable in accordance with the
following terms of this subsection:
(a) The terms and conditions relating to exercise of an Option shall be
established by the Committee, and may include, without limitation,
conditions relating to completion of a specified period of service
(subject to paragraph (b) below), achievement of performance standards
prior to exercise of the Option or achievement of Stock ownership
objectives by the Participant. The Committee, in its sole discretion,
may accelerate the vesting of any Option under circumstances designated
by it at the time the Option is granted or thereafter.
(b) No Option may be exercised by a Participant after the Expiration Date
(as defined in subsection 2.6) applicable to that Option.
(c) Prior to the date the Stock would otherwise be transferred pursuant to
the exercise of an Option, to the extent permitted by the Committee, a
Participant may irrevocably elect to defer receipt of such Stock until
the last date of a later calendar year, but in no event later than the
Participant's Date of
2
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Termination (as defined in subsection 2.6), provided, that if the Date
of Termination of a Participant who is a member of a select group of
management or a highly compensated employee within the meaning of
section 401(a)(1) of the Employee Retirement Income Security Act of
1974, as amended, occurs by reason of Retirement (as defined in
subsection 2.6), the Participant may elect to defer receipt for a period
up to the last day of the calendar year in which occurs the fifteenth
anniversary of the Participant's Retirement. Any such deferral election
shall be made in such form and at such times as the Committee may
determine and shall be subject to such other terms, conditions and
limitations as the Committee may establish, provided, however, any
election to defer payment beyond a Participant's Retirement which has
not been on file at least 12 months prior to the Participant's
Retirement shall be disregarded.
2.5. Post-Exercise Limitations. The Committee, in its discretion, may impose
such restrictions on shares of Stock acquired pursuant to the exercise of an
Option as it determines to be desirable, including, without limitation,
restrictions relating to disposition of the shares and forfeiture restrictions
based on service, performance, Stock ownership by the Participant and such
other factors as the Committee determines to be appropriate.
2.6. Expiration Date. The "Expiration Date" with respect to an Option means
the date established as the Expiration Date by the Committee at the time of the
grant; provided, however, that unless determined otherwise by the Committee,
the Expiration Date with respect to any Option shall not be later than the
earliest to occur of:
(a) the ten-year anniversary of the date on which the Option is granted;
(b) if the Participant's Date of Termination occurs by reason of death,
Disability or Retirement, the one-year anniversary of such Date of
Termination; or
(c) if the Participant's Date of Termination occurs for reasons other than
Retirement, death, Disability or Cause, the three-month anniversary of
such Date of Termination.
(d) if the Participant's Date of Termination occurs for reasons of Cause,
such Date of Termination.
For purposes of the Plan, a Participant's "Date of Termination" shall be the
date on which he both ceases to be an employee of the Company and the Related
Companies and ceases to perform material services for the Company and the
Related Companies, regardless of the reason for the cessation; provided that a
"Date of Termination" shall not be considered to have occurred during the
period in which the reason for the cessation of services is a leave of absence
approved by the Company or the Related Company which was the recipient of the
Participant's services. Except as otherwise provided by the Committee, a
Participant shall be considered to have a "Disability" during the period in
which he 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. "Retirement" of a
Participant shall mean the occurrence of a Participant's Date of Termination,
other than by reason of Cause, death or Disability, after providing at least
five years of service to the Company or the Related Companies and attaining age
60. For purposes of the Plan, "Cause" shall mean, in the reasonable judgment of
the Committee (i) the willful and continued failure by the Participant to
substantially perform his duties with the Company or any Related Company after
written notification by the Company or Related Company, (ii) the willful
engaging by the Participant in conduct which is demonstrably injurious to the
Company or any Related Company, monetarily or otherwise, or (iii) the engaging
by the Participant in egregious misconduct involving serious moral turpitude.
For purposes hereof, no act, or failure to act, on the Participant's part shall
be deemed "willful" unless done, or omitted to be done, by the Participant not
in good faith and without reasonable belief that such action was in the best
interest of the Company or Related Company.
