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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 For
the Transition period from to .
COMMISSION FILE NUMBER 1-12269
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HOMESTEAD VILLAGE INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
74-2770966
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
2100 RIVEREDGE PARKWAY, 9TH FLOOR
ATLANTA, GEORGIA 30328
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(770) 303-2200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA
CODE) SECURITIES REGISTERED PURSUANT TO SECTION
12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Shares of Common Stock, par value $.01 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Based on the closing price of the registrant's Common Stock on March 8,
2000, the aggregate market value of the Common Stock held by non-affiliates of
the registrant was $37,987,957.
At March 8, 2000, there were 120,031,477 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 2000 annual
meeting of its shareholders are incorporated by reference in Part III of this
report.
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TABLE OF CONTENTS
<TABLE>
ITEM DESCRIPTION PAGE
PART I
<S> <C>
1. Business................................................................................... 1
Overview................................................................................. 1
Extended Stay Market..................................................................... 3
Competition.............................................................................. 4
Seasonality.............................................................................. 4
Environmental Matters.................................................................... 4
Governmental Regulation.................................................................. 5
Trademarks............................................................................... 5
Insurance................................................................................ 5
Agreements with Security Capital and Affiliates.......................................... 5
Employees................................................................................ 7
Directors and Officers of Homestead...................................................... 8
2. Properties................................................................................. 10
Geographic Distribution.................................................................. 10
Properties Portfolio..................................................................... 11
3. Legal Proceedings.......................................................................... 17
4. Submission of Matters to a Vote of Security Holders........................................ 17
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters.................. 17
6. Selected Financial Data.................................................................... 18
7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 21
Overview................................................................................. 21
Results of Operations for the Years Ended December 31, 1999, 1998 and 1997............... 22
Liquidity and Capital Resources.......................................................... 25
Impact of Year 2000...................................................................... 26
Risk Factors............................................................................. 27
7A. Quantitative and Qualitative Disclosures About Market Risk................................. 29
8. Financial Statements and Supplementary Data................................................ 29
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....... 29
PART III
10. Directors and Executive Officers of the Registrant......................................... 30
11. Executive Compensation..................................................................... 30
12. Security Ownership of Certain Beneficial Owners and Management............................. 30
13. Certain Relationships and Related Transactions............................................. 30
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................ 31
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PART I
ITEM 1. BUSINESS
OVERVIEW
Homestead Village Incorporated ("Homestead") operates 136 moderately
priced, extended stay lodging properties under the Homestead Village(R)
trademark in selected markets in the United States. Homestead's strategy has
been to identify markets that demonstrate strong demographics and to provide
extended stay customers with a consistently high standard of service and
value-conscious pricing. Homestead offers a carefully designed, custom-built
product targeted primarily at the business traveler on temporary assignment,
undergoing relocation or in training. Homestead properties, which have all been
developed by Homestead, are designed to offer locations with convenient access
to major employment centers and retail support services, and a residential
environment that is attractive, well landscaped and secure.
Homestead's strategy is focused on:
o attracting and retaining extended stay business travelers,
o increasing revenue per available room at the property level by
matching its product to customers'
expectations, and
o improving operating property cash flow through its proprietary
operating systems.
Homestead believes that its product, locations, commitment to customer
service and value-conscious pricing will help it meet its objectives.
Homestead is affiliated with Security Capital Group Incorporated ("Security
Capital"), which owns 87.0% of Homestead. Security Capital and its affiliates
have provided substantial financing to Homestead and Security Capital provides
various other administrative services to Homestead.
In 1999 Homestead brought its high growth development program of the last
several years to a conclusion and directed its efforts to strengthening its
balance sheet, focusing on property operations and reducing general and
administrative overhead.
Focus on the Business Traveler
In an effort to capture the business travelers' extended stay demand,
Homestead targets both national and local businesses. Eleven sales professionals
supplement the marketing effort conducted at the local level by the general
managers of each property by establishing relationships with corporate clients
which are users of the extended stay product. Homestead's primary focus is on
the business traveler and on establishing a relationship with corporate accounts
which can be expanded to multiple properties and increased room nights.
Homestead believes that an emphasis on corporate accounts is critical to
maintaining occupancy levels that exceed market averages.
Homestead provides its customers access for making reservations via a
toll-free reservations number, 888-STAY-HSD, and connection to the Global
Distribution Systems used by travel professionals.
Homestead's operating history and customer-level research provide it with
the competitive advantage of understanding the needs of the extended stay
business traveler. In developing its extended stay lodging product, Homestead
has relied on customer surveys, interviews and focus groups to identify the
specific needs and requirements of its customers. Understanding its customers
has allowed Homestead to design its properties and establish operating
procedures to meet and exceed the customers' needs and requirements.
Weekly room rates at Homestead Village properties appeal to value-conscious
business travelers. Weekly rates at Homestead properties typically range between
$250 and $475. Weekly rates at Homestead properties will vary significantly
depending on specific market factors and the size of the room.
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Proprietary Operating System
Homestead's proprietary operating system is focused on providing a uniform,
consistently high-quality experience for the business traveler. Homestead has
developed and is continuously refining its operating system which combines a
conveniently located, well-designed guest room with friendly and efficient guest
service, and an amenity program designed to meet the specific needs of the
extended stay business traveler all at an affordable price. Homestead believes
that the operating system will result in a positive lodging experience for
guests and generate a willingness to use the product again and in multiple
locations.
Homestead's operating experience has provided it with the opportunity to
standardize its operating procedures to meet the specific needs of extended stay
business travelers. This standardization is aimed at both providing a consistent
guest experience and generating operating efficiencies.
Homestead has invested substantially in the recruiting and training of its
personnel. Homestead currently provides training modules, which have been
purchased or developed, with topics ranging from guest services and safety to
personal selling techniques and leadership skills. Training in these areas is
conducted on a regular basis and ensures a consistent guest experience at every
property. Training design and organizational development are administered by
corporate professionals in conjunction with field trainers located within a
geographic region.
Homestead properties were designed and built to uniform plans that were
driven by the needs of the extended stay business traveler. Rooms generally
contain 260 to 420 square feet of fully furnished living space, with a work
station/dining area and kitchen facilities that include a full-size
refrigerator, microwave, sink and cook-top. Timely capital expenditures as well
as its preventive maintenance program allow Homestead to maintain high-quality
and attractive rooms and properties for its customers.
Conclusion of Development Program
Homestead's overall results of operations and financial position have been
significantly influenced by its development program and the financing activities
required to support it. The tightening of capital markets for real estate
operating companies and lodging companies which began in 1998 and continued in
1999 had an adverse effect on Homestead's ability to continue its high growth
program of acquisition of land sites and construction of properties. In 1998,
Homestead reorganized its development effort and recorded a $7.24 million
special charge. Such charge primarily related to the severance of certain
development personnel and abandonment of selected pursuits of development sites
due to the limited availability of additional funds for development.
In the second quarter of 1999, Homestead determined, based on its inability
to obtain financing for development beyond those properties already in
construction, to end its development program. As of the beginning of the second
quarter of 1999, Homestead had substantial investments in ownership of land for
development as well as in pursuit costs for additional development sites. As of
May 1999, all land previously held for development became held for sale, all
pursuits for acquisition of additional sites for development were abandoned, and
Homestead began reduction of its overhead costs and personnel to reflect a
company with stabilized operations of 136 properties. A special charge was
recorded in the second quarter of 1999 of $65.3 million primarily for
write-downs of land held for sale, write-offs of costs of pursuits, and the
costs of severance of personnel.
Strengthening Homestead's Balance Sheet
In efforts directed to strengthening its balance sheet, Homestead reduced
its debt and long-term liabilities from $708.5 million at December 31, 1998 to
$487.6 million at December 31, 1999 by paying off a $200 million bridge facility
with proceeds received from the May 1999 common stock rights offering, reducing
its working capital bank line of credit facilities by $73.6 million (primarily
by utilizing $72.6 million in net proceeds generated by land sales), and
settling a $7.9 million long-term liability through the payment of $2.1 million
in cash. Additionally during 1999 Homestead paid off a short-term $122 million
mortgage note with the proceeds of a sale and long-term leaseback of properties.
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Subsequent to year end 1999 Homestead has made payments totaling $31.5
million on the bank line of credit reducing its line of credit debt to $93.9
million. On February 29, 2000 Homestead entered into an amended and restated
bank credit facility which allows for $110 million of total borrowings of which
$35 million is available on a revolving basis. The amended and restated line
matures February 28, 2003, bears interest at LIBOR plus 2.5%, is secured by 64
operating properties, permits payment of dividends based upon a definition of
free cash flow, and requires maintenance of financial ratio and coverage
covenants.
Focus on Property Operations
In early 1999 Homestead experienced lowered occupancy levels versus prior
periods which management believed to be indicative of increasing competition and
the result of Homestead rate increases. Beginning in late second quarter 1999
Homestead lowered rates in selected markets which were experiencing competitive
pressures, and management believes the improvements in occupancy levels and
revenues in the latter half of 1999 were partially due to these actions. For
full year 1999 total portfolio occupancy was 70.2% versus full year 1998
occupancy of 70.4%, both of which were below 1997 total portfolio occupancy of
74.7%. The lower occupancy levels for 1999 and 1998 reflect competitive
pressures, particularly in the southwestern United States where several markets
are characterized by an oversupply of extended stay lodging.
Homestead aggregates its individual operating properties into one
reportable segment, that being the operation of extended stay properties in its
target markets in the United States. For further information see "Note 11 -
Segment Reporting" to the financial statements included herein in Item 14.
Reduction of Overhead
In May 1999, Homestead's management established a goal of reducing overhead
to reflect a company with stabilized operations of 136 properties. In the first
quarter 1999, total overhead costs were $48.6 million on an annualized basis. In
the fourth quarter 1999, on an annualized basis overhead costs (exclusive of the
special charge) had been reduced 44% to $27.2 million. In the first quarter of
2000, total overhead costs are expected to approximate $25 million on an
annualized basis.
EXTENDED STAY MARKET
Homestead believes that the extended stay market represents a unique
business opportunity and that the price/value relationship has enabled the
extended stay market to achieve higher than industry average occupancy rates and
operating margins. Demand for extended stay lodging has been stimulated by the
economic and social changes resulting from the increased volume of corporate
reorganizations and trends toward downsizing and outsourcing of various
functions, and technological improvements which have allowed businesses to
relocate outside of large metropolitan areas. These changes have created new
accommodation needs for, among others, corporate executives and trainees,
consultants, sales representatives and relocating individuals.
Moderately priced, extended stay lodging competes on the basis of price and
value compared to the extended stay market generally, thereby providing an
economic inducement to guests who are already attracted to the extended stay
concept. In addition, moderately priced, extended stay lodging provides an
affordable, convenient and efficient lodging alternative for long-term stay
guests who would otherwise use a traditional lodging facility. Based on
published occupancy rates for other participants in the extended stay market,
Homestead believes that there is a strong demand for moderately priced, extended
stay accommodations that results in higher occupancy rates for extended stay
hotels than for comparable hotels competing in the same market.
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COMPETITION
Each Homestead property is located in a developed area that includes
competing properties, including traditional hotels, other extended stay hotels
and corporate apartments. The number of competitors in a particular area could
have a material adverse effect on occupancy, average weekly rates and revenue
for a Homestead property in that market. Competition within the extended stay
lodging market has increased substantially. In several markets where Homestead
has properties, there is intense competition for the extended stay customer,
which has already affected occupancy and weekly revenue per available room for
these properties. There is an oversupply of extended stay hotels in Homestead's
southwestern markets, which has adversely affected the results for Homestead's
properties in those markets.
Competition within the lodging industry is based generally on convenience
of location, price, range of services and guest amenities offered and quality of
customer service. Homestead considers the reasonableness of its room rates, the
location of its properties and the services and the guest amenities provided by
it to be among the most important competitive factors in the business. A number
of other lodging chains and developers have developed or are developing
competitive extended stay properties. In particular, several of these entities
have targeted the moderately priced segment of the extended stay market in which
Homestead competes. Homestead competes for guests with certain of these
established entities, which may have greater financial resources than Homestead.
These entities may be able to accept more risk than Homestead can prudently
manage. Further, there can be no assurance that new or existing competitors will
not significantly reduce their rates or offer greater convenience, services or
amenities, or significantly expand or improve properties in markets in which
Homestead competes, thereby materially adversely affecting Homestead's business
and results of operations.
SEASONALITY
The lodging industry is seasonal in nature, with the second and third
quarters generally accounting for a greater proportion of annual revenues than
the first and fourth quarters. Quarterly earnings may be adversely affected by
events beyond Homestead's control such as poor weather conditions, economic
factors and other considerations affecting travel. Based upon the operating
history of Homestead properties, management believes that occupancy and revenues
may be lower than normal during December and January due to the holiday season.
Because many of Homestead's expenses do not fluctuate with occupancy, such
declines in occupancy and revenues may cause fluctuations or decreases in
Homestead's earnings during these periods.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances on such property. Such laws often impose
such liability without regard to whether the owner knew of, or was responsible
for, the presence of hazardous or toxic substances. Furthermore, a person that
arranges for the disposal or transports for disposal or treatment a hazardous
substance at a property owned by another may be liable for the costs of removal
or remediation of hazardous substances released into the environment at that
property. The costs of remediation or removal of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's ability to sell such
real estate or to borrow using such real estate as collateral. In connection
with the ownership and operation of its properties, Homestead is potentially
liable for any such costs.
Homestead obtained Phase I Surveys on all of its existing properties. The
Phase I Surveys were intended to identify potential environmental contamination
and regulatory compliance concerns. Phase I Surveys generally include historical
reviews of the properties, reviews of certain public records, preliminary
investigations of the sites and surrounding properties and the preparation and
issuance of written reports. Phase I Surveys generally do not include invasive
procedures, such as soil sampling or ground water analysis.
While some of these assessments led to further investigation and sampling,
none of the environmental assessments revealed, nor is Homestead aware of, any
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environmental liability that management believes would have a material adverse
effect on Homestead's business, financial position or results of operations. No
assurance can be given, however, that these assessments and investigations
revealed all potential environmental liabilities, that no prior owner or
operator created any material environmental condition not known to Homestead or
the independent consultants or that future uses and conditions (including,
without limitation, guest actions or changes in applicable environmental laws
and regulations) will not result in the imposition of environmental liabilities.
GOVERNMENTAL REGULATION
A number of states regulate the licensing of hotels by requiring
registration, disclosure statements and compliance with specific standards of
conduct. Homestead believes that each of its properties has the necessary
permits and approvals to operate its respective business. In addition, Homestead
is subject to laws governing its relationship with employees, including minimum
wage requirements, overtime, working conditions and work permit requirements. An
increase in the minimum wage rate, employee benefit costs or other costs
associated with employees could adversely affect Homestead.
Under the Americans with Disabilities Act (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. Although Homestead has attempted to satisfy
ADA requirements in the designs for its properties, no assurance can be given
that a material ADA claim will not be asserted against Homestead, which could
result in a judicial order requiring compliance, and the expenditure of
substantial sums to achieve compliance, an imposition of fines or an award of
damages to private litigants. These and other initiatives could adversely affect
Homestead as well as the lodging industry in general.
TRADEMARKS
The Homestead Village name and logo have been registered with the United
States Patent and Trademark office.
INSURANCE
Homestead currently has the types and amounts of insurance coverage that it
considers appropriate for a company in its business. While management believes
that its insurance coverage is adequate, if Homestead were held liable for
amounts exceeding the limits of its insurance coverage or for claims outside of
the scope of its insurance coverage, Homestead's business, results of operations
or financial position could be materially and adversely affected.
AGREEMENTS WITH SECURITY CAPITAL AND AFFILIATES
Administrative Services Agreement
Homestead entered into an Administrative Services Agreement with Security
Capital, pursuant to which Security Capital provides Homestead with
administrative services for 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 administration, shareholder communications
and investor relations. Any arrangements under the 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 agreement, which expires on December 31, 2000, is automatically renewed each
year for a one-year term, subject to approval by a majority of the independent
members of the Homestead Board of Directors. Additionally, Security Capital
provides legal administration services under a separate agreement which expires
December 31, 2000. Homestead incurred fees of $5,201,000 for administrative
services provided by Security Capital during 1999.
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Security Capital Investor Agreement
Homestead and Security Capital have entered into an amended investor
agreement which, among other things, provides that, so long as Security Capital
owns 50.1% or more of Homestead's outstanding common stock, Security Capital has
the right to approve, among other things,
(i) Homestead's annual budget;
(ii) incurring 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 of common stock or any
securities convertible into or exchangeable for common stock,
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 of Directors of Homestead
or (D) an issuance of rights, options, or warrants for common
stock 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 of common stock may be issued and any action with
respect to senior officers' compensation;
(vi) the incurrence, restructuring, renegotiation or repayment of
indebtedness for borrowed money in which the aggregate amount
involved exceeds $1 million;
(vii)the declaration or payment of any dividends or other distribu-
tion;
(viii) acquisitions or dispositions in a single transaction or
group of related transactions where the aggregate purchase
price paid or received exceeds $1 million;
(ix) service contracts (A) for investment management, property
management or leasing services, or (B) that reasonably
contemplate annual contract payments by Homestead 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
million for any contract or $5 million in the aggregate;
(xi) the entering into of any joint venture for the development of
any properties owned by Homestead in which the book value of
any property to be contributed by Homestead exceeds $1 million
individually or $5 million in the aggregate;
(xii)the entering into of any franchising or licensing agreements;
(xiii) amendment of articles of incorporation or bylaws of
Homestead; and (xiv)waiver of anti-takeover provisions of Maryland
law or Homestead's articles of incorporation.
The Security Capital investor agreement also provides that, so long as
Security Capital owns at least 10% of the outstanding shares of common stock,
Homestead may not increase the number of persons serving on the Board of
Directors to more than seven without the approval of Security Capital. Security
Capital also will be entitled to designate one or more nominees for directors of
Homestead, as follows: (i) so long as Security Capital owns at least 10% but
less than 25% of the outstanding shares of common stock, it is entitled to
nominate one person; and (ii) so long as Security Capital owns at least 25% of
the outstanding shares of common stock, it is entitled to nominate that number
of persons as shall bear approximately the same ratio to the total number of
members of the Board of Directors as the number of shares of common stock
beneficially owned by Security Capital bears to the total number of outstanding
shares of common stock, provided that Security Capital shall be entitled to
designate no more than two persons so long as the Board of Directors consists of
no more than seven members. The nominee(s) of Security Capital may, but need
not, be the same person nominated by Archstone Communities Trust ("Archstone"),
an investee of Security Capital, pursuant to the Archstone investor agreement
described below.
The Security Capital investor agreement provides Security Capital with
registration rights pursuant to which, in specified circumstances, Security
Capital may request, and on not more than three occasions, registration of all
of Security Capital's shares pursuant to Rule 415 under the Securities Act.
Security Capital currently owns 87.0% of Homestead's outstanding shares of
common stock.
Tax Allocation Agreement
As a result of Security Capital's ownership in Homestead exceeding 80%
after the closing of the May 1999 common stock rights offering, Homestead's
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results, post rights offering, are included in the federal income tax return of
Security Capital. Security Capital may utilize tax operating losses generated by
Homestead subsequent to May 1999. In order for Security Capital to utilize the
net operating loss carryforwards generated by Homestead through May 1999,
Homestead must generate future taxable income. To the extent Homestead's net
operating loss carryforwards are so utilized on Security Capital's federal tax
return, such loss carryforwards will not be available to Homestead in the
future. Homestead and Security Capital have entered into a tax allocation
agreement which provides for tax liability or refund payments between the
entities as determined by a defined calculation of Homestead's proportionate
share of taxable income versus the total of taxable income for all entities
filing as part of Security Capital's federal tax return. The agreement also
provides that if a capital transaction were to occur where Security Capital
owned less than 50% of Homestead after the transaction, all net operating loss
carryforwards generated by Homestead through May 1999 would inure to Security
Capital.
For 1999 no amounts were paid or due under the agreement.
Archstone Convertible Mortgages
At December 31, 1999, Homestead owed convertible mortgage notes to
Archstone, in the amount of $221,333,620. The mortgage notes were funded
pursuant to a mortgage funding commitment to finance the development of
properties acquired by Homestead from Archstone in 1996. The notes are
collateralized by 54 Homestead properties with a historical cost of $359.3
million. The notes accrue interest at 9.0% on the principal amount, and require
interest only payments every six months on May 28 and November 28. The notes are
due October 31, 2006 and are callable on or after May 28, 2001. The notes are
convertible, at the option of the holder, into 21,191,262 shares of Homestead
common stock at a conversion ratio equal to one share for every approximate
$10.44 of principal amount outstanding. Archstone has no further funding
commitment.
Archstone Investor Agreement
Archstone has entered into an investor and registration rights agreement
with Homestead pursuant to which Archstone is entitled to designate one person
for nomination to the Homestead Board of Directors, 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 convertible
mortgage notes. Such nominee may, but need not, be a person 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 of common
stock issuable upon conversion of the convertible mortgage notes. Archstone may
request three registrations pursuant to Rule 415 under the Securities Act of all
shares of common stock 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.
Subscription Agreement
In June 1998, Homestead entered into a subscription agreement with Security
Capital whereby Security Capital agreed to purchase $200 million of subordinated
debentures from Homestead. This subscription agreement was pledged as security
for a $200 million bank line of credit bridge facility. In conjunction with
Security Capital's entering into the subscription agreement, Homestead paid an
arrangement fee to Security Capital of $600,000. Security Capital's obligations
under the subscription agreement terminated as a result of Security Capital's
participation in the May 1999 $225 million common stock rights offering and the
repayment of the bridge facility.
EMPLOYEES
As of December 31, 1999, Homestead employed approximately 1,770 full-time
employees including 100 corporate professionals and administrative employees and
1,670 on-site personnel. Homestead's employees are not subject to any collective
bargaining agreements and management believes that its relationship with its
employees is good.
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DIRECTORS AND OFFICERS OF HOMESTEAD
Directors
C. RONALD BLANKENSHIP--50--Director, Interim Chairman and Chief Executive
Officer of Homestead since May 1999. Mr. Blankenship was Advisory Director of
Homestead from October 1996 to May 1999. Mr. Blankenship has been the Vice
Chairman, Chief Operating Officer and a Director of Security Capital since May
1998 and was Managing Director of Security Capital from March 1991 to May 1998.
Mr. Blankenship was Non-Executive Chairman of Archstone from June 1997 to July
1998. From June 1991 to July 1997, Mr. Blankenship was Chairman of Archstone. He
became a Trustee of Archstone in March 2000, and was formerly an Advisory
Trustee of Archstone. He is also a Director of CarrAmerica Realty Corp. and
Storage USA, Inc.
JAMES C. POTTS--53--President and Director of Homestead since March 2000
and Chief Operating Officer since December 1999, where he is responsible for
Homestead operations. Mr. Potts was Executive Vice President of Homestead from
May 1999 to March 2000. From July 1998 to May 1999, Mr. Potts was Managing
Director of Homestead responsible for development. Prior thereto, Mr. Potts was
Co-Chairman and Chief Investment Officer for Security Capital Atlantic
Incorporated ("ATLANTIC") from January 1996 to July 1998 and a Director of
ATLANTIC and the management company responsible for the management of ATLANTIC
from October 1993 to July 1998. Mr. Potts was Chairman of ATLANTIC and the
management company responsible for its management from May 1994 to December
1995.
JOHN P. FRAZEE, JR.--55--Director of Homestead since May 1996. Since August
1997, Mr. Frazee has served as Director, Chairman, and Chief Executive Officer
of PageNet, Inc. (a provider of wireless messaging and wireless information
services). Since August 1999, Mr. Frazee has been Chairman and Chief Executive
Officer of Vast Wireless Solutions, an internet solutions provider. He was
President of PageNet, Inc. from August 1997 to June 1999, and formerly was Chief
Operating Officer of Sprint Corporation; prior to the March 1993 merger of
Sprint and Centel Corporation, Mr. Frazee had been the Chairman and Chief
Executive Officer of Centel since 1972. He is a Director of Security Capital
Group Incorporated, C-Span, Dean Foods Company, and Vast Wireless Solutions. He
is also an Executive Board Member of The Edwin L. Cox School of Business at
Southern Methodist University and a Life Trustee of Rush-Presbyterian St. Luke's
Medical Center in Chicago, Illinois.
MANUEL A. GARCIA--56--Director of Homestead since April 1997. Since 1992,
Mr. Garcia has been the Chief Executive Officer of Atlantic Coast Management,
Inc. He is also Chief Executive Officer of Pebbles Restaurants, Inc. and M.
Garcia's, Inc. and a Vice President of Culinary Concepts, Inc. From 1969 to
1996, Mr. Garcia was the Chief Executive Officer of Davgar Restaurants, Inc.
JOHN C. SCHWEITZER--55--Director of Homestead since April 1997, and a
Trustee of Archstone since 1976. Since 1974, Mr. Schweitzer has been President
of Westgate Corp., general partner of Campbell Capital, Ltd., a real estate and
investments company in Austin, Texas. Mr. Schweitzer serves as a Director of
Regency Realty Corporation, Chase Bank of Texas, and KLRU Public Television.
EUGENE B. VESELL--60--Director of Homestead since June 1999. From December
1990 until his retirement in April 1999, Mr. Vesell was Managing Director at
Oppenheimer Capital, where he was a senior equity portfolio manager and research
analyst. Prior to joining Oppenheimer Capital, Mr. Vesell was a partner for ten
years with David J. Greene and Company, where his responsibilities included
research and portfolio management.
Executive Officers
JAMES C. POTTS--See "Directors" above.
A. RICHARD MOORE --54-- Interim Chief Financial Officer for Homestead since
May 1999 and Managing Director of the Capital Division of Security Capital since
May 1998, where he provides operating oversight for companies in which Security
Capital has direct or indirect ownership positions. Since January 2000, Mr.
Moore has also been a Managing Director of Security Capital European Realty
Management Limited and Security Capital (UK) Management Limited. From March 1990
to May 1998, Mr. Moore was a Vice President with Goldman, Sachs & Co., where his
most recent position was in the Equity Research Department.
8
<PAGE>
GARY A. DELAPP--41--Managing Director of Homestead since March 2000 with
responsibilities for the operations group. Mr. DeLapp was Senior Vice President
of Homestead from December 1996 to March 2000, Vice President of Homestead from
May 1996 to November 1996, and Vice President, Homestead Village Management
Incorporated, from February 1996 to October 1996. Prior thereto, from July 1983
to February 1996, Mr. DeLapp was with Vista Host, Inc., where his most recent
position was partner and Senior Vice President of Operations.
LAURA L. HAMILTON--36--Senior Vice President of Homestead since March 1998,
where she supervises Homestead's legal and treasury matters; from May 1996 to
March 1998, Vice President of Homestead; from January 1996 to October 1996, Vice
President of Homestead Village Management Incorporated. Prior thereto, from June
1995 to January 1996, Ms. Hamilton was Vice President of Archstone, where she
had been a member of the due diligence group since April 1992.
JEFFREY A. KLOPF--51--Senior Vice President of Homestead since May 1996 and
Secretary since January 1996; Senior Vice President and Secretary of Security
Capital since January 1996, where he provides legal services for Security
Capital. Mr. Klopf was Senior Vice President and Secretary of Archstone from
January 1996 to September 1999 and Senior Vice President and Secretary of
ProLogis from January 1996 to March 1999. From January 1988 to December 1995,
Mr. Klopf was a partner of Mayer, Brown & Platt, where he practiced corporate
and securities law.
GREGG A. PLOUFF--43--Senior Vice President of Homestead since March 1998.
From May 1996 to March 1998, Mr. Plouff was Vice President of Homestead; from
June 1995 to October 1996, he was Vice President of Homestead Village Management
Incorporated. Prior thereto, from March 1995 to May 1996, Mr. Plouff was Vice
President of Archstone; from July 1994 to March 1995, he was Vice President of
the management company responsible for management of Archstone; from November
1993 to July 1994, he was a member of the acquisitions group of Archstone.
MARK E. RILEY--41--Senior Vice President of Homestead since December 1998,
where he is responsible for operations for the Southeast Region. Mr. Riley was
Vice President of Homestead from May 1996 to December 1998; he was a Senior
Development Manager working on Homestead projects for Security Capital from
September 1994 to May 1996. Prior thereto, from August 1993 to September 1994,
Mr. Riley was a Vice President with Southeast Lodges Development Company.
9
<PAGE>
ITEM 2. PROPERTIES
GEOGRAPHIC DISTRIBUTION
The table below describes the geographic distribution of Homestead's 136
operating property investments at December 31, 1999:
<TABLE>
NUMBER OF PROPERTIES
-----------------------------------------------------
PERCENTAGE OF
OPERATING
PROPERTIES
CITY OWNED LEASED (1) TOTAL INVESTMENT
---- ----- ---------- ----- ----------
<S> <C> <C> <C> <C>
NORTHEAST:
Boston, MA.................................... 3 -- 3 3%
New York Metro, NJ/CT......................... 5 -- 5 6%
Philadelphia, PA/DE........................... 3 -- 3 2%
Washington, DC................................ 2 7 9 7%
--- --- --- ---
Subtotal................................. 13 7 20 18%
== === == ==
SOUTHEAST:
Atlanta, GA................................... 6 2 8 6%
Birmingham, AL................................ 1 -- 1 1%
Jacksonville, FL.............................. 2 -- 2 1%
Miami/Ft. Lauderdale, FL...................... 4 3 7 6%
Orlando, FL................................... 2 -- 2 2%
Tampa, FL..................................... -- 3 3 2%
-- --- --- ---
Subtotal................................. 15 8 23 18%
== === == ==
WEST :
Las Vegas, NV................................. 1 -- 1 1%
Los Angeles, CA............................... 4 -- 4 3%
Orange County, CA............................. 3 -- 3 2%
Sacramento, CA................................ 1 -- 1 1%
San Diego, CA................................. 2 -- 2 2%
San Francisco (Bay Area), CA.................. 8 -- 8 7%
--- -- --- ---
Subtotal................................. 19 -- 19 16%
== == == ==
MIDWEST:
Chicago, IL................................... 5 -- 5 4%
Cleveland, OH................................. 2 -- 2 2%
Detroit, MI................................... 2 -- 2 2%
Kansas City, MO/KS............................ 3 -- 3 2%
Milwaukee, WI................................. 1 -- 1 1%
Minneapolis, MN............................... 2 -- 2 1%
St. Louis, MO................................. 2 -- 2 1%
--- -- ----- -----
Subtotal................................. 17 -- 17 13%
== == == ====
MOUNTAIN:
Albuquerque, NM............................... 2 -- 2 1%
Denver, CO.................................... 4 -- 4 3%
Phoenix, AZ................................... 5 -- 5 3%
Portland, OR.................................. 2 -- 2 2%
Salt Lake City, UT............................ 3 -- 3 2%
Seattle, WA................................... 4 -- 4 3%
--- -- -- ---
Subtotal................................. 20 -- 20 14%
== == == ==
10
<PAGE>
NUMBER OF PROPERTIES
-----------------------------------------------------
PERCENTAGE OF
OPERATING
PROPERTIES
CITY OWNED LEASED (1) TOTAL INVESTMENT
---- ----- ---------- ----- ----------
SOUTHWEST:
Austin, TX.................................... 4 -- 4 2%
Dallas, TX.................................... 9 -- 9 4%
Houston, TX................................... 9 -- 9 4%
San Antonio, TX............................... 3 -- 3 1%
--- -- --- ---
Subtotal................................. 25 -- 25 11%
== == == ==
EAST:
Charlotte, NC................................. 1 -- 1 1%
Memphis, TN................................... 2 -- 2 1%
Nashville, TN................................. 2 -- 2 2%
Raleigh, NC................................... 2 2 4 3%
Richmond, VA.................................. 2 1 3 3%
--- -- --- ---
Subtotal................................. 9 3 12 10%
=== == ==== ==
Total 118 18 136 100%
=== == === ===
<FN>
- ------------
(1) Indicates properties operated under a capital lease with an initial term
expiring December 2015. Homestead has options under the lease for two
extension periods of 15 years each.
</FN>
</TABLE>
PROPERTIES PORTFOLIO
The following table is as of December 31, 1999 for Homestead's 136
operating properties.
<TABLE>
DATE COMPLETED ROOMS
<S> <C> <C>
NORTHEAST:
Boston, Massachusetts
Boston/Burlington (1).............................................. August, 1998 141
Boston/Marlborough (1)............................................. August, 1998 135
Boston/Waltham (1)................................................. September, 1998 139
---
Subtotal...................................................... 415
---
New York Metro
Hanover/Parsipanny, NJ (1)......................................... November, 1998 140
Meadowlands, NJ (1)................................................ July, 1999 139
Norwalk, CT (1).................................................... April, 1999 140
Shelton, CT (1).................................................... December, 1998 139
Woodbridge, NJ (1)................................................. January, 1999 140
---
Subtotal...................................................... 698
---
Philadelphia, Pennsylvania
Horsham/Willow Grove (1)........................................... July, 1998 136
King of Prussia (1)................................................ August, 1998 141
Newark/Christiana, DE (1).......................................... February, 1998 141
---
Subtotal...................................................... 418
---
Washington, DC
Alexandria (1)..................................................... January, 1999 130
Baltimore Washington International Airport (2)..................... August, 1997 137
Dulles/Chantilly (2)............................................... December, 1997 116
Dulles/Sterling (2)................................................ August, 1998 134
Fair Oaks (2)...................................................... December, 1997 134
Germantown (2)..................................................... December, 1997 130
Merrifield (2)..................................................... September, 1998 129
Reston-Sunset (2).................................................. August, 1998 149
Tyson's Corner (1)................................................. August, 1999 106
---
Subtotal...................................................... 1,165
-----
Total Northeast Region........................................ 2,696
=====
11
<PAGE>
SOUTHEAST:
Atlanta, Georgia
Atlanta/Cumberland (1)............................................. May, 1997 134
Atlanta/Gwinnett Place (1)......................................... October, 1997 130
Atlanta/Norcross (2)............................................... July, 1996 137
Atlanta/North Druid Hills (2)...................................... August, 1997 137
Atlanta/Northlake (1).............................................. May, 1998 133
Atlanta/Perimeter (1).............................................. May, 1997 133
Atlanta/Roswell (1)................................................ December, 1997 141
Atlanta/Wildwood/Powers Ferry (1).................................. September, 1998 134
---
Subtotal...................................................... 1,079
-----
Birmingham, Alabama
Birmingham/Perimeter Park South (1)................................ June, 1998 137
---
Jacksonville, Florida
Jacksonville/Baymeadows (1)........................................ March, 1998 134
Jacksonville/Southside (1)......................................... July, 1997 137
---
Subtotal...................................................... 271
---
Miami/Ft. Lauderdale, Florida
Boca Raton/Commerce (1)............................................ December, 1998 89
Coral Springs (1).................................................. October, 1998 124
Ft. Lauderdale/Tamarac (2)......................................... August, 1997 145
Miami Airport/Doral (2)............................................ October, 1997 149
Miami/Blue Lagoon (1).............................................. September, 1998 149
Plantation/Davie (2)............................................... December, 1997 125
West Palm Beach (1)................................................ December, 1998 137
---
Subtotal...................................................... 918
---
Orlando, Florida
Orlando/Altamonte Springs (1)...................................... September, 1998 135
Orlando/South (1).................................................. October, 1998 135
---
Subtotal...................................................... 270
---
Tampa, Florida
Tampa/Brandon (2).................................................. July, 1997 141
Tampa/North Airport (2)............................................ March, 1997 121
Clearwater (2)..................................................... October, 1997 113
---
Subtotal...................................................... 375
---
Total Southeast Region........................................ 3,050
=====
12
<PAGE>
WEST:
Las Vegas, Nevada
Las Vegas Midtown (1)............................................. August, 1998 123
---
Los Angeles, California
Glendale (1)....................................................... June, 1999 86
Los Angeles International Airport/
El Segundo (3)................................................. December, 1997 150
Monrovia (3)...................................................... May, 1998 122
Torrance (1)....................................................... January, 1999 138
---
Subtotal...................................................... 496
---
Orange County, California
Brea (1)........................................................... January, 1998 133
Cypress (1)....................................................... September, 1998 134
Irvine/Spectrum (3)............................................... October, 1997 149
---
Subtotal...................................................... 416
---
Sacramento, California
Sacramento/South Natomas (1)....................................... November, 1998 143
---
San Diego, California
San Diego/Mira Mesa (3)............................................ August, 1998 140
San Diego/Mission Valley (3)....................................... October, 1997 140
---
Subtotal...................................................... 280
---
San Francisco (Bay Area), California
Fremont (1)........................................................ January, 1999 128
Milpitas (3)....................................................... February, 1997 118
Mountain View (3).................................................. December, 1997 132
San Carlos (1)..................................................... October, 1998 116
San Jose (3)....................................................... May, 1998 152
San Mateo (3)...................................................... March, 1997 136
San Ramon (3)...................................................... May, 1998 147
Sunnyvale (3)...................................................... March, 1997 144
---
Subtotal...................................................... 1,073
-----
Total West Region............................................. 2,531
=====
MIDWEST:
Chicago, Illinois
Chicago/Naperville (1)............................................. December, 1997 136
Chicago/Schaumburg (1)............................................. December, 1997 136
Chicago/Westmont (1)............................................... February, 1998 140
Oakbrook (1)....................................................... August, 1999 136
Vernon Hills (1)................................................... July, 1999 124
---
Subtotal...................................................... 672
---
Cleveland, Ohio
Beachwood (1)...................................................... July, 1999 142
Cleveland/North Olmstead (1)....................................... March, 1998 136
---
Subtotal...................................................... 278
---
13
<PAGE>
Detroit, Michigan
Auburn Hills (1)................................................... June, 1999 134
Southfield (1)..................................................... June, 1999 134
---
Subtotal...................................................... 268
---
Kansas City, Missouri/Kansas
Kansas City/Country Club Plaza (1)................................. March, 1998 100
Kansas City/Overland Park (1)...................................... April, 1998 131
Kansas City/Shawnee Mission (3).................................... April, 1997 140
---
Subtotal...................................................... 371
---
Milwaukee, Wisconsin
Milwaukee/Brookfield (1)........................................... July, 1998 137
---
Minneapolis, Minnesota
Minneapolis/Eagan (1).............................................. December, 1997 130
Minneapolis/Eden Prarie (1)........................................ January, 1998 97
---
Subtotal...................................................... 227
---
St. Louis, Missouri
St. Louis Airport (1).............................................. June, 1998 136
Westport - Mayfield Heights (1).................................... July, 1999 99
---
Subtotal...................................................... 235
---
Total Midwest Region.......................................... 2,188
=====
MOUNTAIN:
Albuquerque, New Mexico
Albuquerque/North (3).............................................. March, 1996 141
Albuquerque/Midtown (3)............................................ June, 1997 138
---
Subtotal...................................................... 279
---
Denver, Colorado
Denver/Aurora (3).................................................. April, 1996 137
Denver/Cherry Creek (3)............................................ May, 1997 108
Denver/Inverness (3)............................................... August, 1997 142
Denver/Tech Center (3)............................................. April, 1996 159
---
Subtotal...................................................... 546
---
Phoenix, Arizona
Mesa (3).......................................................... December, 1997 123
Phoenix/Deer Valley (3)........................................... November, 1996 141
Phoenix/Metro (3)................................................. June, 1996 141
Scottsdale (3).................................................... August, 1995 120
Tempe (3)......................................................... April, 1996 149
---
Subtotal..................................................... 674
---
Portland, Oregon
Beaverton (3)..................................................... September, 1997 142
Lake Oswego (3)................................................... March, 1998 146
---
Subtotal...................................................... 288
---
14
<PAGE>
Salt Lake City, Utah
Salt Lake City/Ft. Union (3)...................................... October, 1997 131
Salt Lake City/South Valley (3)................................... June, 1997 137
Salt Lake City/Sugarhouse (1)..................................... August, 1998 103
---
Subtotal..................................................... 371
---
Seattle, Washington
Bellevue (3)....................................................... November, 1997 149
Seattle/Redmond (3)................................................ November, 1997 162
Seattle/Southcenter (3)............................................ January, 1998 93
North Seattle/Mountlake Terrace (3)................................ January, 1998 118
---
Subtotal...................................................... 522
---
Total Mountain Region......................................... 2,680
=====
SOUTHWEST:
Austin, Texas
Austin/Arboretum (3)............................................... July, 1995 133
Austin/Downtown/Townlake (1)....................................... December, 1998 130
Austin/Midtown (3)................................................. February, 1996 145
Austin/Northwest (3)............................................... October, 1996 133
---
Subtotal...................................................... 541
---
Dallas, Texas
Dallas/Las Colinas (3)............................................. January, 1996 148
Dallas/North (Tollway) Addison (3)................................. May, 1993 119
Dallas/North Arlington (3)......................................... March, 1995 137
Dallas/North Central (3)........................................... January, 1994 133
Dallas/North Richland Hills (3).................................... January, 1994 133
Dallas/Northeast (3)............................................... August, 1992 131
Dallas/Northwest (3)............................................... (4) 189
Dallas/South Arlington (3)......................................... April, 1995 141
Fort Worth (3)..................................................... January, 1996 97
----
Subtotal...................................................... 1,228
-----
Houston, Texas
Houston/Cypress Station (3)....................................... August, 1994 134
Houston/Galleria Area (1)......................................... September, 1998 136
Houston/Hobby South (3)........................................... April, 1994 133
Houston/Northwest (3)............................................. February, 1994 133
Houston/Park Ten (3).............................................. September, 1994 134
Houston/Sugarland (3)............................................. October, 1994 133
Houston/Westchase (3)............................................. July, 1994 133
Houston/Willowbrook (3)........................................... July, 1995 137
Houston/Medical Center (3)........................................ September, 1995 165
---
Subtotal..................................................... 1,238
-----
San Antonio, Texas
San Antonio/Airport (3)........................................... July, 1995 153
San Antonio/Medical Center (3).................................... August, 1994 135
San Antonio/Six Flags Fiesta (3).................................. August, 1995 130
---
Subtotal..................................................... 418
---
Total Southwest Region....................................... 3,425
=====
15
<PAGE>
EAST:
Charlotte, North Carolina
Charlotte/Billy Graham Parkway/Coliseum (1)........................ March, 1998 137
---
Memphis, Tennessee
Memphis/Airport (1)................................................ June, 1998 134
Memphis/Poplar (1)................................................. January, 1999 134
---
Subtotal...................................................... 268
---
Nashville, Tennessee
Nashville/Airport (1).............................................. December, 1997 133
Nashville/Cool Springs (1)......................................... April, 1998 137
---
Subtotal...................................................... 270
---
Raleigh, North Carolina
Raleigh/Crabtree Valley (2)........................................ June, 1998 138
Durham (1)......................................................... May, 1998 137
Raleigh/North (1).................................................. November, 1997 121
Research Triangle Park (2)......................................... May, 1997 125
---
Subtotal...................................................... 521
---
Richmond, Virginia
Gaithersburg (1)................................................... August, 1999 134
Richmond/Innsbrook (2)............................................. July, 1997 141
Richmond/Midlothian (1)............................................ September, 1998 135
---
Subtotal...................................................... 410
---
Total East Region............................................ 1,606
=====
Total Rooms.............................................. 18,176
======
<FN>
- ----------
(1) Pledged as collateral under a revolving bank line of credit agreement with
total borrowings of $125,449,000 at December 31, 1999. The 64 properties
are also pledged as collateral under the February 29, 2000 amended and
restated credit facility which provides for $110 million of total
borrowings.