SECTION 3
STOCK AWARDS
3.1. Definition. Subject to the terms of this Section, a Stock Award under
the Plan is a grant of shares of Stock to a Participant, the earning, vesting
or distribution of which is subject to one or more conditions
3
<PAGE>
established by the Committee, provided, that in no event will Stock Awards
under the Plan exceed 20% of the shares of Stock reserved under the Plan. Such
conditions may relate to events (such as performance or continued employment)
occurring before or after the date the Stock Award is granted, or the date the
Stock is earned by, vested in or delivered to the Participant. If the vesting
of Stock Awards is subject to conditions occurring after the date of grant,
the period beginning on the date of grant of a Stock Award and ending on the
vesting or forfeiture of such Stock (as applicable) is referred to as the
"Restricted Period". To the extent that the vesting of a Stock Award is
contingent on performance, the performance shall be measured over a period of
not less than one year. Stock Awards may provide for delivery of the shares of
Stock at the time of grant or may provide for a deferred delivery date. A
Stock Award may, but need not, be made in conjunction with a cash-based
incentive compensation program maintained by the Company and may, but need
not, be in lieu of cash otherwise awardable under such program.
3.2. Eligibility. The Committee shall designate the Participants to whom
Stock Awards are to be granted and the number of shares of Stock that are
subject to each such Award.
3.3. Terms and Conditions of Awards. Stock Awards granted to Participants
under the Plan shall be subject to the following terms and conditions:
(a) Beginning on the date of grant (or, if later, the date of distribution)
of shares of Stock comprising a Stock Award, and including any
applicable Restricted Period, the Participant as owner of such shares
shall have the right to vote such shares.
(b) Payment of dividends with respect to Stock Awards shall be subject to
the following:
(i) On and after the date that a Participant has a fully earned and
vested right to the shares comprising a Stock Award, and the shares
have been distributed to the Participant, the Participant shall
have all dividend rights (and other rights) of a stockholder with
respect to such shares.
(ii) Prior to the date that a Participant has a fully earned and vested
right to the shares comprising a Stock Award, the Committee, in
its sole discretion, may award Dividend Rights with respect to
such shares.
(iii) On and after the date that a Participant has a fully earned and
vested right to the shares comprising a Stock Award, but before the
shares have been distributed to the Participant, the Participant
shall be entitled to Dividend Rights with respect to such shares, at
the time and in the form determined by the Committee.
(iv) A "Dividend Right" with respect to shares comprising a Stock Award
shall entitle the Participant, as of each dividend payment date,
to an amount equal to the dividends payable with respect to a
share of Stock multiplied by the number of such shares. Dividend
Rights shall be settled in cash or in shares of Stock valued at
Fair Market Value as of the date of settlement, as determined by
the Committee, shall be payable at the time determined by the
Committee and shall be subject to such other terms and conditions
as the Committee may determine.
SECTION 4
STOCK PURCHASE PROGRAM
4.1. Purchase of Stock. The Committee may, from time to time, establish one
or more programs under which Participants will be permitted to purchase shares
of Stock under the Plan and shall designate the Participants eligible to
participate under such Stock purchase programs. The purchase price for shares
of Stock available under such programs, and other terms and conditions of such
programs, shall be established by the Committee, provided that the purchase
price may not be less than par value.
4
<PAGE>
4.2. Matching Shares. Except as otherwise provided in subsection 4.1, any
Stock purchase program established by the Committee under this Section may
provide for the award of matching shares of Stock in the amount, if any,
determined by the Committee.
4.3. Restrictions on Shares. The Committee may impose such restrictions
with respect to shares purchased under subsection 4.1, or matching shares
awarded pursuant to subsection 4.2, as the Committee determines to be
appropriate. Such restrictions may include, without limitation, restrictions
of the type that may be imposed with respect to Stock Awards under Section 3.