(2) Sold February 23, 1999 and leased back under a long-term capital lease
agreement with the initial lease term expiring December 2015. Homestead has
options under the lease for two extension periods of 15 years each. The
balance of the capital lease obligation at December 31, 1999 was
$140,854,000.
(3) Subject to deeds of trust securing convertible mortgage notes due to
Archstone of $221,333,620 at December 31, 1999.
(4) Phase I (132 rooms) was developed in 1992 and Phase II (57 rooms) was
developed in 1995.
</FN>
</TABLE>
16
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Homestead is not a party to any litigation or claims, other than routine
matters arising out of the ordinary course of business that are incidental to
the development process and operation of the business of Homestead. Homestead
does not believe that the results of all claims and litigation, individually or
in the aggregate, will have a material adverse effect on its business, financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
Homestead's shares of common stock have been listed on the New York Stock
Exchange ("NYSE") under the symbol "HSD" since April 1, 1998. Prior to that time
the shares of common stock were listed on the American Stock Exchange ("AMEX")
under the same symbol. The table below indicates the range of the high and low
sales prices of the shares of common stock as reported on the NYSE and AMEX
Composite Tapes for the periods indicated.
<TABLE>
1998 High Low
---- ---
<S> <C> <C>
First Quarter.............................. $15 3/4 $13 9/16
Second Quarter............................. $16 $11
Third Quarter.............................. $13 13/16 $ 6 1/4
Fourth Quarter............................. $ 8 3/16 $ 3 3/8
1999
First Quarter.............................. $ 4 3/4 $ 2 7/16
Second Quarter............................. $ 5 1/8 $ 2 1/8
Third Quarter.............................. $ 2 13/16 $ 1 7/8
Fourth Quarter............................. $ 2 13/16 $ 2
2000
First Quarter (through March 8, 2000)...... $ 2 9/16 $ 2
</TABLE>
At March 8, 2000, there were approximately 1,700 holders of record of the
shares of common stock.
Dividend Policy
The declaration and payment of dividends by Homestead are subject to the
discretion of the Board of Directors. Any determination as to the payment of
dividends will depend upon the results of operations, capital requirements and
financial condition of Homestead and such other factors as the Board of
Directors deems relevant. The Board of Directors in past years retained cash
flow to finance Homestead's growth and for general corporate purposes and,
therefore, has not paid any cash dividends since Homestead's formation in 1996.
In addition, Homestead's line of credit, as amended and restated February 29,
2000, restricts payment of dividends to 50% of free cash flow, as defined.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data relating to the
historical financial condition and results of operations of Homestead for the
years indicated. The following selected financial data is qualified in its
entirety by, and should be read in conjunction with, "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the financial statements and related notes thereto included in Item 14 to
this report. Amounts provided in the table are in thousands, except per share
data and statistical data.
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 (1) 1995 (1)
------------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Revenues:
Room revenue...................................... $ 223,500 $ 139,681 $ 58,397 $ 33,071 $ 18,337
Other revenue..................................... 2,137 1,638 719 492 366
------------- ------------ ----------- ------------ ----------
Total revenues............................... 225,637 141,319 59,116 33,563 18,703
------------- ------------ ----------- ------------ ----------
Operating expenses:
Property operating expenses (2)................... 98,009 57,231 23,954 16,166 9,229
Corporate operating expenses...................... 33,013 24,255 15,623 4,112 1,322
Special charges (3)............................... 65,296 7,240 -- -- --
Depreciation and amortization..................... 42,247 34,244 12,130 4,443 2,343
------------- ------------ ----------- ------------ ----------
Total operating expenses..................... 238,565 122,970 51,707 24,721 12,894
------------- ------------ ----------- ------------ ----------
Operating (loss) income................................ (12,928) 18,349 7,409 8,842 5,809
Interest income........................................ 984 952 552 211 --
Interest expense, net of capitalized interest.......... (51,264) (23,190) (2,190) (5,971) (2,958)
------------- ------------ ----------- ------------ ----------
(Loss) earnings before extraordinary item.............. (63,208) (3,889) 5,771 3,082 2,851
Extraordinary item - gain (loss) on early extinguishment
of debt.............................................. 5,849 (25,344) -- -- --
------------- ------------ ----------- ------------ ----------
(Loss) earnings before cumulative effect of
accounting change.................................... (57,359) (25,233) 5,771 3,082 2,851
Cumulative effect of accounting change................. (14,230) -- -- -- --
-------------- ------------ ----------- ------------ ----------
Net (loss) earnings.................................... $ (71,589) $ (29,233) $ 5,771 $ 3,082 $ 2,851
============== ============ ============ ============ ==========
Share Data:(4)
Weighted average shares outstanding.................... 87,094 37,639 23,578 N/A N/A
Diluted weighted average shares outstanding............ 87,094 37,639 43,502 N/A N/A
Pro forma weighted average shares outstanding.......... N/A N/A N/A 11,392 N/A
Basic (loss) earnings per share........................ $ (0.82)$ (0.78)$ 0.24 N/A N/A
Diluted (loss) earnings per share...................... $ (0.82)$ (0.78)$ 0.18 N/A N/A
Pro forma earnings per share........................... N/A N/A N/A $ 0.27 N/A
FINANCIAL POSITION:
Property and equipment, net............................ $ 1,039,991 $ 1,137,869 $ 715,497 $ 255,608 $ 105,002
Total assets ......................................... $ 1,133,440 $ 1,218,391 $ 783,949 $ 322,968 $ 108,965
Lines of credit........................................ $ 125,449 $ 357,080 $ 96,808 $ -- $ --
Mortgage note payable.................................. $ -- $ 122,028 $ -- $ -- $ --
Convertible mortgage notes payable..................... $ 221,334 $ 221,334 $ 301,606 $ 101,309 $ --
Other debt to affiliate................................ $ -- $ -- $ -- $ -- $ 80,144
Shareholders' equity................................... $ 608,337 $ 458,025 $ 328,931 $ 204,003 $ 22,971
OTHER DATA:
EBDADT - Basic(5)...................................... $ (22,052) $ 29,957 $ 17,902 $ 8,468 $ 5,194
Dilutive convertible mortgage interest................. -- 10,988 8,483 2,319 --
-------------- ------------ ----------- ------------ ----------
EBDADT - Diluted (5)................................... $ (22,052) $ 40,945 $ 19,385 $ 10,787 $ 5,194
EBITDA(6) $ 29,308 $ 52,593 $ 19,539 $ 13,285 $ 8,152
Cash provided by (used in):
Operating activities.............................. $ 43,870 $ 43,818 $ 25,976 $ 12,261 $ 6,019
Investing activities.............................. $ (20,633) $ (461,369)$ (398,721) $ (115,453) $ (48,116)
Financing activities.............................. $ (14,634) $ 426,721 $ 368,304 $ 108,711 $ 43,065
STATISTICAL DATA (FOR ALL OPERATING PROPERTIES):
Occupancy 70.2% 70.4% 74.7% 78.8% 76.6%
Average weekly rate(7)................................. $ 349 $ 301 $ 253 $ 222 $ 212
Weekly RevPAR(8)....................................... $ 245 $ 212 $ 189 $ 175 $ 162
Property operating income margin(9).................... 56.3% 59.2% 59.2% 51.9% 50.7%
18
<PAGE>
<FN>
.........
(1) On October 17, 1996, Homestead acquired the Homestead Village trademark and
operating systems from Security Capital and 54 and 26 properties operating
or to be operated under the Homestead Village trademark from Security
Capital Pacific Trust ("PTR") and Security Capital Atlantic Incorporated
("ATLANTIC"), respectively. The acquisitions were through the merger of
various wholly-owned subsidiaries of Security Capital, PTR and ATLANTIC.
The mergers of subsidiaries of Security Capital and ATLANTIC were accounted
for as purchases and thus their results are included only for periods
subsequent to October 17, 1996. The merger of the subsidiaries of PTR was
accounted for as a combination of entities under common control in a manner
similar to a "pooling of interests," thus their results were combined with
Homestead for 1996 and 1995. Prior to October 17, 1996, Homestead had no
significant activities, thus substantially all 1996 results of operations
through the date of the mergers and all of the summary selected financial
information in 1995 represents that of the subsidiaries acquired from PTR.
(2) Property operating expenses consist of all expenses directly related to the
operation of the properties and do not include an allocation of corporate
operating expenses. Property operating expenses include primarily salaries
and wages, utilities, insurance, maintenance and supply costs and property
taxes.
(3) The $7.24 million special charge in 1998 consists primarily of expense for
severance of internal development department personnel and abandonment of
selected pursuits to acquire development sites. The $65.3 million special
charge consists primarily of write-downs on land held for sale, write-offs
of pursuit costs, and severance of personnel related to Homestead's
cessation of its development program.
(4) Prior to the mergers described in note (1) above, the assets of Homestead
were owned by subsidiaries of PTR and were managed by subsidiaries of
Security Capital. The shares and equity interests of these entities
differed substantially from the shares, warrants and convertible mortgage
notes outstanding after the mergers. Therefore, management does not believe
that historical earnings per share data for 1996 and prior is meaningful.
Pro forma earnings per share for 1996 assume issuance of shares for
acquisition of the subsidiaries of PTR as of the beginning of 1996 and
assume shares issued to Security Capital and ATLANTIC were outstanding
since the closing date of the mergers.
For the years ended December 31, 1999 and 1998 diluted weighted average
shares outstanding are the same as basic weighted average shares
outstanding as convertible debt is not assumed to be converted and exercise
of options is not assumed as the effects are anti-dilutive in periods of
loss.
(5) EBDADT means earnings before depreciation, amortization and deferred taxes.
Basic EBDADT for Homestead is total revenues, plus interest income, less
property operating expenses, corporate overhead, non-real property
depreciation, interest expense and current tax expense. Diluted EBDADT adds
back convertible mortgage net interest expense when the effect would be
dilutive. EBDADT does not represent cash generated from operating
activities in accordance with generally accepted accounting principles
("GAAP"), is not to be considered as an alternative to net earnings or any
other GAAP measurement of operating performance and is not necessarily
indicative of cash available to fund all cash needs. Homestead has included
EBDADT herein because Homestead believes that it is one measure used by
certain investors to determine operating cash flow. EBDADT, as calculated
above, may not be comparable to other similarly titled measures of other
companies.
(6) EBITDA means earnings before interest, income taxes, depreciation and
amortization. EBITDA does not represent cash generated from operating
activities in accordance with GAAP, is not to be considered as an
alternative to net earnings or any other GAAP measurement of operating
performance and is not necessarily indicative of cash available to fund all
cash needs. Homestead has included EBITDA herein because Homestead believes
that it is one measure used by certain investors to determine operating
cash flow. EBITDA, as calculated above, may not be comparable to other
similarly titled measures of other companies.
(7) Average weekly rate is determined by dividing room revenue by the number of
guest room days occupied for the period and multiplying by seven.
19
<PAGE>
(8) Weekly revenue per available room ("RevPAR") is determined by dividing room
revenue by the number of guest room days available for the period and
multiplying by seven.
(9) Property Operating Income Margin is property operating income (property
revenues less property operating expenses) divided by property revenues.
</FN>
</TABLE>
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with "Item 6.
Selected Financial Data" and all of the financial statements and related notes
thereto appearing in Item 14 to this Form 10-K. Historical results and
percentage relationships set forth in "Item 6. Selected Financial Data" and the
Financial Statements of Homestead may not be indicative of future operations of
Homestead.
The statements contained in this report that are not historical facts are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements are based on current expectations,
estimates and projections about the industry and markets in which Homestead
operates, management's beliefs and assumptions made by management. Words such as
"expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates",
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve risks, uncertainties and assumptions which are difficult
to predict. Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in such forward-looking statements. Among the
important factors that could cause Homestead's actual results to differ
materially from those expressed in the forward-looking statements are (i)
changes in general economic conditions in its target markets that could
adversely affect demand for Homestead's properties, (ii) the effects of
increased or unexpected competition with respect to one or more properties,
(iii) availability to Homestead of debt or equity financing, (iv) the matters
described under "--Risks Factors," (v) changes in financial markets and interest
rates that could adversely affect Homestead's cost of capital and its ability to
meet its financing needs and obligations, (vi) weather, and (vii) the ability of
potential buyers of land held for sale to obtain financing for such purchases.
OVERVIEW
Homestead's overall results of operations and financial position have been
significantly influenced by its development program and the financing activities
required to support it. The tightening of capital markets for real estate
operating companies and lodging companies which began in 1998 and continued in
1999 had an adverse effect on Homestead's ability to continue its high growth
program of acquisition of land sites and construction of properties. In October
1998, Homestead reorganized its development effort and recorded a $7.24 million
special charge. Such charge primarily related to the severance of certain
development personnel and abandonment of selected pursuits of development sites
due to the limited availability of additional funds for development. Payment of
the final costs accrued for this special charge were made in second quarter 1999
and no additional liability remains.
In the second quarter of 1999, Homestead determined, based on its inability
to obtain financing for development of sites beyond those properties already in
construction, to end its development program. As of the beginning of the second
quarter of 1999, Homestead had substantial investments in ownership of land for
development and in costs of pursuits of additional development sites. As of May
1999, all land previously held for development became land held for sale, all
pursuits for acquisition of additional sites for development were abandoned, and
Homestead began reduction of overhead costs and personnel to reflect a company
with stabilized operations of 136 properties. Homestead recorded a special
charge of $65.3 million in the second quarter of 1999 consisting of
approximately $43.5 million for write-downs of the carrying cost of land held
for sale to its estimated fair value less estimated costs to dispose,
approximately $7.1 million of write-offs of costs of pursuits and loss of
non-refundable earnest money deposits, approximately $5.5 million for closing of
administrative offices and discontinuing new initiatives, and approximately $9.2
million for the costs of severance of personnel.
The $5.4 million of accrued special charge expenses at December 31, 1999
consist of $2.8 million of unpaid severance costs and $2.6 million for ongoing
costs of closed offices and discontinuing new initiatives. There have been no
changes in estimates of the special charge and management believes the
write-downs of the carrying cost of land held for sale are adequate. Revisions
to these estimates may be required based primarily upon the ultimate disposition
of land held for sale.
21
<PAGE>
Carrying costs on the land sites, such as interest and property taxes, are
expensed until the sites are disposed of and will continue to have a material
adverse affect on earnings until disposal. Of the 24 land sites originally held
for sale as of May 1999, one was sold in third quarter 1999 and ten were sold in
the fourth quarter 1999. Sales of these parcels generated $72.6 million in net
proceeds which was the primary source of the $73.6 million in pay downs on the
working capital bank lines of credit secured by properties in 1999. Subsequent
to year end 2 of the 13 remaining parcels were sold for total net proceeds of
approximately $9.3 million. Upon amendment of the bank line of credit facility
on February 29, 2000 all remaining land held for sale became unencumbered.
As of December 31, 1999, Homestead had 136 Homestead Village properties in
operation representing in the aggregate 18,176 rooms in 28 states. Homestead had
31 properties operating at the beginning of 1997 and opened an additional 40
properties during 1997. In 1998 Homestead opened 49 properties and in 1999
opened 16 properties. Homestead completed its last development property on
August 30, 1999.
Homestead's operating results are substantially influenced by (i) the
demand for and supply of extended stay lodging in Homestead's markets and
submarkets, (ii) occupancy and average weekly rate, and (iii) the effectiveness
of property level operations. Capital and credit market conditions which affect
Homestead's access to and cost of capital may influence future operating
results.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Net earnings (loss) for the years ended December 31, 1999, 1998 and 1997
were ($71.6) million, ($29.2) million, and $5.8 million, respectively. The net
loss in 1999 includes (i) a cumulative effect of accounting change of $14.2
million relating to Homestead's adoption in 1999 of Statement of Position 98-5
"Reporting on the Costs of Start-Up Activities", (ii) incurrence of a special
charge of $65.3 million, and (iii) the gain on extinguishment of debt of $5.8
million recorded as an extraordinary item in the fourth quarter of 1999. The net
loss in 1998 includes (i) a third quarter loss on extinguishment of debt of
$25.3 million recorded as an extraordinary item and (ii) incurrence of a special
charge of $7.24 million. Net loss before the extraordinary item and cumulative
effect of an accounting change increased $59.3 million in 1999 from the $3.9
million net loss before extraordinary item in 1998. This change is primarily due
to the special charge expense of $65.3 million in 1999. A discussion of other
major components of net earnings or loss follows.
Property Operations
For analysis purposes Homestead categorizes its operating properties as
either "stabilized" or "pre-stabilized." For purposes of this report, the term
"stabilized" means those properties which obtained 80% occupancy for a one-week
period or have been opened for 24 weeks and "pre-stabilized" means all other
operating properties. For comparisons of full year data the properties included
as stabilized are those stabilized as of the beginning of the fourth quarter of
each year.
Whether considering the entire operating property portfolio or its
categories, Homestead's property-level revenue performance for 1999 as compared
to 1998 and 1997 is characterized by higher weekly rates offset by lower
occupancy levels. The occupancy decreases are attributable to (i) competition in
markets characterized by an oversupply of extended stay hotels (predominantly in
the southwestern United States) and (ii) the effect on occupancy due to rate
increases in early 1999 at Homestead versus competitor rate levels (experienced
in the portfolio generally). Beginning in late second quarter 1999 Homestead
lowered rates in selected markets which were experiencing competitive pressures
and believes the increases in occupancies and revenues in the latter half of
1999 were partially due to these actions.
22
<PAGE>
The following table sets forth operating performance information for 1999,
1998 and 1997. The information is for Homestead's total operating property
portfolio.
<TABLE>
CHANGE CHANGE
(1999 (1998
1999 OVER 1998) 1998 OVER 1997) 1997
- ------ ----------- ------- ----------- ------
<S> <C> <C> <C> <C> <C>
Weekly RevPAR......................... $245 15.6% $212 12.2% $189
Average Weekly Rate................... $349 16.0% $301 19.0% $253
Occupancy............................. 70.2% (0.2) 70.4% (4.3) 74.7%
Property Operating Income Margin...... 56.3% (2.9) 59.2% -- 59.2%
</TABLE>
Homestead's new property openings were the primary reason for room revenue
increases of $83.8 million (60%) in 1999 over 1998 and $81.3 million (139.2%) in
1998 over 1997. Properties open for their first full year in 1999 and 1998 were
the next most significant reason for room revenue increases. The increase in
room revenue was also due to increases in the average weekly rate of $48.06 in
1999 and $47.86 in 1998. The average weekly rate increases in 1999 and 1998 were
partially offset by slightly lower overall occupancies in 1999 versus 1998 and
in 1998 versus 1997. The occupancy decreases in 1999 and 1998 are attributable
to the effect of competition in markets described below for "same-store"
properties for 1999 and 1998.
Total property operating expenses increased $40.8 million (71.3%) in 1999
over 1998 and $33.3 million (138.9%) in 1998 over 1997, primarily due to the
increase in the number of operating properties as noted above. A secondary
reason for the 1999 increase in property operating expenses over 1998 was due to
additional services such as longer operating hours and travel agent commissions.
Same-Store Properties
Homestead had 89 properties which were operating throughout both 1999 and
1998, and classified as stabilized ("same store properties"). RevPAR for 1999
for same-store properties increased to $233 from $218 in 1998. The RevPAR
increase was due primarily to an average weekly rate growth of 9.7%. The slight
decrease in occupancy is attributed to competition in markets primarily in the
southwestern United States and an increase in Homestead's average weekly rates.
Beginning in the latter part of second quarter 1999 management reduced room
rates in selected markets to improve occupancy. Management continues to review
property level expenses in areas such as the number of new operating programs,
extended operating hours, job definitions and scheduling of personnel in order
to improve the property operating income margin.
Homestead had 39 properties which were operating throughout both 1998 and
1997, and classified as stabilized. RevPAR for 1998 for same-store properties
increased to $214 from $200 in 1997. The RevPAR increase was due primarily to an
average weekly rate increase of 9.2% offset by a decrease in occupancy from
79.5% in 1997 to 77.9% in 1998. The decrease in occupancy is attributed to
competition in markets primarily in the southwestern United States characterized
by an oversupply of extended stay lodging and an increase in Homestead's average
weekly rates.
Stabilized Properties Operations
RevPAR for the 133 stabilized properties in 1999 increased to $245 from
$218 for the 89 stabilized properties in 1998, an increase of 12.5%. These
improvements are primarily attributable to a 17.8% increase in average weekly
rate offset in part by a decrease in occupancy to 70.3% from 73.6%. Again, the
decrease in occupancy is attributable to competition in markets primarily
located in the southwestern United States and an increase in Homestead's average
weekly rates.
RevPAR for the 89 stabilized properties in 1998 increased to $218 from $200
for the 39 stabilized properties in 1997, an increase of 9.0%. These
improvements are primarily attributable to a 17.9% increase in average weekly
rate offset in part by a decrease in occupancy to 73.6% from 79.5%. The decrease
in occupancy is attributable to the effect of competition in markets and
increases in average weekly rates noted above for "same-store" properties.
23
<PAGE>
Corporate Operating Expenses
Corporate operating expenses (in all cases after capitalization of costs
directly associated with Homestead's development activity) increased $8.8
million in 1999 over 1998 and $8.6 million in 1998 over 1997. The increase in
1999 over 1998 is attributed to increases of approximately $1.5 million in sales
and marketing expenses, $1.3 million in additional reservation system costs upon
full implementation for full year 1999, approximately $2.5 million in
administrative services related to the increases in operating sites, a loss for
construction related claims of approximately $0.75 million, approximately $1.5
million of incremental development overhead expenses which were not
capitalizable due to declining development activity in 1999 and the remainder of
the increase related primarily to expenses incurred to dispose of the land held
for sale and land holding costs.
Corporate operating expenses decreased approximately $814,000, $2.2 million
and $2.9 million for the three months ended December 31, 1999 versus the third
quarter of 1999, the second quarter of 1999 and the first quarter of 1999,
respectively. The decreases in corporate operating expenses reflect the changes
in the organization of the company and the reductions of personnel and other
costs initiated in fourth quarter 1998 and second quarter 1999.
The increased corporate operating expense in 1998 over 1997 is attributed
to the continued growth of the company since the first half of 1997 when
Homestead was still developing a corporate infrastructure in support of a
rapidly growing entity and includes increases in costs for additional personnel
in operations, marketing and finance.
Depreciation and Amortization
Depreciation and amortization increased $8.0 million (23.4%) in 1999 over
1998 and $22.1 million (182.3%) in 1998 over 1997. Depreciation of the cost of
properties and improvements is provided using the straight-line method over the
estimated useful lives of owned assets and over the lease term for capital lease
assets. Depreciation and amortization expense (exclusive of amortization for
trademark and intangibles) increased approximately $8.0 million (25.0%) in 1999
over 1998 and $21.3 million (202.0%) in 1998 over 1997 due to the increased
number of properties operating each year.
Amortization expense increased $42,000 (1.7%) in 1999 over 1998 and
$843,000 million (52.8%) in 1997 over 1996. Amortization of the trademark and
other intangibles is calculated on a straight-line basis over a period of 20
years. The increase in amortization in 1998 over 1997 was due to amortization of
increases in the total recorded cost of the Homestead Village trademark and
other intangible assets.
Interest Income
Interest income of $984,000, $952,000 and $552,000 for 1999, 1998 and 1997,
respectively, resulted from investment of excess cash on hand.
24
<PAGE>
Interest Expense
The following summarizes Homestead's interest expense (in thousands):
<TABLE>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Lines of credit facilities............................. $ 23,816 $ 16,929 $ 2,137
Convertible mortgage notes............................. 20,197 26,293 69,791
Capital lease obligation............................... 11,838 -- --
Mortgage note payable.................................. 1,282 4,394 --
Convertible debentures................................. -- 157 --
Other ............................................... 574 732 9
---------- ---------- ---------
Total interest cost............................... 57,707 48,505 71,937
Capitalized interest................................... (6,443) (25,315) (69,747)
---------- ---------- ----------
Net interest expense.............................. $ 51,264 $ 23,190 $ 2,190
========== ========= =========
Amortization of deferred financing costs included in
interest cost....................................... $ 3,289 $ 2,994 $ 50,923
-========= ========= =========
</TABLE>
Interest costs on lines of credit borrowings increased $6.9 million in 1999
over 1998 and $14.8 million in 1998 over 1997 due primarily to higher average
outstanding balances of $264.6 million in 1999 as compared to $179.9 million in
1998 and $17.5 million in 1997.
Interest cost on the convertible mortgage notes decreased $6.1 million in
1999 as compared to 1998 as a result of the early extinguishment of $98 million
of Homestead convertible mortgage notes in the third quarter 1998. Homestead
incurred $1.3 million in interest cost in 1999 and $4.4 million in interest cost
in 1998 relating to the mortgage note which funded the extinguishment. On
February 23, 1999, this mortgage note was repaid with proceeds from the sale of
properties discussed in "Note 4 - Debt" to the financial statements included
herein in Item 14. Homestead incurred $11.8 million in interest cost in 1999 as
a result of the leaseback of such properties under a capital lease.
Interest cost on convertible mortgages decreased $43.5 million in 1998 as
compared to 1997 due to the inclusion in 1997 of the amortization of non-cash
mortgage financing costs arising from the issuance of warrants to obtain the
convertible mortgage financing commitments and the differential between the
conversion price of the mortgages and the value of Homestead's stock.
Interest cost on borrowings is offset by interest capitalized with respect
to Homestead's development activities. Capitalized interest levels reflect
Homestead's cost of funds and the level of development activity. Capitalized
interest decreased by $18.9 million in 1999 as compared to 1998 due to the
curtailment of development activity in 1999. By the end of third quarter 1999
all development had been completed and Homestead had no further capitalization
of interest for the remainder of 1999. For 1997, Homestead's level of
construction and development activity versus the level of debt financing was the
reason for capitalization of nearly all interest incurred.
LIQUIDITY AND CAPITAL RESOURCES
Investing and Financing Activities
During the years ended December 31, 1999, 1998, and 1997, Homestead
invested $93.7 million, $461.4 million and $398.7 million, respectively, in
Homestead Village properties and completed development of 16 properties in 1999,
49 properties in 1998 and 40 properties in 1997. The amounts invested in 1999
were financed primarily from bank lines of credit and cash flow from operations.
Financing in 1998 was primarily from proceeds from bank lines of credit, a
January 1998 rights offering of common stock, cash flow from operations and the
final funding of the convertible mortgage notes commitments. The 1997
investments were financed primarily by proceeds of the convertible mortgage note
funding commitments, proceeds from bank lines of credit and exercise of warrants
to purchase common stock.
25
<PAGE>
Homestead reduced its debt and long-term liabilities from $708.5 million at
December 31, 1998 to $487.6 million at December 31, 1999 by paying off the $200
million Bridge Facility with proceeds received from the May 1999 common stock
rights offering, reducing its Working Capital Facilities by $73.6 million
(primarily by utilizing $72.6 million in net proceeds generated by land sales),
and settling a $7.9 million long-term liability through the payment of $2.1
million in cash. Additionally Homestead paid off the short-term $122 million
mortgage note with the proceeds of a sale and long-term leaseback of properties.
Subsequent to year end 1999 Homestead has made payments totaling $31.5
million on the bank line of credit reducing its line of credit debt to $93.9
million. On February 29, 2000 Homestead entered into an amended and restated
bank credit facility which allows for $110 million of total borrowings of which
$35 million is available on a revolving basis. The amended and restated line
matures February 28, 2003, bears interest at LIBOR plus 2.5%, is secured by 64
operating properties, permits payment of dividends based upon a definition of
free cash flow, and requires maintenance of financial ratio and coverage
covenants.
With the completion of development of all sites which were in construction,
termination of plans to develop other land owned, no further pursuit of
acquisition of sites for development, and the debt reductions and refinancing
described above, Homestead's needs for financing are substantially reduced.
Homestead believes it will have adequate cash resources from cash on hand and
cash flow from operations to fund its needs for debt service, payment of
severances and other special charge liabilities, and payment of the remaining
construction retainage. In addition Homestead may generate additional cash flow
by the sale of the remaining land held for sale, but no assurance can be given
that such sales will occur or provide significant net proceeds. While Homestead
believes it will continue to generate positive cash flow from operation of its
properties, there can be no assurance of generation of cash from future
operations due to the risks of operations of lodging properties including
competitive pressures, rates, occupancies, and costs of operation. Additionally,
Homestead's ability to meet its obligations could be adversely affected by
increases in interest rates.
Operating Activities
Net cash flow provided by operating activities increased by $52,000 for the
year ended December 31, 1999 as compared to 1998 and $17.8 million (68.7%) for
1998 as compared to 1997. These increases are due primarily to the growing
number of Homestead operating properties as described under "--Results of
Operations for the Years ended December 31, 1999, 1998, 1997", with the increase
from 1998 to 1999 largely offset by components of the special charge expenses
requiring cash.
IMPACT OF YEAR 2000
The Year 2000 issue arose as many existing computer programs and chip-based
embedded technology systems use only the last two digits to refer to a year, and
therefore, did not properly recognize a year that began with "20" instead of the
familiar "19." Homestead adopted a Year 2000 compliance program in an attempt to
minimize or prevent the number and seriousness of any disruptions that could
have occurred as a result of the Year 2000 issue. Homestead's compliance program
included an assessment of its hardware and software computer systems
("information technology" systems) and embedded systems ("non-information
technology" systems such as lighting, security, fire, card keys, phones,
irrigation, elevators, and heating, ventilation, and air conditioning systems),
as well as an assessment of the Year 2000 issues relating to third parties with
which Homestead had a material relationship or whose systems were material to
the operations of Homestead's properties.
As a result of Homestead's and its vendors' due diligence and preparations,
no significant Year 2000 related problems or failures have been experienced by
Homestead to date.
26
<PAGE>
RISK FACTORS
Significant influence of principal shareholder may impact Homestead management
and operations
Security Capital owns approximately 87.0% of the issued and outstanding
common shares of Homestead and therefore controls approximately 87.0% of the
vote on matters submitted for shareholder action, including the election of
directors. Pursuant to an investor agreement with Homestead, Security Capital
currently has the right to nominate up to two directors of Homestead.
Additionally, so long as Archstone owns at least $20 million principal amount of
convertible mortgage notes, it is entitled to nominate one person as a director
of Homestead. The directors so elected are in a position to exercise significant
influence over the affairs of Homestead if they were to act together in the
future. C. Ronald Blankenship, Interim Chairman and Chief Executive Officer and
a Director is the nominee of Security Capital under the Security Capital
investor agreement. John C. Schweitzer, a director of Homestead, is the nominee
of Archstone under the investor agreement. Further, John P.
Frazee, a director of Homestead, is also a Director of Security Capital.
For so long as Security Capital beneficially owns at least 50.1% or more of
Homestead's outstanding common shares, Security Capital has the right to
approve, among other significant matters:
(1) Homestead's annual operating budget and substantial deviations there-
from;
(2) acquisitions or dispositions in a single transaction or group of
related transactions where the purchase price exceeds $1 million;
(3) property management arrangements;
(4) the declaration or payment of any dividend or other distribution;
(5) the offer or sale of any shares of stock of Homestead or any
securities convertible into shares of stock of Homestead;
(6) the incurrence, restructuring, renegotiation or repayment of
indebtedness which exceeds $1 million;
(7) entering into contracts of $1 million individually or $5 million in
the aggregate,
(8) entering into joint ventures for development of properties in which
Homestead contributes properties of $1 million individually or $5
million in the aggregate,
(9) entering into franchising or licensing agreements,
(10) amendment of the articles of incorporation or bylaws of Homestead, and
(11) waiver of anti-takeover provisions of Maryland law or Homestead's
articles of incorporation.
Additionally so long as Security Capital owns at least 10% of the shares of
Homestead's common stock, Homestead may not increase of the number of directors
to more than seven.
Accordingly, due to the foregoing, for so long as it continues to
beneficially own at least 50.1% of Homestead's outstanding common shares,
Security Capital will retain significant influence over the affairs of Homestead
which may result in decisions that do not fully represent the interests of all
shareholders of Homestead.
Additionally, as a result of Security Capital's ownership in Homestead
exceeding 80% after the closing of the May 1999 common stock rights offering,
Homestead's results, post rights offering, are included in the federal income
tax return of Security Capital. Security Capital may utilize tax operating
losses generated by Homestead subsequent to May 1999. In order for Security
Capital to utilize the net operating loss carryforwards generated by Homestead
through May 1999, Homestead must generate future taxable income. To the extent
Homestead's net operating loss carryforwards are so utilized on Security
Capital's federal tax return, such loss carryforwards will not be available to
Homestead in the future. Homestead and Security Capital have entered into a tax
allocation agreement which provides for tax liability or refund payments between
the entities as determined by a defined calculation of Homestead's proportionate
share of taxable income versus the total of taxable income for all entities
filing as part of Security Capital's federal tax return. The agreement also
provides that if a capital transaction were to occur where Security Capital
owned less than 50% of Homestead after the transaction, all net operating loss
carryforwards generated by Homestead through May 1999 would inure to Security
Capital. For 1999 no amounts were paid or due under the agreement.
27
<PAGE>
Competition and overdevelopment could adversely affect Homestead's operations
Each Homestead property is located in a developed area that includes
competing properties, including traditional hotels, extended stay hotels and
corporate apartments. The number of competitors in a particular area could have
a material adverse effect on occupancy, average weekly rates and weekly revenue
per available room in that market. Competition within the extended stay lodging
market has increased substantially. In several markets where Homestead has
properties, there is intense competition for the extended stay customer which
has already affected occupancy and weekly revenue per available room for these
properties. Further, there can be no assurance that new or existing competitors
will not significantly reduce their rates or offer greater convenience, services
or amenities or significantly expand or improve properties in markets in which
Homestead competes, thereby materially adversely affecting Homestead's business
and results of operations.