4.4. Purchase Loans. In connection with the purchase of shares of Stock
under this Section 4, the Committee, in its sole discretion, may determine
that the Company shall, at the Participant's election, make a loan (a "Loan")
to the Participant for all or a portion of the purchase price of the shares of
Stock purchased. The Loan may be used only for the purpose of financing the
purchase, subject to the following:
(a) Each Loan shall be evidenced by a promissory note and pledge agreement
in such form as the Committee shall approve; provided, that the note
shall (i) provide full recourse to the Participant, (ii) provide for
interest at a rate to be determined by the Committee, (iii) be secured,
pursuant to a pledge agreement, by the purchased shares of Stock, and
(iv) comply with all applicable laws, regulations and rules of the
Board of Governors of the Federal Reserve System and any other
governmental agency having jurisdiction.
(b) Each Loan shall provide for a term of no more than 10 years.
(c) All principal and interest outstanding under a Loan with respect to any
Participant will automatically become due and payable (i) 90 days after
the date the Participant terminates employment with the Company and
Related Companies for any reason other than death, Disability,
Retirement or Cause, provided that such termination is not following a
Change in Control, (ii) 365 days after the date on which the
Participant's employment with the Company and Related Companies
terminates by reason of death, Disability or Retirement, (iii) 180 days
after the Participant's employment with the Company and Related
Companies terminates following a Change in Control of the Company for
reasons other than Cause, or (iv) immediately upon a sale of the shares
of Stock which are pledged as collateral for the Loan or if the
Participant's employment with the Company and Related Companies is
terminated for Cause.
(d) Each Loan shall contain such other terms, conditions and limitations as
may be determined by the Committee in its sole discretion.
SECTION 5
OPERATION AND ADMINISTRATION
5.1. Effective Date. The Plan shall be effective as of the date it is
adopted by the Board of Directors of the Company (the "Board"); provided,
however, that Awards granted under the Plan prior to its approval by
stockholders will be contingent on approval of the Plan by the Company's
stockholders. The Plan shall be unlimited in duration and, in the event of
Plan termination, shall remain in effect as long as any shares of Stock
awarded under it are outstanding and not fully vested; provided, however, that
no new Awards shall be made under the Plan on or after the tenth anniversary
of the date on which the Plan is adopted by the Board.
5.2. Shares Subject to Plan. The shares of Stock with respect to which
Awards may be made under the Plan shall be shares currently authorized but
unissued or currently held or subsequently acquired by the Company as treasury
shares, including shares purchased in the open market or in private
transactions. Subject to the provisions of subsection 5.4, the number of
shares of Stock which may be issued with respect to Awards under the Plan
shall not exceed 6,000,000 shares in the aggregate. Except as otherwise
provided herein, any shares subject to an Award which for any reason expires
or is terminated without issuance of shares (including shares that are not
issued because shares of Stock are tendered pursuant to subsection 2.3(c) or
5.9) shall again be available under the Plan.
5
<PAGE>
5.3. Individual Limits on Awards. Notwithstanding any other provision of
the Plan to the contrary, no Participant shall receive any Award of an Option
under the Plan to the extent that the sum of:
(a) the number of shares of Stock subject to such Award;
(b) the number of shares of Stock subject to all other prior Awards of
Options under the Plan during the one-year period ending on the date of
the Award; and
(c) the number of shares of Stock subject to all other prior stock options
and stock appreciation rights granted to the Participant under other
plans or arrangements of the Company during the one-year period ending
on the date of the Award;
would exceed the Participant's Individual Limit under the Plan. The
determination made under the foregoing provisions of this subsection shall be
based on the shares subject to the Awards at the time of grant, regardless of
when the Awards become exercisable. Subject to the provisions of subsection
5.4, a Participant's "Individual Limit" shall be 500,000 shares.
5.4. Adjustments to Shares.
(a) If the Company shall effect any subdivision or consolidation of shares
of Stock or other capital readjustment, payment of stock dividend,
stock split, combination of shares or recapitalization or other
increase or reduction of the number of shares of Stock outstanding
without receiving compensation therefor in money, services or property,
then the Committee shall equitably adjust (i) the number of shares of
Stock available under the Plan; (ii) the number of shares available
under any individual or other limits; (iii) the number of shares of
Stock subject to outstanding Awards; and (iv) the per-share price under
any outstanding Award to the extent that the Participant is required to
pay a purchase price per share with respect to the Award.
(b) If the Company is reorganized, merged or consolidated or is party to a
plan of exchange with another corporation, pursuant to which
reorganization, merger, consolidation or plan of exchange, the
stockholders of the Company receive any shares of stock or other
securities or property, or the Company shall distribute securities of
another corporation to its stockholders, there shall be substituted for
the shares subject to outstanding Awards an appropriate number of
shares of each class of stock or amount of other securities or property
which were distributed to the stockholders of the Company in respect of
such shares, subject to the following:
(i) If the Committee determines that the substitution described in
accordance with the foregoing provisions of this paragraph would
not be fully consistent with the purposes of the Plan or the
purposes of the outstanding Awards under the Plan, the Committee
may make such other adjustments to the Awards to the extent that
the Committee determines such adjustments are consistent with the
purposes of the Plan and of the affected Awards.
(ii) All or any of the Awards may be canceled by the Committee on or
immediately prior to the effective date of the applicable
transaction, but only if the Committee gives reasonable advance
notice of the cancellation to each affected Participant, and only
if either: (A) the Participant is permitted to exercise all Awards
that will be cancelled (without regard to whether such Awards
would otherwise be exercisable) for a reasonable period prior to
the effective date of the cancellation; or (B) the Participant
receives payment or other benefits that the Committee determines
to be reasonable compensation for the value of all cancelled
Awards (without regard to whether such Awards would otherwise be
vested).
(iii) Upon the occurrence of a reorganization of the Company or any
other event described in this paragraph (b), any successor to the
Company shall be substituted for the Company to the extent that the
Company and the successor agree to such substitution.
(c) Upon (or, in the discretion of the Committee, immediately prior to) the
sale to (or exchange with) a third party unrelated to the Company of
all or substantially all of the assets of the Company, all Awards
6
<PAGE>
shall be cancelled. If Awards are cancelled under this paragraph, then,
with respect to any affected Participant, either:
(i) the Participant shall be provided with reasonable advance notice of
the cancellation, and the Participant shall be permitted to exercise
all Awards that will be cancelled (without regard to whether such
Awards would otherwise be exercisable) for a reasonable period prior
to the effective date of the cancellation; or
(ii) the Participant shall receive payment or other benefits that the
Committee determines to be reasonable compensation for the value of
all cancelled Awards (without regard to whether such cancelled
Awards would otherwise be vested).
The foregoing provisions of this paragraph shall also apply to the sale
of all or substantially all of the assets of the Company to a related
party, if the Committee determines such application is appropriate.
Notwithstanding the foregoing provisions of this paragraph (c), in lieu
of cancellation of outstanding Awards, the Committee and the purchaser
of all or substantially all of the Company's assets may provide that an
appropriate number of shares or securities of the purchaser or its
affiliates shall be substituted for shares of Stock with respect to
outstanding Awards under the Plan, provided that such substituted awards
shall be comparable in value and contain terms and conditions similar to
the Awards.
(d) In determining what action, if any, is necessary or appropriate under
the foregoing provisions of this subsection, the Committee shall act in
a manner that it determines to be consistent with the purposes of the
Plan and of the affected Awards and, where applicable or otherwise
appropriate, in a manner that it determines to be necessary to preserve
the benefits and potential benefits of the affected Awards for the
Participants and the Company.
(e) The existence of this Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Company or its stockholders
to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or
its business, any merger or consolidation of the Company, any issue of
bonds, debentures, preferred or prior preference stocks ahead of or
affecting the Company's Stock or the rights thereof, the dissolution or
liquidation of the Company, any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(f) Except as expressly provided by the terms of this Plan, the issue by
the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, for cash or property or for labor or
services, either upon direct sale, upon the exercise of rights or
warrants to subscribe therefor or upon conversion of shares or
obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof,
shall be made with respect to Awards then outstanding hereunder.