Illiquidity of real estate investments
Equity real estate investments are relatively illiquid and therefore may
tend to limit the ability of Homestead to react promptly to changes in economic
or other conditions. In addition, significant expenditures associated with
equity real estate investments, such as mortgage payments, real estate taxes and
maintenance costs, are generally not reduced when circumstances cause a
reduction in income from the investments. Further, various agreements to which
Homestead is a party, including the terms of Homestead's outstanding
indebtedness, place limitations on the ability of Homestead to sell its
properties. Thus, Homestead's ability to sell assets at any time to change its
asset base may be restricted.
Homestead is subject to a substantial amount of indebtedness
At December 31, 1999, Homestead's total indebtedness was approximately
$487.6 million, which subsequent to year end 1999 has been reduced by payments
totaling $31.5 million on the bank line of credit. If Homestead is at any time
unable to generate sufficient cash flow from operations to service its debt or
satisfy other covenants under its loan agreements, which include limitations on
the amount of additional indebtedness that Homestead can incur, Homestead would
be required to seek refinancing or amendment of its debt arrangements. There can
be no assurance that any such refinancing or amendment would be possible or that
any additional financing could be obtained on terms that are favorable or
acceptable to Homestead. The amount of Homestead's indebtedness may also make
Homestead more vulnerable to economic downturns and may limit its ability to
withstand adverse changes or to capitalize on business opportunities.
Additionally, all of Homestead's owned operating properties have been
pledged as collateral to secure the payment of Homestead's indebtedness. If
Homestead were to default in the payment of any of the secured indebtedness,
Homestead could lose the properties securing such debt. The loss of such
properties could have a material adverse effect on Homestead's financial
condition and results of operations.
28
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Homestead's exposure to market risk for changes in interest rates relates
primarily to its line of credit facility.
The table below provides information about Homestead's financial
instruments that are sensitive to changes in interest rates, including estimated
fair values for Homestead's interest rate sensitive liabilities as of December
31, 1999. As the table incorporates only those exposures that exist as of
December 31, 1999, it does not consider exposures which could arise after that
date. Moreover, because there were no firm commitments to actually sell the
obligations at fair value as of December 31, 1999, the information presented has
limited predictive value. As a result, Homestead's ultimate realized gain or
loss with respect to interest rate fluctuations will depend on the exposures
that arise during a future period and prevailing interest rates. Dollar amounts
in the following table are in thousands.
<TABLE>
EXPECTED MATURITY/PRINCIPAL REPAYMENT
NOMINAL DECEMBER 31,
INTEREST ------------ TOTAL FAIR
RATE 2000 2001 2002 2003 2004 THEREAFTER BALANCE VALUE(1)
---- ------ ------ ------- ---- ---- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Sensitive Liabilities:
Line of credit facility--variable
rate (2)........................ 8.98% $125,449 $ -- $ -- $ -- $ -- $ -- $ 125,449 $ 125,449
Convertible mortgage notes--fixed
rate............................ 9.00% $ -- $ -- $ -- $ -- $ -- $ 221,334 $ 221,334 $ 217,953
Capital lease obligation--fixed rate 9.8% $ 3,837 $ 4,230 $ 4,663 $ 5,141 $ 5,667 $ 117,316 $ 140,854 $ 143,351
<FN>
- ------------
(1) The estimated fair value of obligations extending beyond a one-year
maturity as of December 31, 1999 were calculated by discounting the stream
of cash payments of each obligation using a rate which, in management's
judgement, represents an interest rate obtainable by Homestead as of
December 31, 1999 on a similar instrument.
(2) On February 29, 2000, Homestead amended and restated its line of credit
facility which included an extension of the maturity date to February 28,
2003.
</FN>
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Homestead's Balance Sheet as of December 31, 1999 and 1998, and its
Statements of Operations, Shareholders' Equity and Cash Flows for the years
ended December 31, 1999, 1998 and 1997, together with the report of Arthur
Andersen LLP, independent auditors, are included under Item 14 of this report
and are incorporated herein by reference. Selected quarterly financial data is
presented in "Note 10 - Selected Quarterly Financial Data" to the financial
statements included herein in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE MATTERS
None.
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information regarding the executive officers of Homestead, see "Item 1.
Business--Directors and Officers of Homestead." The information regarding the
directors of Homestead is incorporated herein by reference to the description
under the captions "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in Homestead's definitive proxy statement for
its 2000 annual meeting of shareholders (the "2000 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the description under the captions
"Director Compensation" and "Executive Compensation" in the 2000 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the description under the caption
"Principal Shareholders" in the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the description under the caption
"Certain Relationships and Transactions" in the 2000 Proxy Statement.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report:
(a) Financial Statements and Schedules:
1. Financial Statements:
See Index to Financial Statements on page 32 of this report
2. All other schedules have been omitted since the required
information is presented in the financial statements and the
related notes or is not applicable.
3. Exhibits:
See Index to Exhibits, which is incorporated herein by
reference.
(b) Reports on Form 8-K: The following reports on Form 8-K were filed
during the last quarter of the period covered by this report
Date Items Reported Financial Statements
October 7, 1999 Item 5, Item 7 No
(c) Exhibits:
The Exhibits required by Item 601 of Regulation S-K are listed in
the Index to Exhibits, which is incorporated herein by reference.
31
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Reports of Independent Public Accountants....................................................... 33
Balance Sheets as of December 31, 1999 and 1998................................................. 34
Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997................... 35
Statements of Shareholders' Equity for the Years Ended December 31, 1999, 1998 and 1997......... 36
Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997................... 37
Notes to Financial Statements................................................................... 38
</TABLE>
32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Homestead Village Incorporated:
We have audited the accompanying consolidated balance sheets of Homestead
Village Incorporated and subsidiaries, a Maryland corporation, as of December
31, 1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
Homestead Village Incorporated's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Homestead Village
Incorporated and subsidiaries as of December 31, 1999 and 1998, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 28, 2000
33
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
DECEMBER 31,
ASSETS 1999 1998
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................ $ 20,747 $ 12,144
Accounts receivable, net of allowance................................................ 5,767 5,910
Funds held in escrow................................................................. -- 1,701
Other current assets................................................................. 1,821 1,132
------------ -------------
Total current assets............................................................ 28,335 20,887
------------ -------------
Property and equipment.................................................................... 1,111,999 1,186,652
Less accumulated depreciation.......................................................... (72,008) (48,783)
------------- --------------
Net investment in property and equipment.................................................. 1,039,991 1,137,869
------------ -------------
Deferred loan costs, net of accumulated amortization...................................... 1,588 1,063
Trademark and intangibles, net of accumulated amortization................................ 41,796 44,279
Deposits and pursuit costs................................................................ -- 7,830
Other assets ............................................................................. 21,730 6,463
------------ -------------
Total assets.................................................................... $ 1,133,440 $ 1,218,391
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit...................................................................... $ 125,449 $ 357,080
Capital lease obligation, current.................................................... 3,837 --
Development costs payable, including retainage....................................... 1,101 24,330
Due to affiliate..................................................................... 882 335
Accrued interest payable to affiliate................................................ 1,882 1,882
Mortgage note payable................................................................ -- 122,028
Accrued real estate taxes............................................................ 7,628 5,681
Accounts payable and other accrued expenses.......................................... 12,269 10,135
Accrued payroll and related accrued expenses......................................... 8,332 7,969
Accrued special charge expenses...................................................... 5,372 1,528
------------ -------------
Total current liabilities....................................................... 166,752 530,968
Capital lease obligation, noncurrent...................................................... 137,017 --
Convertible mortgage notes payable to affiliate........................................... 221,334 221,334
Other long-term liabilities............................................................... -- 8,064
------------- -------------
Total liabilities............................................................... 525,103 760,366
------------ -------------
Commitments and contingencies (Note 12)
Shareholders' equity:
Common stock, $.01 par value, 249,823 shares authorized, 120,031 shares issued
and outstanding in 1999 and 38,255 shares issued and outstanding in 1998.......... 1,200 383
Preferred stock, 177 shares authorized, none issued.................................. -- --
Additional paid-in capital........................................................... 694,930 474,337
Accumulated deficit.................................................................. (87,724) (16,135)
Less deferred compensation........................................................... (69) (560)
------------ -------------
Total shareholders' equity...................................................... 608,337 458,025
------------ -------------
Total liabilities and shareholders' equity...................................... $ 1,133,440 $ 1,218,391
============ =============
</TABLE>
The accompanying notes are an integral part of the
financial statements.
34
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
YEAR ENDED DECEMBER 31,
1999 1998 1997
------------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Room revenue..................................................... $ 223,500 $ 139,681 $ 58,397
Other revenue.................................................... 2,137 1,638 719
------------- ----------- ----------
Total revenues.............................................. 225,637 141,319 59,116
------------- ----------- ----------
Operating expenses:
Property operating expenses...................................... 98,009 57,231 23,954
Corporate operating expenses..................................... 33,013 24,255 15,623
Special charges (Note 3)......................................... 65,296 7,240 --
Depreciation and amortization.................................... 42,247 34,244 12,130
------------- ----------- ----------
Total operating expenses.................................... 238,565 122,970 51,707
------------- ----------- ----------
Operating (loss) income............................................... (12,928) 18,349 7,409
Interest income....................................................... 984 952 552
Interest expense, net of capitalized interest......................... (51,264) (23,190) (2,190)
-------------- ----------- -----------
(Loss) earnings before income taxes, extraordinary item
and cumulative effect of accounting change......................... (63,208) (3,889) 5,771
Provision for income taxes............................................ -- -- --
-------------- ----------- -----------
(Loss) earnings before extraordinary item
and cumulative effect of accounting change......................... (63,208) (3,889) 5,771
Extraordinary item-gain (loss) on early extinguishment of debt........ 5,849 (25,344) --
-------------- ----------- -----------
(Loss) earnings before cumulative effect of accounting change......... (57,359) (29,233) 5,771
Cumulative effect of accounting change for organizational,
pre-opening and start-up activities................................ (14,230) -- --
-------------- ----------- -----------
Net (loss) earnings................................................... $ (71,589) $ (29,233) $ 5,771
============== =========== ===========
Basic weighted average shares outstanding............................. 87,094 37,639 23,578
============= =========== ===========
Diluted weighted average shares outstanding........................... 87,094 37,639 43,502
============= =========== ===========
Net (loss) earnings per share:
Basic (loss) earnings before extraordinary item
and cumulative effect of accounting change.................... $ (0.73) $ (0.11) $ 0.24
Extraordinary item - gain (loss) on early extinguishment
of debt........................................................ 0.07 (0.67) --
Cumulative effect of accounting change........................... (0.16) -- --
-------------- ----------- -----------
Basic (loss) earnings per share.................................. $ (0.82) $ (0.78) $ 0.24
============== =========== ===========
Diluted (loss) earnings before extraordinary item
and cumulative effect of accounting change.................... $ (0.73) $ (0.11) $ 0.18
Extraordinary item - gain (loss) on early extinguishment
of debt....................................................... 0.07 (0.67) --
Cumulative effect of accounting change........................... (0.16) -- --
-------------- ----------- -----------
Diluted (loss) earnings per share................................ $ (0.82) $ (0.78) $ 0.18
============== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
35
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS SHARES
NUMBER PAR PAID-IN (ACCUMULATED IN DEFERRED TOTAL
OF SHARES VALUE CAPITAL DEFICIT) ESCROW COMPENSATION EQUITY
----------- --------- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996........... 19,689,130 $ 197 $ 224,352 $ 7,327 $(26,477) $ (1,396)$ 204,003
Repurchase of restricted common stock (12,600) -- (126) -- -- -- (126)
Amortization of deferred compensation -- -- -- -- -- 459 459
Deferred compensation adjustment for
forfeitures....................... -- -- (78) -- -- 78 --
Release of shares from escrow....... -- -- -- -- 24,224 -- 24,224
Other issuance of common stock...... 750 -- 14 -- -- -- 14
Issuance of common stock for
exercise of 8,127,626 81 81,195 -- -- -- 81,276
warrants..........................
Financing costs for issuance of
convertible mortgage notes........ -- -- 13,310 -- -- -- 13,310
Net earnings........................ -- -- -- 5,771 -- -- 5,771
----------- --------- ---------- --------- --------- ----------- ---------
Balances at December 31, 1997........... 27,804,906 278 318,667 13,098 (2,253) (859) 328,931
Sale of common stock--rights offering. 10,426,840 104 154,137 -- -- -- 154,241
Sale of restricted stock to officer. 31,250 1 499 -- -- (500) --
Repurchase of restricted common stock (8,450) -- (85) -- -- -- (85)
Amortization of deferred compensation -- -- -- -- -- 667 667
Deferred compensation adjustment for
forfeitures....................... -- -- (132) -- -- 132 --
Release of shares from escrow....... -- -- -- -- 2,253 -- 2,253
Financing costs for issuance of
convertible mortgage notes........ -- -- 1,251 -- -- -- 1,251
Net loss............................ -- -- -- (29,233) -- -- (29,233)
----------- --------- ---------- --------- --------- ----------- ---------
Balances at December 31, 1998........... 38,254,546 383 474,337 (16,135) -- (560) 458,025
Sale of common stock--rights offering. 81,818,181 818 220,933 -- -- -- 221,751
Repurchase of restricted common stock (41,250) (1) (107) -- -- -- (108)
Amortization (reversal) of deferred
compensation...................... -- -- (444) -- -- 202 (242)
Deferred compensation adjustment
for forfeitures................... -- -- (289) -- -- 289 --
Principal payments on notes
receivable from officers.......... -- -- 70 -- -- -- 70
Forgiveness of principal on notes
receivable from officers.......... -- -- 430 -- -- -- 430
Net loss............................ -- -- -- (71,589) -- -- (71,589)
----------- --------- ---------- --------- --------- ----------- ---------
Balances at December 31, 1999........... 120,031,477 $ 1,200 $ 694,930 $(87,724) $ -- $ (69) $ 608,337
============ ========= ========== ========= ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
36
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
YEAR ENDED DECEMBER 31,
1999 1998 1997
--------- --------- -------
Operating activities:
<S> <C> <C> <C>
Net earnings (loss)........................................................... $(71,589) $ (29,233)$ 5,771
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Special charge write-offs and asset write-downs........................... 51,587 2,077 --
Extraordinary item - (gain) loss on early extinguishment of debt.......... (5,849) 25,344 --
Cumulative effect of accounting change.................................... 14,230 -- --
Depreciation and amortization............................................. 42,247 34,244 12,130
Deferred and other compensation........................................... (48) 667 459
Amortization of prepaid rent.............................................. -- -- 250
Amortization of deferred loan costs....................................... 3,289 3,685 632
Change in assets and liabilities:
Decrease (increase) in accounts receivable, net of change in allowance.... 143 (3,940) (1,160)
Decrease (increase) in funds held in escrow............................... 1,701 (1,701) --
Increase in other current assets.......................................... (689) (400) (246)
Increase in accounts payable and other accrued expenses................... 2,147 5,994 1,229
Increase in accrued real estate taxes..................................... 1,947 2,781 835
(Decrease) increase in accrued interest on convertible mortgage notes..... -- (658) 1,687
Increase in accrued payable and related accrued expenses.................. 363 3,228 4,472
Increase in accrued special charge........................................ 3,844 1,528 --
Increase (decrease) in due to affiliate................................... 547 202 (83)
--------- ---------- --------
Net cash provided by operating activities............................. 43,870 43,818 25,976
--------- ---------- --------
Investing activities:
Investment in properties, excluding development costs payable................. (93,722) (461,831) (388,103)
Proceeds from sale of land.................................................... 72,995 -- --
Decrease (increase) in deposits and pursuit costs............................. 695 2,994 (7,366)
Increase in other assets...................................................... (600) (2,532) (3,252)
--------- ---------- --------
Net cash used in investing activities................................. (20,633) (461,369) (398,721)
--------- ---------- --------
Financing activities:
Proceeds from lines of credit................................................. 41,920 390,272 96,808
Payments on lines of credit................................................... (273,551) (130,000) --
Deferred loan costs for lines of credit....................................... (3,814) (3,370) (1,404)
Sale of property and equipment, net........................................... 127,360 -- --
Payments on capital lease obligation.......................................... (4,146) -- --
Proceeds from convertible mortgage notes payable.............................. -- 17,013 191,750
Payment of convertible mortgage notes payable................................. -- (98,028) --
Payment to extinguish debt.................................................... -- (25,344) --
Proceeds from mortgage note payable........................................... -- 122,028 --
Payment of mortgage note payable.............................................. (122,028) -- --
Proceeds from sale of shares, net of expenses................................. 221,751 154,241 --
Repurchase of restricted common stock......................................... (108) (85) (126)
Exercise of warrants for common stock......................................... -- -- 81,276
Payments on other long-term liabilities....................................... (2,088) (6) --
Principal payments on notes receivable from officers.......................... 70 -- --
--------- ---------- --------
Net cash (used in) provided by financing activities................... (14,634) 426,721 368,304
--------- ---------- --------
Net increase (decrease) in cash and cash equivalents.............................. 8,603 9,170 (4,441)
Cash and cash equivalents, beginning of year...................................... 12,144 2,974 7,415
--------- ---------- --------
Cash and cash equivalents, end of year............................................ $ 20,747 $ 12,144 $ 2,974
========= ========= =========
Non cash investing and financing transactions:
Increase in property and equipment and lease obligation from capital lease.... $ 145,000 $ -- $ --
========= ========= =========
Loan costs resulting from issuance of warrants and convertible mortgage debt.. $ -- $ 1,251 $ 13,310
========= ========= =========
Increase in property and equipment, and increase in development cost payable.. $ -- $ -- $ 22,752
========= ========= =========
Increase in property and equipment, and other long term liabilities........... $ -- $ -- $ 8,070
========= ========= =========
Increase in trademark and intangibles arising from release of shares in escrow $ -- $ 2,253 $ 24,224
========= ========= =========
Increase in property and equipment from capitalization of loan costs.......... $ -- $ 1,249 $ 51,703
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
37
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
Homestead Village Incorporated ("Homestead"), a Maryland corporation formed
January 26, 1996, operates moderately priced, extended stay lodging properties
under the Homestead Village trademark in selected markets in the United States.
Homestead's extended stay lodging rooms are designed to appeal primarily to the
corporate business traveler. Homestead and its predecessor entities, which have
purpose-built all Homestead Village properties, have targeted infill locations
proximate to major business centers and convenient to services desired by its
customers. As of December 31, 1999, Homestead had 136 properties in operation in
28 states representing a total of 18,176 rooms.
Homestead acquired the Homestead Village trademark and operating systems
necessary to develop and operate the properties from Security Capital Group
Incorporated ("Security Capital"), and acquired 80 extended stay lodging assets
operating or to be operated under the Homestead Village trademark from two
investees of Security Capital, Security Capital Pacific Trust ("PTR") and
Security Capital Atlantic Incorporated ("ATLANTIC") through a series of merger
transactions (the "Mergers") on October 17, 1996. The acquisitions of the
trademark, operating system and properties was through the merger of various
wholly-owned subsidiaries of Security Capital, PTR and ATLANTIC in exchange for
common stock of Homestead.
PTR and ATLANTIC agreed to provide convertible mortgage funding commitments
(see Note 4), and Security Capital provided interim financing to Homestead prior
to the Mergers and the lease of office space for one year subsequent to the
Mergers, all in exchange for warrants to purchase Homestead common stock (see
Note 5).
Security Capital owns 87.0% of Homestead's outstanding common stock as of
December 31, 1999. Homestead has received significant financing from Security
Capital through Security Capital's exercise of Homestead warrants from the date
of the Mergers through October 1997 (the expiration date of the warrants) and
Security Capital's participation in the January 1998 and May 1999 common stock
rights offerings. Security Capital also provides certain services to Homestead
under an administrative services agreement described in Note 7.
Principles of Financial Presentation
The accompanying financial statements include the accounts of Homestead and
its wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
38
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
New Accounting Rules
In April 1998 Statement of Position 98-5 "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") was issued which requires that costs
associated with organizational, pre-opening, and start-up activities be expensed
as incurred. SOP 98-5 was effective for fiscal years beginning after December
15, 1998. Through the end of 1998, Homestead capitalized costs associated with
pre-opening and start-up activities and amortized such costs over a two-year
period. Homestead adopted SOP 98-5 beginning with its 1999 fiscal year and
wrote-off unamortized organizational, pre-opening and start-up costs of $14.2
million as a cumulative effect of adoption of an accounting standard in first
quarter 1999. No financial statement amounts were restated upon adoption of the
new standard. Depreciation and amortization for the years ended 1998 and 1997
include $5.5 million and $2.3 million, respectively for the amortization of such
start-up costs.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued,
establishing standards for the accounting and reporting for derivative
instruments. The new rules, which become effective January 1, 2001 as amended by
Statement of Financial Accounting Standards No. 137, are not expected to have a
material impact on Homestead's financial position or results of operations.
Cash and Cash Equivalents
Homestead considers all cash on hand, demand deposits with financial
institutions and short-term, highly liquid investments with original maturities
of three months or less to be cash equivalents.
Property and Equipment and Depreciation - Owned Properties
Property and equipment are stated at cost. Incremental costs directly
related to the acquisition, development or improvement of real estate, including
interest and salaries and related costs for site acquisition and supervision of
construction, have been capitalized. Maintenance and repairs are charged to
operations as incurred; major renewals and improvements are capitalized. Costs
incurred in connection with the pursuit of successful site acquisitions were
capitalized, while costs associated with unsuccessful site acquisitions have
been expensed at the time the pursuit is abandoned.
Depreciation is computed by the straight-line method principally over the
following estimated useful lives:
Buildings and improvements.............................20-40 years
Furniture, fixtures and equipment...................... 3-10 years
Pre-opening and start-up costs incurred related to the opening of new
properties up to December 31, 1998 were capitalized and were amortized by the
straight-line method over two years. During 1999, pre-opening and start-up costs
were expensed as incurred.
Land held for sale is stated at the lower of cost or estimated fair value
less estimated costs to dispose.
Property and Equipment Under Capital Lease
Property and equipment under the capital lease are stated at the net
present value of minimum lease payments, not exceeding fair market value at the
original date of the lease. Leased property and equipment assets of $145 million
are being amortized over the approximate 17 year lease term. Maintenance and
repairs are charged to operations as incurred. Renewals and improvements are
funded by monies paid into an escrow account for that purpose, and, as ownership
of the leased properties and equipment and the renewals and improvements escrow
account remain with the lessor at the end of the lease, no such amounts are
capitalized.
39
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Long-Lived Assets and Long-Lived Assets To Be Disposed Of
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of
("SFAS 121"), requires that long-lived assets to be held and used by an entity
be reviewed for impairment whenever the carrying amount of an asset may not be
recoverable. SFAS 121 also requires that certain long-lived assets to be
disposed of be reported at the lower of carrying amount or estimated fair value
less cost to sell. Homestead reviews its long-lived assets for impairment on a
quarterly basis. Based on the provisions of SFAS 121, Homestead determined that
no impairment provision of the carrying cost of its properties or other
long-lived assets is necessary at December 31, 1999.
Trademarks and Intangibles
In the Mergers, Homestead acquired the Homestead Village trademark and
certain operating systems for the development and operation of Homestead Village
properties from Security Capital. These intangible assets were valued at $48.5
million. Homestead's issuance of shares for the acquisition of the Security
Capital subsidiaries in the Mergers were issued in part directly to Security
Capital and in part to an escrow agent in proportion to the actual funding
commitments fulfilled by PTR and ATLANTIC. The amount initially recorded as an
asset by Homestead of $22 million represented the pro rata portion of the actual
funding provided by PTR and ATLANTIC as of the date of the Mergers to the total
expected funding to be provided under their funding commitment agreements. As
shares were released from escrow in proportion to additional fundings received,
additional intangible assets have been recorded. All remaining escrowed shares
were released in 1998. Homestead is amortizing the intangible assets on the
straight-line basis over a period of 20 years. Trademark and intangibles are
presented net of accumulated amortization of $6,673,000 and $4,190,000 as of
December 31, 1999 and 1998, respectively.
Deferred Costs
Homestead has incurred certain costs in obtaining its lines of credit. The
deferred financing costs related to the lines of credit have been deferred and
are being amortized over the terms of the respective lines of credit. Deferred
line of credit loan costs are presented net of accumulated amortization of
$1,480,000 and $3,712,000 as of December 31, 1999 and 1998, respectively.
Deferred financing costs recorded in conjunction with the issuance of the
warrants in the Mergers and fundings under the convertible mortgage funding
commitments have been fully amortized.
Interest
The following summarizes Homestead's interest expense (in thousands):
<TABLE>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---------- ---------- -------
<S> <C> <C> <C>
Lines of credit facilities............................. $ 23,816 $ 16,929 $ 2,137
Convertible mortgage notes............................. 20,197 26,293 69,791
Capital lease obligation............................... 11,838 -- --
Mortgage note payable.................................. 1,282 4,394 --
Convertible debentures................................. -- 157 --
Other ............................................... 574 732 9
--------- ---------- ---------
Total interest cost............................... 57,707 48,505 71,937
Capitalized interest................................... (6,443) (25,315) (69,747)
---------- ---------- ----------
Net interest expense.............................. $ 51,264 $ 23,190 $ 2,190
========= ========= =========
Amortization of deferred financing costs included in
interest cost....................................... $ 3,289 $ 2,994 $ 50,923
========= ========= =========
</TABLE>
40
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
During 1999, 1998 and 1997, the total interest paid in cash was
$54,705,000, $41,873,000 and $18,134,000, respectively.
Income Taxes
Income taxes for Homestead are determined using the liability method in
which deferred income taxes are provided for temporary differences between the
carrying amounts of assets and liabilities used for financial reporting purposes
and income tax reporting purposes calculated using the income tax rates, under
existing legislation, expected to be in effect at the date such temporary
differences are expected to reverse.
Revenue Recognition
Room revenue and other income are recognized when earned, utilizing the
accrual method of accounting. A provision for possible bad debts is made when
collection of receivables is considered doubtful. Accounts receivable are
presented net of allowances of $604,000 and $269,000 as of December 31, 1999 and
1998, respectively.
Per Share Data
Basic earnings (loss) per share is calculated by dividing net earnings
(loss) available to common shareholders by weighted average common shares
outstanding. Diluted earnings (loss) per share is equivalent to basic earnings
(loss) per share unless dilution results from a calculation which divides
adjusted earnings available to common shareholders by adjusted weighted average
common shares outstanding. Adjusted earnings available for common shareholders
adds back all net interest expense from convertible debt. Adjusted weighted
average shares outstanding includes any dilutive effect of options and warrants
using the treasury stock method and the dilutive effect of convertible debt. For
the years ended December 31, 1999 and 1998 exercise of options and conversion of
debt is not assumed as the effects are anti-dilutive in loss periods.
A reconciliation of the numerators and denominators used to calculate basic
and diluted earnings (loss) per share before extraordinary items and cumulative
effect of an accounting change follows (in thousands, except per share amounts):
<TABLE>
1999 1998 1997
--------- ---------- ---------
<S> <C> <C> <C>
Net earnings (loss) attributable to common shares
before extraordinary items and cumulative effect of
accounting change...................................... $ (63,208)$ (3,889) $ 5,771
Net convertible mortgage interest......................... -- -- 1,922
--------- ---------- ---------
Adjusted earnings (loss) before extraordinary items and
cumulative effect of accounting charge................. $ (63,208)$ (3,889) $ 7,693
========= ========== =========
Weighted average shares outstanding--basic................. 87,094 37,639 23,578
Incremental options and warrants.......................... -- -- 2,000
Conversion of convertible mortgage notes.................. -- -- 17,924
--------- ---------- ---------
Adjusted weighted average shares outstanding--diluted...... 87,094 37,639 43,502
========== ========== =========
Net earnings (loss) per share before extraordinary items and
cumulative effect of accounting change:
Basic................................................ $ (0.73)$ (0.11) $ 0.24
========== ========== =========
Diluted.............................................. $ (0.73)$ (0.11) $ 0.18
========== ========== =========
</TABLE>
41
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Certain of the 1998 and 1997 financial statements amounts have been
reclassified to conform to the 1999 presentation.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment consist of the following (dollars in thousands):
<TABLE>
DECEMBER 31,
-------------------------------------------------
1999 1998
----------------------- ------------------------
NUMBER OF NUMBER OF
PROPERTIES/ CARRYING PROPERTIES/ CARRYING
PARCELS AMOUNT PARCELS AMOUNT
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Operating properties:
Owned properties:
Land................................... $ 197,226 $ 191,694
Buildings and improvements............. 658,668 645,235
Furniture, fixtures and equipment...... 88,145 108,446
---------- ----------
Subtotal, owned properties............... 118 944,039 120 945,375
Properties under a capital lease......... 18 145,000 -- --
----- ---------- ---- ----------
136 1,089,039 120 945,375
==== ====
Properties under construction............... -- -- 16 110,891
==== =====
Properties in planning (land owned for
development)............................. -- -- 18 126,054
==== =====
Land held for sale, including excess
parcels.................................. 13 22,960 4 4,332
===== ---------- ==== ----------
Total.................................. $1,111,999 $1,186,652
========== ==========
</TABLE>
Land held for sale at December 31, 1999 consists of one urban site, eight
suburban sites, and four excess parcels located adjacent to operating properties
(see "Note 3 - Special Charges").
NOTE 3--SPECIAL CHARGES
In fourth quarter 1998, in light of the difficult environment in capital
markets for real estate operating companies and lodging companies and the
resulting limited availability of new financing for additional commitments for
developments, Homestead reorganized its internal development department and
terminated approximately 40 full-time persons. In conjunction with the severance
of development personnel and changed expectations to pursue development of
selected sites under contract for acquisition, Homestead recorded a special
charge primarily for severance of personnel and abandonment of pursuits totaling
$7.24 million. Payment of the final costs accrued for this special charge were
made in second quarter 1999 and no additional liability remains.
In the second quarter of 1999, Homestead determined, based on its inability
to obtain financing for development of sites beyond those already in
construction, to end its development program. As of the beginning of the second
quarter, Homestead had substantial investments in ownership of land for
development and in costs of pursuit of additional development sites. As of May
1999, all land previously held for development became held for sale, all
pursuits for acquisition of additional sites for development were abandoned, and
Homestead began reduction of overhead costs and personnel to reflect a company
with stabilized operations of 136 properties. Homestead recorded a special
charge of $65.3 million in the second quarter of 1999 consisting of
42
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
approximately $43.5 million for write-downs of the carrying cost of land held
for sale to its estimated fair value less estimated costs to dispose,
approximately $7.1 million of write-offs of costs of pursuits and loss of
nonrefundable earnest money deposits, approximately $5.5 million for closing of
administrative offices and discontinuing new initiatives, and approximately $9.2
million for the costs of severance of approximately 110 full-time persons.
The $5.4 million of accrued special charge expenses at December 31, 1999
consist of $2.8 million of unpaid severance costs and $2.6 million for ongoing
costs of closed offices and discontinuing new initiatives. There have been no
changes in estimates of the special charge and management believes the
write-downs of the carrying cost of land held for sale are adequate. Revisions
to these estimates may be required based primarily upon the ultimate disposition
of land held for sale.
Carrying costs on the land sites, such as interest and property taxes, are
expensed until the sites are disposed of and will continue to have a material
adverse affect on earnings until disposal. Of the 24 land sites originally held
for sale as of May 1999, one was sold in third quarter 1999 and ten were sold in
the fourth quarter 1999. Sales of these parcels generated $72.6 million in net
proceeds. Six of the remaining 13 land sites are subject to the security
interests of the lenders under the Working Capital Facilities (see "Note 4 --
Debt") and any sale of the encumbered sites requires the consent of the lenders.
Proceeds from the sale of encumbered sites will be used to repay the Working
Capital Facilities.
NOTE 4--DEBT
The following table summarizes Homestead's outstanding debt and other
long-term liabilities as of December 31, 1999 and 1998.
<TABLE>
DECEMBER 31,
----------------------------------
1999 1998
---- ----
<S> <C> <C>
Lines of credit facilities:
Secured by suburban properties and land...................... $ 125,449 $ 128,080
Secured by urban land........................................ -- 29,000
Secured by a subscription receivable from
Security Capital........................................... -- 200,000
------------ ----------
Total lines of credit facilities........................... 125,449 357,080
Capital lease obligation........................................ 140,854 --
Convertible mortgage notes...................................... 221,334 221,334
Mortgage note payable........................................... -- 122,028
Other long-term liabilities..................................... -- 8,064
------------ ----------
Total debt and other long-term liabilities.................. $ 487,637 $ 708,506
============ ==========
</TABLE>
Credit Facilities
On March 18, 1999 Homestead entered into amended and restated credit
agreements to, among other things, extend the revolving line of credit facility
secured by suburban properties and land to December 31, 2000 and extend the line
of credit facility secured by urban land (together the "Working Capital
Facilities") to the earlier of December 31, 2000, or the dates of repayment of
amounts borrowed under the line. The line secured by suburban properties and
land was increased to $170 million total borrowing capacity (from $150 million),
subject to collateral requirements, and the interest terms adjusted to be a
margin of 2.0% to 3.0% over LIBOR or alternatively 1.0% to 2.0% over prime or
1.5% to 2.5% over the federal funds rate, with the margin dependent on the
percentage of borrowings outstanding versus qualifying collateral. At December
31, 1999 the line was secured by 64 operating properties (historical cost of
$584.6 million) and six land parcels (carrying value of $9.3 million). Any
future additional collateral under the $170 million line was limited to suburban
properties that are stabilized. The facility secured by urban land was adjusted
to $30 million total borrowing capacity (from $50 million), subject to
collateral requirements, and the interest terms adjusted to 3.0% over 43 LIBOR
43
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
or alternatively 2.0% over prime or 2.5% over the federal funds rate. The line
secured by urban sites was paid in full during the fourth quarter of 1999, thus
terminating the facility.
The amended and restated Working Capital Facilities require maintenance of
the following financial covenants effective with first quarter 1999:
o limiting total liabilities to no more than 55% of gross asset
value, as defined;
o limiting total indebtedness to no more than 50% of gross asset
value, as defined;
o maintaining a ratio of earnings before interest, taxes,
depreciation and amortization to interest expense, as defined,
ranging from 1.25 to 1.0 for first quarter 1999 up to 1.90 to 1.0
by fourth quarter 2000;
o maintaining a ratio of earnings before interest, taxes,
depreciation and amortization to debt service and preferred stock
dividends, as defined, ranging from 1.0 to 1.0 for first quarter
1999 to 1.25 to 1.0 by fourth quarter 2000;
o maintaining a ratio of net property operating income to implied
debt service, as defined, ranging from 1.4 to 1.0 for first
quarter 1999 to 2.25 to 1.0 by fourth quarter 2000;
o maintaining minimum tangible net worth, as defined, of no less
than 85% of the year end 1998 amount, as defined, adjusted for
net proceeds of equity offerings; and
o maintaining positive net sources and uses of funds.
In addition, under the renewed Working Capital Facilities, distributions or
dividends on equity are prohibited; total cost, as defined, of projects in
development cannot exceed 25% of gross asset value, as defined, in 1999 or 15%
in 2000; and Homestead's business activities will be limited to development,
ownership and operation of extended stay hotels.
As of December 31, 1999, Homestead had an outstanding balance of $125.4
million under the Working Capital Facilities, all of which was outstanding on
the line secured by suburban properties and land. Homestead reduced its lines of
credit debt by $73.6 million from the $199 million outstanding under the Working
Capital Facilities as of the end of the first quarter of 1999 primarily by
utilizing the $72.6 million in net proceeds generated by land sales.
In November 1999, Homestead entered into an interest rate cap agreement on
$70,000,000 of the line of credit which capped this portion of the debt at LIBOR
of 6.25%, before applicable margin, from November 15, 1999 through February 15,
2000. At December 31, 1999, the actual LIBOR on the $70,000,000 was 6.48%,
before applicable margin.
Homestead had an additional $200 million bank line of credit facility (the
"Bridge Facility") which bore interest at the Eurodollar rate plus 1.25% or at a
base rate of prime plus 0.25%. Proceeds from the consummation of the rights
offering (see "Note 5 - Shareholders' Equity") were used to repay the $200
million Bridge Facility on May 28, 1999. The bank's commitment under the Bridge
Facility and the obligation of Security Capital under its subscription agreement
for $200 million of subordinated debentures of Homestead expired upon repayment
of the facility.
Homestead's weighted average stated interest rate was 8.98% and 7.30% on
lines of credit borrowings outstanding as of December 31, 1999 and 1998,
respectively.
Homestead was in compliance with all covenants under its credit facilities
as of December 31, 1999.
44
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Convertible Mortgage Notes Payable
At December 31, 1999 Homestead owed convertible mortgage notes to Archstone
Communities Trust ("Archstone"), formerly PTR, in the principal amount of $221.3
million. The notes are collateralized by mortgages on 54 Homestead properties
with a historical cost of $359.3 million. The notes accrue interest at 9.0% on
the principal amount, and require interest only payments every six months on May
28 and November 28 of each year. The notes are due October 31, 2006, and are
callable on or after May 28, 2001. The notes are convertible, at the option of
the holder, into 21,191,262 shares of Homestead common stock (a conversion ratio
equal to one share of common stock for every approximate $10.44 of principal
amount outstanding). The conversion ratio was adjusted in accordance with the
terms of the notes upon the issuance of shares in the May 1999 rights offering.
Previously, the conversion ratio was $11.50 (19,246,402 shares). Deferred
financing costs and the discount on the respective fundings have been fully
amortized. No further funding commitment is available under the mortgage notes.
Mortgage Note
On July 6, 1998, Homestead entered into a mortgage loan purchase agreement
with ATLANTIC and Merrill Lynch Mortgage Capital Inc. ("MLMC") whereby the $98
million of Homestead convertible mortgage 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 Homestead common stock at the time the
agreement was entered into, which exceeded the conversion price of the
convertible mortgage notes at that date. 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. On August 7, 1998, Homestead
converted the $98 million of mortgage notes and the $24 million of 7.5%
convertible subordinated debentures into a $122 million mortgage of a newly
formed special purpose subsidiary of Homestead. The transaction 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 and transaction costs amounted to $25.3 million and was recorded as an
extraordinary item in the third quarter 1998.
The mortgage note payable was repaid with the proceeds of a sale lease-back
transaction on February 23, 1999.