(g) Awards under the Plan are subject to adjustment under this subsection
only during the period in which they are considered to be outstanding
under the Plan. For purposes of this subsection, an Award is considered
"outstanding" on any date if the Participant's ability to obtain all
benefits with respect to the Award is subject to limits imposed by the
Plan (including any limits imposed by the Agreement reflecting the
Award). The determination of whether an Award is outstanding shall be
made by the Committee.
5.5. Change in Control. In the event that (i) a Participant's employment is
terminated by the Company or the successor to the Company or an affiliated
entity which is his or her employer for reasons other than Cause following a
Change in Control of the Company (as defined below) or (ii) the Plan is
terminated by the Company or its successor following a Change in Control
without provision for the continuation of outstanding Awards hereunder, all
Options which have not otherwise expired shall become immediately exercisable
and all other
7
<PAGE>
Awards shall become fully vested. 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 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 any transaction described in this paragraph (a) 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;
(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 any trustee or other fiduciary holding securities under an
employee benefit or other similar stock plan of the Company); provided,
that any purchase by Security Capital Group Incorporated or any of its
affiliates of securities representing 50% or more of the combined
voting power of the Company shall not be treated as a Change in
Control; 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).
For purposes of this subsection, a Participant's employment shall be deemed to
be terminated by the Company or the successor to the Company or an affiliated
entity if the Participant terminates employment after (i) a substantial
adverse alteration in the nature of the Participant's status or
responsibilities from those in effect immediately prior to the Change in
Control, or (ii) a material reduction in the Participant's annual base salary
and target bonus, if any, as in effect immediately prior to the Change in
Control. If, upon a Change in Control, awards in other shares or securities
are substituted for outstanding Awards pursuant to subsection 5.4, and
immediately following the Change in Control the Participant becomes employed
by the entity into which the Company merged, or the purchaser of substantially
all of the assets of the Company, or a successor to such entity or purchaser,
the Participant shall not be treated as having terminated employment for
purposes of this subsection 5.5 until such time as the Participant terminates
employment with the merged entity or purchaser (or successor), as applicable.
5.6. Limit on Distribution. Distribution of shares of Stock or other
amounts under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall have
no liability to deliver any shares of Stock under the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity.
(b) In the case of a Participant who is subject to Section 16(a) and 16(b)
of the Exchange Act, the Committee may, at any time, add such
conditions and limitations to any Award to such Participant, or any
feature of any such Award, as the Committee, in its sole discretion,
deems necessary or desirable to comply with Section 16(a) or 16(b) and
the rules and regulations thereunder or to obtain any exemption
therefrom.
8
<PAGE>
(c) To the extent that the Plan provides for issuance of certificates to
reflect the transfer of shares of Stock, the transfer of such shares
may be effected on a non-certificated basis, to the extent not
prohibited by applicable law or the rules of any stock exchange.
5.7. Liability for Cash Payments. Subject to the provisions of this
Section, each Related Company shall be liable for payment of cash due under
the Plan with respect to any Participant to the extent that such benefits are
attributable to the service rendered for that Related Company by the
Participant. Any disputes relating to liability of a Related Company for cash
payments shall be resolved by the Committee.
5.8. Performance-Based Compensation. To the extent that the Committee
determines that it is necessary or desirable to conform any Awards under the
Plan with the requirements applicable to "Performance-Based Compensation", as
that term is used in Code section 162(m)(4)(C), it may, at or prior to the
time an Award is granted, take such steps and impose such restrictions with
respect to such Award as it determines to be necessary to satisfy such
requirements including, without limitation:
(a) The establishment of performance goals that must be satisfied prior to
the payment or distribution of benefits under such Awards.
(b) The submission of such Awards and performance goals to the Company's
stockholders for approval and making the receipt of benefits under such
Awards contingent on receipt of such approval.