Capital Lease Obligation
On February 23, 1999, Homestead completed a sale and lease-back of 18 of
the 26 Homestead properties collaterizing the $122 million mortgage note which
was due June 1999. Hospitality Properties Trust purchased the properties for
$145 million. Homestead operates the properties under a long-term lease through
December 2015 and pays a minimum rent of approximately $16 million per year and
a minimum $1.5 million per year payment to a furniture, fixtures and equipment
reserve. Homestead posted a security deposit equal to one year's rent. The
majority of the proceeds from the sale were used to repay the $122 million
mortgage note and post the approximate $16 million security deposit.
The lease is considered a capital lease for financial reporting purposes
and thus the present value of the minimum lease payments discounted at
approximately 9.8% has been recorded as an asset of $145,000,000, to be
amortized over the lease term, and an obligation, which will be reduced over the
term of the lease by allocating rent payments between interest expense and
reduction of the lease obligation. Future minimum payments aggregate $17,460,000
per year, or a total of $279,360,000 over the years 2000 through 2015, of which
$138,506,000 represents interest. The balance of the obligation at December 31,
1999 was $140,854,000.
45
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The lease also provides for two extension periods of 15 years each at the
option of Homestead, requires payment of percentage rents beginning July 2000
based on increases in revenues over a base period, and requires the greater of a
minimum of $125,000 per month or a percentage of revenues be paid to a
furniture, fixtures and equipment reserve to be used for capital expenditures.
Other Long-Term Liabilities
Homestead had a series of agreements with an unaffiliated person ("Finder")
who developed the Homestead Village concept and performed certain services. The
agreements extended through February 5, 2043 and provided for quarterly payments
to Finder for assistance in the site location, development and initial
operations of the first 39 Homestead Village properties.
On October 25, 1999, Homestead paid the Finder $2.1 million in full
settlement of all amounts due under the agreements, and the agreements and
Homestead's obligation to pay any future amounts to Finder were terminated. The
difference between the $7.9 million carrying amount of the long-term liability
at the time of repayment and the amount paid to terminate the agreements
resulted in a gain of $5.8 million which was recorded as an extraordinary item
in the fourth quarter 1999.
NOTE 5--SHAREHOLDERS' EQUITY
Common Stock Rights Offerings
On May 28, 1999, Homestead completed a common stock rights offering with
the sale of 81,818,181 shares for $225 million in gross proceeds ($2.75 per
share). Security Capital purchased 77,749,220 shares in the rights offering at
the same price paid by the public. Following the completion of the rights
offering, Security Capital owns 87.0% of Homestead's outstanding common shares.
Net proceeds of $221.7 million were used to repay the $200 million Bridge
Facility and accrued interest; payment of interest on the convertible mortgages,
Working Capital Facilities, and other long-term liabilities; payment of
construction in progress costs; and to provide working capital for general
corporate purposes. Security Capital's obligations under a subscription
agreement which secured the Bridge Facility wer terminated as a result of
Security Capital's participation in the rights offering and the repayment of the
Bridge Facility.
On January 15, 1998, Homestead completed a rights offering consisting of
10,426,840 common shares at $15 per share resulting in gross proceeds of
$156,402,600. After costs of the offering, which include a fee of 1% of gross
proceeds to Security Capital Markets Group Incorporated, a wholly-owned
subsidiary of Security Capital, net proceeds to Homestead were approximately
$154.2 million. Security Capital purchased 8,429,225 shares in the rights
offering (80.8% of the offered shares) at the same price paid by the public.
Shelf Registration
In November 1998, Homestead filed a shelf registration statement with the
Securities and Exchange Commission for up to $356,402,600 of any combination of
preferred stock, debt securities and securities warrants, and up to a total of
$500,000,000 including common stock not previously issued from Homestead's
November 1997 shelf registration. The securities issuable under the
registration, which was declared effective November 23, 1998, may be offered
from time to time, at amounts, at prices and on terms to be set forth at the
time of the offerings. As of December 31, 1999, $275,000,000 of securities were
available to be issued under the November 1998 shelf registration.
46
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Stock Based Compensation Plans
In 1996, Homestead established two stock compensation plans, the 1996 Long-Term
Incentive Plan (the "1996 Incentive Plan") and the 1996 Outside Directors Plans
(the "Outside Directors Plan"). On June 23, 1999 the shareholders approved the
adoption of the 1999 Long-Term Incentive Plan (the "1999 Incentive Plan" and
together with the 1996 Incentive Plan, the "Incentive Plans"). Homestead elected
to account for these plans under Accounting Principle Board Opinion No. 25
Accounting for Stock Issued to Employees, under which compensation costs are
recognized as equal to the difference between the fair value of the Homestead
stock at the date of grant or sale and the exercise or sale price. Total
stock-based compensation expense (credit) related to these plans for 1999, 1998,
and 1997 is $(242,000), $346,000, and $158,000, respectively, which is included
in corporate operating expenses in the accompanying statements of operations.
The following summarizes the pro forma effect on Homestead's net earnings
for 1999, 1998 and 1997 had compensation cost for the grants of stock options
been determined consistent with Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation" (in thousands, except per share
amounts):
<TABLE>
1999 1998 1997
----------- ---------- ---------
<S> <C> <C> <C>
Net earnings (loss) before extraordinary item and cumulative effect
of accounting change:
As reported................................. $ (63,208) $ (3,889) $ 5,771
=========== ========= ==========
Pro forma................................... $ (63,643) $ (5,445) $ 5,392
=========== ========= ==========
Basic earnings (loss) per share:
As reported................................. $ (0.73) $ (0.11) $ 0.24
=========== ========= ==========
Pro forma................................... $ (0.73) $ (0.14) $ 0.23
=========== ========= ==========
Diluted earnings (loss) per share:
As reported................................. $ (0.73) $ (0.11) $ 0.18
=========== ========= ==========
Pro forma................................... $ (0.73) $ (0.14) $ 0.17
=========== ========= ==========
</TABLE>
Homestead may grant up to 10,000,000 shares of stock to its full time
employees under the Incentive Plans and up to 100,000 shares of stock under the
Outside Directors Plan. At December 31, 1999, 4,925,602 and 64,000 shares,
respectively, were available for future grant under the Incentive Plans and
Outside Directors Plan. The Incentive Plans options granted vest over four to
five years and the Outside Directors Plan options vest upon grant. A summary of
the status of Homestead's fixed stock compensation plans as of December 31,
1999, 1998 and 1997 and changes during those years is presented below:
<TABLE>
1999 1998 1997
---------------------- ----------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
INCENTIVE PLAN & OUTSIDE DIRECTORS Shares Price Shares Price Shares Price
- ---------------------------------------- ------------ ------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 3,701,373 $ 11.33 2,721,561 $ 15.39 584,000 $ 11.18
Granted........................ 3,562,018 $ 2.28 1,791,482 $ 6.88 2,180,061 $ 16.42
Exercised...................... -- $ -- -- $ -- -- $ --
Forfeited...................... (2,370,163) $ 10.50 (811,670) $ 15.13 (42,500) $ 10.71
------------ ------------- ------------
Outstanding at end of year.......... 4,893,228 $ 5.14 3,701,373 $ 11.33 2,721,561 $ 15.39
============= ============= =============
Exercisable at end of year......... 377,345 $ 12.60 54,250 $ 12.19 10,000 $ 14.35
============= ============= =============
</TABLE>
The weighted average fair value of options granted in the years ended
December 31, 1999, 1998 and 1997 were $1.47, $3.42, and $6.12, respectively.
47
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
OPTION REMAINING AVERAGE OPTION AVERAGE
SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$2.19................................ 2,865,984 9.5 $ 2.19 -- --
$ 2.31 to $3.00...................... 421,000 9.6 $ 2.88 -- --
$4.28................................ 579,393 9.0 $ 4.28 89,342 $ 4.28
$7.72 to $15.00...................... 377,489 7.63 $ 11.88 72,000 $ 11.10
$16.00 to $18.19..................... 649,362 7.71 $ 16.45 216,003 $ 16.54
----------- ----------
Totals............................... 4,893,228 9.1 $ 5.14 377,345 $ 12.60
=========== ==========
</TABLE>
The fair value of each option grant on the date of grant was estimated
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997, respectively; risk-free
interest rates of 6.55%, 4.66% and 5.76%; no expected dividend yields; expected
lives of 4.5, 4.5, and 5.0 years; expected volatility of 96%, 53% and 30%.
Warrants
Homestead issued a total of 10,000,000 warrants on the date of the Mergers
which entitled the holders to buy one share of Homestead common stock at the
exercise price of $10 per share. Warrants were issued to PTR and ATLANTIC in
exchange for entering into the convertible mortgage funding commitment
agreements. Security Capital received 817,694 Homestead warrants for providing
financing to Homestead during the time between the execution of the merger
agreement and the closing date and for the use of office facilities for one
year.
The fair value of the warrants exceeded the exercise price at the date of
issuance. The difference between the fair value of the Homestead stock at the
date of issuance and the warrant exercise price of $10 for the warrants issued
to PTR and ATLANTIC has been recorded as interest cost. The value attributable
to the interim financing provided by Security Capital to Homestead of $1,589,000
has been charged to interest expense in 1996. The value of the use of office
facilities for one year was determined by management to be $300,000 and was
charged to corporate operating expense over a period of one year ended October
1997.
After the initial issuance of warrants to PTR, ATLANTIC and Security
Capital, both PTR and ATLANTIC distributed the warrants to their shareholders
which resulted in Security Capital holding a total of 4,730,022 warrants after
the distribution. Homestead had the right under the investor agreement entered
into with Security Capital at the merger closing to request Security Capital to
exercise its warrants in minimum increments of $5,000,000. Security Capital also
acquired additional warrants in open market purchases. Upon expiration of the
warrants on October 29, 1997 Security Capital had exercised 8,121,628 warrants
resulting in total proceeds of $81,216,000. Third party holders exercised
1,760,273 warrants resulting in total proceeds of $17,603,000 through October
29, 1997. A total of 118,099 warrants expired unexercised.
Rights Agreement
On May 16, 1996, the Homestead Board of Directors declared and paid a
dividend of one purchase right as defined per a rights agreement for each share
of Homestead common stock outstanding to the holders of Homestead common stock
of record on that date. The shares of Homestead common stock issued after May
16, and before the expiration of the purchase rights (May 16, 2006), will also
be entitled to one purchase right for each share issued. Each purchase right
entitles the holder to purchase one-hundredth of a participating preferred share
of Homestead at $50, subject to adjustment as defined in the agreement. The
48
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Board of Directors of Homestead through Homestead's Restated Charter is
authorized to issue one or more series and to determine the number of preferred
shares of each series and the rights of each series. The purchase rights will be
exercisable only after a person or group of affiliated persons (other than
Security Capital or Archstone) acquires 20% or more of the outstanding shares of
common stock or offers to acquire 25% or more.
NOTE 6--INCOME TAXES
As a result of Security Capital's ownership in Homestead exceeding 80%
after the closing of the May 1999 rights offering, Homestead's results, post
rights offering, will be included in the federal income tax return of Security
Capital. Security Capital may utilize tax operating losses generated by
Homestead subsequent to May 1999. In order for Security Capital to utilize the
net operating loss carryforwards generated by Homestead through May 1999,
Homestead must generate future taxable income. To the extent Homestead's net
operating loss carryforwards are so utilized on Security Capital's federal tax
return, such loss carryforwards will not be available to Homestead in the
future. Homestead and Security Capital have entered into a tax allocation
agreement which provides for tax liability or refund payments between the
entities as determined by a defined calculation of Homestead's proportionate
share of taxable income versus the total of taxable income for all entities
filing as part of Security Capital's federal tax return. For 1999 no amounts
were paid or due under the agreement.
At December 31, 1999, Homestead had, for federal income tax reporting
purposes, net operating loss carryforwards of approximately $127 million, which
expire $4 million in the year 2011, $25 million in the year 2012, $50 million in
the year 2018, and $48 million in the year 2019.
Homestead presents in its financial statements its provision for taxes as
though Homestead filed a separate return. Significant components of Homestead's
deferred tax assets and liabilities as of December 31, 1999 and 1998 are as
follows (in thousands):
<TABLE>
1999 1998
----------- ---------
Deferred tax assets:
<S> <C> <C>
Deferred financing costs................................ $ 18,329 $ 17,322
Lease obligation, mortgages and other liabilities....... 64,294 6,274
Net operating loss...................................... 50,904 29,144
----------
$ 133,527 $ 52,740
Deferred tax liabilities:
Depreciable assets...................................... (92,835) (23,078)
---------- ----------
Valuation allowance.......................................... (40,692) (29,662)
---------- ----------
Net noncurrent deferred tax asset............................ $ -- $ --
========== ==========
</TABLE>
Deferred tax assets relate primarily to: (1) the difference in the carrying
amount of deferred financing costs recognized at formation and in connection
with subsequent fundings of convertible mortgage notes payable for financial
reporting purposes and the amount recognized for tax purposes; (2) the
difference in the carrying amount of the lease obligation, convertible mortgage
notes and other liabilities for financial reporting purposes and the amount
recognized for tax purposes; and (3) tax net operating loss. Deferred tax
liabilities relate primarily to the difference in the carrying amount and the
methods of depreciation of certain depreciable assets for financial reporting
purposes and the amount recognized for tax purposes. A valuation allowance has
been recognized to offset the net deferred tax assets, due to the uncertainty of
the ultimate realization of those deferred tax assets in future years.
49
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The difference between the provision for income taxes and the amounts
computed by applying the statutory federal income tax rate to net income (loss)
before income taxes and extraordinary item are (in thousands):
<TABLE>
1999 1998 1997
--------- --------- ------
<S> <C> <C> <C>
Statutory rate applied to income (loss) before income
taxes................................................... $(25,283) $ (1,322)$ 1,962
Effect of permanent differences............................ 1,030 1,065 616
--------- --------- -------
(24,253) (257) 2,578
Provision of valuation allowance........................... 24,253 257 (2,578)
--------- --------- -------
Income tax expense......................................... $ -- $ -- $ --
========= ========= =======
</TABLE>
NOTE 7--ADMINISTRATIVE SERVICES AGREEMENT
Homestead and Security Capital have an administrative services agreement
(the "Administrative Services Agreement"), pursuant to which Security Capital
provides Homestead with administrative services with respect to certain aspects
of Homestead's business. These services include, but are not limited to,
insurance administration, accounts payable administration, internal audit, cash
management, human resources, management information systems, tax administration,
research, shareholder communications and investor relations. Any arrangements
under the Administrative Services Agreement for the provision of services are
required to be commercially reasonable and on terms not less favorable than
those which could be obtained from unaffiliated third parties. The
Administrative Services Agreement, which expires December 31, 2000, is renewable
for a one-year term, subject to approval by a majority of the independent
members of the Homestead Board of Directors. Additionally Security Capital
provides legal administration services under a separate agreement which expires
December 31, 2000. Total administrative services fees for 1999, 1998, and 1997
were $5,201,000, $4,213,000, and $2,320,000, respectively.
NOTE 8--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value of financial instruments
were determined by Homestead based on available market information and valuation
methodologies believed to be appropriate for these purposes. Considerable
judgement and a high degree of subjectivity are involved in developing these
estimates and accordingly they are not necessarily indicative of amounts that
Homestead could realize upon disposition.
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, defines the fair value of a financial instrument
as the amount at which the instrument could be exchanged in a current
transaction between willing parties. The carrying values of Homestead's
financial instruments, which include cash and cash equivalents, accounts
receivable, other assets, development costs payable, accounts payable and
accrued expenses approximate fair value as of December 31, 1999 and 1998 because
of the short maturity of these instruments. Similarly, the carrying value of
lines of credit balances approximate fair value at the balance sheet dates since
the interest rates fluctuate based on published market rates.
At December 31, 1999, the estimated fair value and the actual carrying
value of the Homestead convertible mortgage notes payables were $218.0 million
and $221.3 million, respectively.
50
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--SAVINGS PLANS
Homestead has a savings plan which qualifies under Section 401(k) of the
Internal Revenue Code. The plan allows eligible employees to contribute up to
20% of their pretax salary, subject to the Internal Revenue Services annual
deferral limit ($10,000 in 1999). Beginning in 1997, Homestead matched half of
the first 6% of the employee's contribution. The matching contribution is
invested in shares of Homestead common stock and vests over an employee's
initial five-year period of service. In 1999, 1998 and 1997 Homestead's matching
contribution totaled $355,000, $397,000, and $223,000, respectively.
Homestead also has a Nonqualified Savings Plan ("NSP") to provide benefits
for a select group of management or highly compensated employees, which was
established effective January 1, 1998. The purpose of the NSP is to allow the
employee the opportunity to defer the receipt and income taxation of a portion
of compensation in excess of the amount permitted under the 401(k) Plan. Under
the NSP, these employees may defer up to 35% of their annual salary and 100% of
their annual target bonus. Under the NSP and in coordination with the 401(k)
Plan, Homestead will match half of the first 6% of the employee's annual
compensation since highly compensated employees were limited to a 4% and a 3%
contribution in the 401(k) Plan in 1999 and 1998, respectively. The matching
contribution is invested in shares of Homestead common stock and vests in the
same manner as the 401(k) Plan.
NOTE 10--SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data (in thousands, except per share amounts)
for 1999 and 1998 is as follows:
<TABLE>
THREE MONTHS ENDED TOTAL
---------------------------------------------- ----------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- --------- ------------- -----------
1999:
<S> <C> <C> <C> <C> <C>
Revenues............................... $ 48,151 $ 55,802 $ 61,414 $ 60,270 $ 225,637
---------- --------- ------------ ------------ -----------
Earnings (loss) before extraordinary
item and cumulative effect of
accounting change................... $ (4,732) $ (68,008)$ 6,100 $ 3,432 $ (63,208)
Extraordinary item..................... $ -- $ -- $ -- $ 5,849 $ 5,849
Cumulative effect of accounting
change............................... $ (14,230) $ -- $ -- $ -- $ (14,230)
---------- --------- ------------ ------------ -----------
Net earnings (loss).................... $ (18,962) $ (68,008)$ 6,100 $ 9,281 $ (71,589)
========== ========= ============ ============ ============
Basic earnings (loss) per share........ $ (0.49) $ (0.99)$ 0.05 $ 0.08 $ (0.82)
========== ========= ============ ============ ============
Diluted earnings (loss) per share...... $ (0.49) $ (0.99)$ 0.05 $ 0.08 $ (0.82)
========== ========= ============ ============ ============
1998:
Revenues............................... $ 27,165 $ 33,199 $ 38,991 $ 41,964 $ 141,319
========== ========= ============ ============ ============
Earnings (loss) before extraordinary
item................................ $ 1,688 $ 3,375 $ 1,854 $ (10,806) $ (3,889)
Extraordinary item..................... $ -- $ -- $ (25,344)$ -- $ (25,344)
---------- --------- ------------ ------------ -----------
Net earnings (loss).................... $ 1,688 $ 3,375 $ (23,490)$ (10,806) $ (29,233)
========== ========= ============ ============ ============
Basic earnings (loss) per share........ $ 0.05 $ 0.09 $ (0.61)$ (0.28) $ (0.78)
========== ========= ============ ============ ============
Diluted earnings (loss) per share...... $ 0.05 $ 0.09 $ (0.61)$ (0.28) $ (0.78)
========== ========= ============ ============ ============
</TABLE>
51
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--SEGMENT REPORTING
During 1998, Homestead adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which established standards for the way
that public business enterprises report information about operating segments in
audited financial statements, as well as related disclosures about product and
services, geographic areas and major customers.