(c) Providing that no payment or distribution be made under such Awards
unless the Committee certifies that the goals and the applicable terms
of the Plan and Agreement reflecting the Awards have been satisfied.
To the extent that the Committee determines that the foregoing requirements
relating to Performance-Based Compensation do not apply to Awards under the
Plan because the Awards constitute Options, the Committee may, at the time the
Award is granted, conform the Awards to alternative methods of satisfying the
requirements applicable to Performance-Based Compensation.
5.9. Withholding. All Awards and other payments under the Plan are subject
to withholding of all applicable taxes, which withholding obligations may be
satisfied, with the consent of the Committee, through the surrender of shares
of Stock which the Participant already owns or to which a Participant is
otherwise entitled under the Plan; provided, however, previously-owned shares
of Stock that have been held by the Participant less than six months or shares
of Stock to which the Participant is entitled under the Plan may only be used
to satisfy the minimum tax withholding required by applicable law.
5.10. Transferability. Awards under the Plan are not transferable except as
designated by the Participant by will or by the laws of descent and
distribution or, to the extent provided by the Committee, pursuant to a
qualified domestic relations order (within the meaning of the Code and
applicable rules thereunder). To the extent that the Participant who receives
an Award under the Plan has the right to exercise such Award, the Award may be
exercised during the lifetime of the Participant only by the Participant.
Notwithstanding the foregoing provisions of this subsection, the Committee may
permit Awards under the Plan to be transferred to or for the benefit of the
Participant's family (including, without limitation, to a trust for the
benefit of a Participant's family), subject to such procedures as the
Committee may establish. In no event shall an Incentive Stock Option be
transferable to the extent that such transferability would violate the
requirements applicable to such option under Code section 422.
5.11. Notices. Any notice or document required to be filed with the
Committee under the Plan will be properly filed if delivered or mailed by
registered mail, postage prepaid, to the Committee, in care of the Company, at
its principal executive offices. The Committee may, by advance written notice
to affected persons, revise such notice procedure from time to time. Any
notice required under the Plan (other than a notice of election) may be waived
by the person entitled to notice.
5.12. Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification or
9
<PAGE>
revocation thereof, shall be in writing filed with the Committee at such
times, in such form, and subject to such restrictions and limitations, not
inconsistent with the terms of the Plan, as the Committee shall require.
5.13. Agreement With Company. At the time of an Award to a Participant
under the Plan, the Committee may require a Participant to enter into an
agreement with the Company (the "Agreement") in a form specified by the
Committee, agreeing to the terms and conditions of the Plan and to such
additional terms and conditions, not inconsistent with the Plan, as the
Committee may, in its sole discretion, prescribe.
5.14. Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by reason of the
Plan, acquire any right in or title to any assets, funds or property of
the Company or any Related Company whatsoever, including, without
limitation, any specific funds, assets, or other property which the
Company or any Related Company, in its sole discretion, may set aside
in anticipation of a liability under the Plan. A Participant shall have
only a contractual right to the amounts, if any, payable under the
Plan, unsecured by any assets of the Company and any Related Company.
Nothing contained in the Plan shall constitute a guarantee by the
Company or any Related Company that the assets of such companies shall
be sufficient to pay any benefits to any person.
(b) The Plan does not constitute a contract of employment, and selection as
a Participant will not give any employee the right to be retained in
the employ of the Company or any Related Company, nor any right or
claim to any benefit under the Plan, unless such right or claim has
specifically accrued under the terms of the Plan. Except as otherwise
provided in the Plan, no Award under the Plan shall confer upon the
holder thereof any right as a stockholder of the Company prior to the
date on which he fulfills all service requirements and other conditions
for receipt of such rights and shares of Stock are registered in his
name.
5.15. Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting
on it considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
5.16. Action by Company or Related Company. Any action required or
permitted to be taken by the Company or any Related Company shall be by
resolution of its board of directors, or by action of one or more members of
the board (including a committee of the board) who are duly authorized to act
for the board or (except to the extent prohibited by applicable law or the
rules of any stock exchange) by a duly authorized officer of the Company.
5.17. Gender and Number. Where the context admits, words in any gender
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.
5.18. Applicable Law. The provisions of the Plan shall be construed in
accordance with the laws of the State of Maryland, without giving effect to
choice of law principles.
5.19. Foreign Employees. Notwithstanding any other provision of the Plan to
the contrary, the Committee may grant Awards to eligible persons who are
foreign nationals on such terms and conditions different from those specified
in the Plan as may, in the judgment of the Committee, be necessary or
desirable to foster and promote achievement of the purposes of the Plan. In
furtherance of such purposes, the Committee may make such modifications,
amendments, procedures and subplans as may be necessary or advisable to comply
with provisions of laws in other countries or jurisdictions in which the
Company or a Related Company operates or has employees.
SECTION 6
COMMITTEE
6.1. Administration. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the "Committee") in
accordance with this Section 6.
10
<PAGE>
6.2. Selection of Committee. So long as the Company is subject to Section
16 of the Exchange Act, the Committee shall be selected by the Board and shall
consist of not fewer than two members of the Board or such greater number as
may be required for compliance with Rule 16b-3 issued under the Exchange Act,
none of whom shall be eligible to receive Awards under the Plan.
6.3. Powers of Committee. The authority to manage and control the operation
and administration of the Plan shall be vested in the Committee, subject to
the following:
(a) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select individuals to receive Awards, to
determine the time or times of receipt, to determine the types of
Awards and the number of shares covered by the Awards, to establish the
terms, conditions, performance criteria, restrictions, and other
provisions of such Awards, and to cancel or suspend Awards. In making
such Award determinations, the Committee may take into account the
nature of services rendered by the respective employee, the
individual's present and potential contribution to the Company's
success and such other factors as the Committee deems relevant.
(b) Subject to the provisions of the Plan, the Committee will have the
authority and discretion to determine the extent to which Awards under
the Plan will be structured to conform to the requirements applicable
to Performance-Based Compensation, and to take such action, establish
such procedures, and impose such restrictions at the time such Awards
are granted as the Committee determines to be necessary or appropriate
to conform to such requirements.
(c) The Committee will have the authority and discretion to interpret the
Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, to determine the terms and provisions of any
agreements made pursuant to the Plan and to make all other
determinations that may be necessary or advisable for the
administration of the Plan.
(d) Any interpretation of the Plan by the Committee and any decision made
by it under the Plan is final and binding on all persons.
(e) Except as otherwise expressly provided in the Plan, where the Committee
is authorized to make a determination with respect to any Award, such
determination shall be made at the time the Award is made, except that
the Committee may reserve the authority to have such determination made
by the Committee in the future (but only if such reservation is made at
the time the Award is granted and is expressly stated in the Agreement
reflecting the Award).
6.4. Delegation by Committee. Except to the extent prohibited by applicable
law or the rules of any stock exchange or NASDAQ (if appropriate), the
Committee may allocate all or any portion of its responsibilities and powers
to any one or more of its members and may delegate all or any part of its
responsibilities and powers to any person or persons selected by it. Any such
allocation or delegation may be revoked by the Committee at any time.
6.5. Information to be Furnished to Committee. The Company and Related
Companies shall furnish the Committee such data and information as may be
required for it to discharge its duties. The records of the Company and
Related Companies as to an employee's or Participant's employment (or other
provision of services), termination of employment (or cessation of the
provision of services), leave of absence, reemployment and compensation shall
be conclusive on all persons unless determined to be incorrect. Participants
and other persons entitled to benefits under the Plan must furnish the
Committee such evidence, data or information as the Committee considers
desirable to carry out the terms of the Plan.
6.6. Liability and Indemnification of Committee. No member or authorized
delegate of the Committee shall be liable to any person for any action taken
or omitted in connection with the administration of the Plan unless
attributable to his own fraud or willful misconduct; nor shall the Company or
any Related Company be liable to any person for any such action unless
attributable to fraud or willful misconduct on the part of a director or
employee of the Company or Related Company. The Committee, the individual
members thereof, and persons
11
<PAGE>
acting as the authorized delegates of the Committee under the Plan, shall be
indemnified by the Company against any and all liabilities, losses, costs and
expenses (including legal fees and expenses) of whatsoever kind and nature
which may be imposed on, incurred by or asserted against the Committee or its
members or authorized delegates by reason of the performance of a Committee
function if the Committee or its members or authorized delegates did not act
dishonestly or in willful violation of the law or regulation under which such
liability, loss, cost or expense arises. This indemnification shall not
duplicate but may supplement any coverage available under any applicable
insurance.
SECTION 7
AMENDMENT AND TERMINATION
Subject to obtaining such approvals as may be required under the Code,
Federal securities law, Maryland corporate law or stock exchange requirements,
the Board may, at any time, amend or terminate the Plan, provided that,
subject to subsection 5.4 (relating to certain adjustments to shares), no
amendment or termination may materially adversely affect the rights of any
Participant or beneficiary under any Award made under the Plan prior to the
date such amendment is adopted by the Board.
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<PAGE>
HOMESTEAD VILLAGE INCORPORATED
Annual Meeting of Shareholders
ADMISSION TICKET
Wednesday, June 23, 1999
9:00 a.m. (Eastern Daylight time)
Renaissance Waverly Hotel
2450 Galleria Parkway
Atlanta, Georgia 30339
Please present this ticket for admittance.
[4440 - HOMESTEAD VILLAGE INCORPORATED] [FILE NAME: HV120A.ELX] [VERSION - 4]
[5/19/99]
EV120A DETACH HERE
- --------------------------------------------------------------------------------
[X] Please mark
votes as in
this example.
1. The election of the following persons as Class I and II Directors:
Class I: C. Ronald Blankenship and Eugene B. Vesell
Class II: John P. Frazee, Jr. and John C. Schweitzer
FOR WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
[_] [_]
[_]
--------------------------------------
For all nominees except as noted above
2. Approval to adopt Homestead's 1999 [_] [_] [_]
Long-Term Incentive Plan.
3. To vote upon any other matters that
may properly be presented at the
meeting according to their best
judgment and in their discretion.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
Please sign, date and return this proxy card promptly using the enclosed
postage-paid envelope whether or not you plan to attend the meeting.
Please sign exactly as name(s) appear(s) to the left. If shares are held
jointly, each joint tenant should sign. If signing as attorney, executor,
administrator, trustee or guardian or as officer of a corporation or other
entity, please give full title and capacity in which you are signing.
<PAGE>
[9440 - HOMESTEAD VILLAGE INCORPORATED] [FILE NAME: HVI20B.ELX] [VERSION - S]
[5/19/99]
HVI20B DETACH HERE
- --------------------------------------------------------------------------------
PROXY
HOMESTEAD VILLAGE INCORPORATED
THIS PROXY IS SOLICITED BY AND ON BEHALF OF
THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 23, 1999
The undersigned hereby appoints each of James C. Potts, David C. Dressler,
Jr. and Jeffrey A. Klopf, as proxies with full power of substitution, to
represent the undersigned at the annual meeting of shareholders of Homestead
Village Incorporated to be held on June 23, 1999, and at any adjournments or
postponements thereof, and to vote at such meeting the shares of Common Stock
that the undersigned would be entitled to vote if present at such meeting in
accordance with the instructions indicated on the reverse side of this card; if
no instructions are indicated, the shares represented by this proxy will be
voted for the election of the listed nominees for Director and for the approval
to adopt Homestead Village Incorporated 1999 Long-Term Incentive Plan, and at
the direction of the proxies named above, on any other matter that may properly
come before the meeting.
The undersigned acknowledges receipt of the Notice of Annual Meeting and
the Proxy Statement together with this Proxy.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- ------------- -------------
SEE REVERSE SEE REVERSE
SIDE SIDE
- ------------- -------------