Homestead defines each of its properties as individual operating segments
that have similar economic characteristics and, therefore, have been aggregated
into one reportable segment, that being the operation of extended stay
properties in its target markets in the United States. Homestead's chief
operating decision maker relies on the net property operating income generated
from its properties for purposes of making decisions about allocating resources
and assessing segment performance.
Reportable segment information is as follows: (i) revenues derived from
external customers, (ii) a reconciliation of net property operating income
derived from external customers to Homestead's earnings (loss) before
extraordinary item and cumulative effect of accounting change, and (iii) a
reconciliation of assets to Homestead's total assets, for the periods indicated
(in thousands):
<TABLE>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Extended stay segment revenues................................ $ 225,637 $ 141,319 $ 59,116
=========== =========== ==========
Extended stay segment net property operating income........... $ 127,628 $ 84,088 $ 35,162
Reconciling items:
Interest income........................................... 984 952 552
Depreciation and amortization............................. (42,247) (34,244) (12,130)
Interest expense, net of capitalized interest............. (51,264) (23,190) (2,190)
Corporate operating expenses.............................. (33,013) (24,255) (15,623)
Special charges........................................... (65,296) (7,240) --
----------- ------------ -----------
Earnings (loss) before extraordinary item and
cumulative effect of accounting change...................... $ (63,208) $ (3,889) $ 5,771
=========== ============ ==========
DECEMBER 31,
--------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Extended stay segment assets.................................................. $ 1,045,837 $ 1,145,311
Reconciling items:
Cash and cash equivalents................................................. 20,586 11,942
Deferred loan costs, net of accumulated amortization...................... 1,588 1,063
Trademark and intangibles, net of accumulated amortization................ 41,796 44,279
Deposits and pursuit costs................................................ -- 7,830
Other assets.............................................................. 23,633 7,966
------------ -----------
Total assets.................................................................. $ 1,133,440 $ 1,218,391
============ ===========
</TABLE>
52
<PAGE>
HOMESTEAD VILLAGE INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Homestead is not a party to any litigation or claims, other than routine
matters arising out of the ordinary course of business that are incidental to
the development process and operation of the business of Homestead. Homestead
does not believe that the results of all claims and litigation, individually or
in the aggregate, will have a material adverse effect on its business, financial
position or results of operation.
NOTE 13--SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to year end 1999 Homestead has made payments totaling $31.5
million on the bank line of credit reducing its line of credit debt to $93.9
million. On February 29, 2000 Homestead entered into an amended and restated
bank credit facility which allows for $110 million of total borrowings of which
$35 million is available on a revolving basis. The amended and restated line
matures February 28, 2003, bears interest at LIBOR plus 2.5%, is secured by 64
operating properties, permits payment of dividends based upon a definition of
free cash flow, and requires maintenance of financial ratio and coverage
covenants.
In January 2000 Homestead sold an excess parcel of land for approximately
$425,000 net proceeds. On February 28, 2000 Homestead sold its sole remaining
urban site for net proceeds of approximately $8.9 million.
53
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of Homestead Village
Incorporated, a Maryland corporation, and the undersigned Directors and officers
of Homestead Village Incorporated, hereby constitutes and appoints James C.
Potts, Laura L. Hamilton, and Jeffrey A. Klopf its or his true and lawful
attorney-in-fact and agents, for it or him and in its or his name, place and
stead, in any and all capacities, with full power to act alone, to sign any and
all amendments to this report, and to file each such amendment to this report,
with all exhibits thereto, and any and all documents in connection therewith,
with the Securities and Exchange Commission, hereby granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as it or he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them may lawfully do or cause to be done
by virtue hereof.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOMESTEAD VILLAGE INCORPORATED
By: /s/ C. RONALD BLANKENSHIP
C. Ronald Blankenship
Director, Interim Chairman and
Chief Executive Officer
Date: March 8, 2000
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ C. RONALD BLANKENSHIP Director, Interim Chairman and March 8, 2000
-------------------
C. Ronald Blankenship Chief Executive Officer
/S/ JAMES C. POTTS. President, Director and Chief March 8, 2000
-------------------
James C. Potts Operating Officer
/S/ A. RICHARD MOORE Interim Chief Financial Officer March 8, 2000
-------------------
A Richard Moore (Principal Financial Officer)
/S/ F. JOSEPH ROGERS Vice President March 8, 2000
-------------------
F. Joseph Rogers (Principal Accounting Officer)
/S/ JOHN P. FRAZEE, JR. Director March 8, 2000
-------------------
John P. Frazee, Jr.
/S/ MANUEL A. GARCIA Director March 8, 2000
-------------------
Manuel A. Garcia
/S/ JOHN C. SCHWEITZER Director March 8, 2000
-----------------------
John C. Schweitzer
------------------- Director
Eugene B. Vesell
55
<PAGE>
INDEX TO EXHIBITS
Certain of the following documents are filed herewith. Certain other of the
following documents have been previously filed with the Securities and Exchange
Commission and, pursuant to Rule 12b-32, are incorporated herein by reference.
4.1 Restated Homestead Charter (incorporated by reference to Exhibit
3.1 to Homestead's Form S-4 Registration Statement (File No.
333-4455, the "Homestead S-4"))
4.2 Amended and Restated Bylaws of Homestead (incorporated by
reference to Exhibit 3.2 to the Homestead S-4)
4.3 Rights Agreement, dated as of May 16, 1996, between Homestead and
The First National Bank of Boston, as Rights Agent, including
form of rights certificate (incorporated by reference to Exhibit
4.2 to the Homestead S-4)
4.4 Amended and Restated Promissory Note by PTR Homestead Village
Incorporated in favor of Security Capital Pacific Trust ("PTR")
(incorporated by reference to Exhibit 4.3 to Homestead's Form
10-Q for the quarter ended September 30, 1996)
4.5 Amended and Restated Promissory Note by PTR Homestead Village
Limited Partnership in favor or PTR (incorporated by reference to
Exhibit 4.4 to Homestead's Form 10-Q for the quarter ended
September 30, 1996))
4.6 Form of stock certificate for shares of common stock of Homestead
(incorporated by reference to Exhibit 4.8 to the Homestead Form
S-4)
10.1 Protection of Business Agreement, dated as of October 17, 1996,
by and among ATLANTIC, PTR, Security Capital Group Incorporated
("Security Capital") and Homestead (incorporated by reference to
Exhibit 10.1 to Homestead's Form 10-Q for the quarter ended
September 30, 1996))
10.2 Investor Agreement, dated as of October 17, 1996, by and between
Homestead and Security Capital (incorporated by reference to
Exhibit 10.2 to Homestead's Form 10-Q for the quarter ended
September 30, 1996))
10.3 Guaranty of Completion and Payment, dated as of October 17, 1996,
from Homestead to PTR (incorporated by reference to Exhibit 10.5
to Homestead's Form 10-Q for the quarter ended September 30,
1996))
10.4 Guaranty of Completion and Payment, dated as of October 17, 1996,
from Homestead to ATLANTIC (incorporated by reference to Exhibit
10.10 to Homestead's Form 10-Q for the quarter ended September
30, 1996))
10.5 Investor and Registration Rights Agreement, dated as of October
17, 1996, between Homestead and PTR (incorporated by reference to
Exhibit 10.8 to Homestead's Form 10-Q for the quarter ended
September 30, 1996))
10.6 Escrow Agreement, dated as of October 17, 1996, among Homestead,
Security Capital and State Street Bank and Trust Company, as
escrow agent (incorporated by reference to Exhibit 10.9 to
Homestead's Form 10-Q for the quarter ended September 30, 1996))
10.7 Homestead Village Incorporated 1996 Long-Term Incentive Plan
(incorporated by reference to Exhibit 4 to Homestead's Form S-8
Registration Statement (File No. 333-17243))
10.8 Homestead Village Incorporated 1996 Outside Directors Plan
(incorporated by reference to Exhibit 4 to Homestead's Form S-8
Registration Form S-8 Registration Statement (File No.
333-17245))
10.9 Form of Indemnification Agreement entered into between Homestead
and each of its directors (incorporated by references to Exhibit
10.10 to Homestead's Form 10-K for the year ended December 31,
1998 (File No.1-12269))
56
<PAGE>
10.10 $50,000,000 Credit Agreement among Homestead Village
Incorporated, the Lenders named therein, and Commerzbank AG,
New York Branch, as Agent for the Lenders dated as of May 6,
1997 (incorporated by reference to Exhibit 10.1 to Homestead's
Form 10-Q for the quarter ended March 31, 1997)
10.11 First Amendment to Credit Agreement and other Loan Documents
among Homestead Village Incorporated, the Lenders named
therein, and Commerzbank AG, New York Branch, as Agent for the
Lenders dated as of August 25, 1997 (incorporated by reference
to Exhibit 10.1 to Homestead's Form 10-Q for the quarter ended
September 30, 1997)
10.12 Second Amendment to Credit Agreement and Other Loan Documents
Among Homestead Village Incorporated, the Lenders Named
Therein, and Commerzbank AG, New York Branch, as Agent for the
Lenders dated as of April 24, 1998 (incorporated by reference
to exhibit 10.1 to Homestead's Form 10-Q for the quarter ended
June 30, 1998)
10.13 $50,000,000 Credit Agreement Among Homestead Village
Incorporated, the Lenders Named Therein, and Commerzbank AG,
New York Branch, as Agent to the Lenders dated as of April 24,
1998 (incorporated by reference to exhibit 10.2 to Homestead's
Form 10-Q for the quarter ended June 30, 1998)
10.14 $200,000,000 Credit Agreement Among Homestead Village
Incorporated, the Lenders Named Therein, and Commerzbank AG,
New York Branch, as Agent for the Lenders dated as of June 15,
1998 (incorporated by reference to exhibit 10.3 to Homestead's
Form 10-Q for the quarter ended June 30, 1998)
10.15 Subscription Agreement Between Security Capital Group
Incorporated and Homestead Village Incorporated (incorporated
by reference to exhibit 10.4 to Homestead's Form 10-Q for the
quarter ended June 30, 1998)
10.16 Agreement of Merger by and among Homestead Village Limited
Partnership, and certain of its affiliates and HPT HSD
Properties Trust dated as of February 4, 1999 (incorporated by
reference to Exhibit 2.1 to Homestead's Form 8-K dated March
9, 1999)
10.17 Agreement to Lease by and between HPT HSD Properties Trust and
Homestead Village Incorporated dated as of February 4, 1999
(incorporated by reference to Exhibit 99.1 to Homestead's Form
8-K dated March 9, 1999)
10.18 Lease Agreement by and between HPT HSD Properties Trust, as
Landlord, and HVI (2) Incorporated, as Tenant, dated as of
February 23, 1999 (incorporated by reference to Exhibit 99.2
to Homestead's Form 8-K dated March 9, 1999)
10.19 Guaranty Agreement by Homestead Village Incorporated for the
benefit of HPT HSD Properties Trust and Hospitality Properties
Trust dated as of February 23, 1999 (incorporated by reference
to Exhibit 99.3 to Homestead's Form 8-K dated March 9, 1999)
57
<PAGE>
10.20 $30,000,000 Amended and Restated Credit Agreement dated March
18, 1999 among Homestead Village Incorporated and Commerzbank
AG, New York Branch, as agent for the Lenders (incorporated by
reference to Exhibit 10.1 to Homestead's Form 10-Q for the
quarter ended March 31, 1999)
10.21 $170,000,000 Amended and Restated Credit Agreement dated March
18, 1999 among Homestead Village Incorporated, Commerzbank AG,
New York Branch and Wells Fargo Bank, National Association, as
Administrative Agent for the Lenders (incorporated by
reference to Exhibit 10.2 to Homestead's Form 10-Q for the
quarter ended March 31, 1999)
10.22 $25,000,000 Promissory Note dated May 3, 1999 between
Homestead Village Incorporated and Security Capital Group
Incorporated (incorporated by reference to Exhibit 10.3 to
Homestead's Form 10-Q for the quarter ended March 31, 1999)
10.23 Letter Agreement, dated April 22, 1999, among Homestead,
Commerzbank AG, New York Branch, Commerzbank AG, Los Angeles
Branch, Wells Fargo Bank, National Association, Chase Bank of
Texas, N.A. and BankBoston N.A. (incorporated by reference to
Exhibit 10.4 to Homestead's Form 10-Q for the quarter ended
March 31, 1999)
10.24 Letter Agreement, dated March 18, 1999, among Homestead,
Commerzbank AG, New York Branch, Commerzbank AG, Los Angeles
Branch, Wells Fargo Bank, National Association, Chase Bank of
Texas, N.A. and BankBoston N.A. (incorporated by reference to
Exhibit 10.5 to Homestead's Form 10-Q for the quarter ended
March 31, 1999)
10.25 Amendment No. 1, dated as of April 5, 1999 to Investor
Agreement by and between Homestead Village Incorporated and
Security Capital Incorporated (Incorporated by reference to
Homestead's current report on Form 8-K dated April 5, 1999)
10.26 Administrative Services Agreement dated January 1, 1999
between Homestead Village Incorporated and SCGroup
Incorporated (incorporated by reference to Exhibit 10.1 to
Homestead's Form 10-Q for the quarter ended June 30, 1999)
10.27 Separation Agreement and General Release between Robert C.
Aldworth and Homestead (incorporated by reference to Exhibit
10.2 to Homestead's Form 10-Q for the quarter ended June 30,
1999)
10.28 Separation Agreement and General Release between Michael D.
Cryan and Homestead (incorporated by reference to Exhibit 10.3
to Homestead's Form 10-Q for the quarter ended June 30, 1999)
10.29 Separation Agreement and General Release between Robert J.
Morse and Homestead (incorporated by reference to Exhibit 10.4
to Homestead's Form 10-Q for the quarter ended June 30, 1999)
10.30 Separation Agreement and General Release between David
C. Dressler, Jr. and Homestead Village Incorporated
10.31 Consulting Agreement between David C. Dressler, Jr. and
Homestead Village Incorporated
10.32 Change in Control Agreement between David C. Dressler, Jr.
and Homestead (incorporated by reference to Exhibit 10.5 to
Homestead's Form 10-Q for the quarter ended June 30, 1999)
10.33 Change in Control Agreement between Gary A. DeLapp and
Homestead (incorporated by reference to Exhibit 10.6 to
Homestead's Form 10-Q for the quarter ended June 30, 1999)
58
<PAGE>
10.34 Amendment to Secured Promissory Note (incorporated by
reference to Exhibit 10.1 to Homestead's Form 10-Q for quarter
ended September 30, 1999)
10.35 Homestead Village Incorporated 1999 Long-Term Incentive Plan
(incorporated by reference to Exhibit 5 to Homestead's Form
S-8 Registration Statement (File No. 333-92279))
10.36 Tax Allocation Agreement between Homestead Village
Incorporated and Security Capital Group Incorporated
10.37 Administrative Services Agreement dated January 1, 2000
between Homestead Village Incorporated and SCGroup
Incorporated
10.38 $110,000,000 Second Amended and Restated Credit Agreement
among Homestead Village Incorporated, the Lenders Named
Therein, and Commerzbank AG, as Administrative Agent for the
Lenders Dated as of February 29, 2000
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Registrant
23 Consent of Arthur Andersen LLP, Atlanta, Georgia
24 Power of Attorney (included on page 54)
27 Financial Data Schedule
59
SEPARATION AGREEMENT AND GENERAL RELEASE
THIS AGREEMENT is made and entered by and between David C. Dressler,
Jr. ("Employee") and Homestead Village Incorporated (together with is directors,
officers, shareholders and other affiliates, collectively referred to
hereinafter as "Employer").
WHEREAS, Employee has been employed by the Employer; and
WHEREAS, the parties have engaged in discussions resulting in an
amicable and mutually satisfactory separation of Employee's employment with the
Employer.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth below, the parties hereby agree as follows:
1. Employer and Employee hereby mutually agree that because of a
reorganization of the management of Employer, there shall be a separation of
Employee's employment from Employer. The effective date of Employee's separation
of employment with Employer shall be the close of business on March 31, 2000
(the "Separation Date"). As part of Employee's separation of employment,
Employee shall resign as an officer of Employer and all subsidiaries and
affiliates of Employer as of the Separation Date.
2. Employer shall pay Employee all unpaid salary through the Separation
Date and his pro rata target bonus for 2000 through the Separation Date or
$87,500, which amount shall be paid on the Separation Date. Employer shall also
pay Employee the aggregate amount of $875,000 (the "Separation Amount"), which
shall be paid in fifteen equal amounts of $58,333 on the last day of each month
commencing April 30, 2000 and ending June 30, 2001, less applicable deductions
for state and federal taxes on such amounts.
3. Employer also agrees to pay Employee, as of the Separation Date, all
amounts due Employee for accrued and unused vacation through the Separation
Date.
4. Employer shall extend to Employee the right to continue health
insurance for up to twelve (12) months, as may be required by and pursuant to
the terms and conditions of the Consolidated Omnibus Budget Reconciliation Act
of 1986 ("COBRA"). Employer will provide coverage to Employee at Employer's
expense to the extent of any COBRA premium for the first twelve months. Employee
shall pay the COBRA premium and other expense of such health insurance for any
remaining period of coverage.
5. Employer shall maintain Employee's telephone voice mailbox until
June 30, 2000. Employer shall deliver to Employee the equipment listed on
Exhibit A without additional consideration.
6. Employee shall repay all loans from Security Capital Group
Incorporated ("Security Capital") on or before the Separation Date.
7. Employee's continuous service under Employer's 401(k) plan and
Employer's Non-Qualified Savings Plan shall cease as of the Separation Date.
Within four (4) to six (6) weeks of Employee's written request and pursuant to
the terms of the 401(k) plan, Employee shall be entitled to a distribution of
all the contributions to Employee's 401(k) account made by Employee, plus
earnings thereon, plus Employer matching contributions to the extent vested, or
a transfer of such amounts to another plan at Employee's request. All
distributions will be net of applicable withholding taxes, if any. Pursuant to
the terms of the Employer's Non-Qualified Savings Plan and any deferral
elections made by Employee under the Non-Qualified Savings Plan, Employee shall
be entitled to a distribution of all deferrals made by Employee under the
Non-Qualified Savings Plan, plus earnings thereon, plus Employer matching
contributions to the extent vested. All distributions will be net of applicable
withholding taxes. Any options granted Employee under any Employer's stock
option plans or under any Security Capital stock option plans shall expire on
the ninetieth day after the Separation Date.
8. At the election of Employee, Employer shall pay for professional tax
and legal services provided to Employee for a review of this Agreement and the
consulting agreements referred to below, provided that the cost of such tax and
legal services shall not exceed $10,000 and Employer shall not be responsible
for any such fees and expenses incurred by Employee after March 31, 2000.
9. Employee and Employer shall execute a Consulting Agreement to be
effective as of April 1, 2000 (the "Homestead Consulting Agreement") in the form
attached as Exhibit B.
<PAGE>
10. In consideration of the promises contained in this Agreement,
Employee and Employer hereby mutually agree to do the following:
a. Except for a claim based upon a breach of this Agreement,
the Homestead Consulting Agreement and the loans from Security Capital
(to the extent they have not been repaid by the Separation Date),
Employee and Employer hereby release and forever discharge the other
(including, in the case of Employer, its related and affiliated
entities, and each of their officers, directors, shareholders,
representatives, agents, employees and insurers (Employee, Employer and
said related parties are hereinafter collectively and individually "the
Releasees")) from any and all rights, claims, demands, debts, dues,
sums of money, accounts, attorneys' fees, complaints, judgements,
executions, actions and causes of action of any nature whatsoever,
cognizable at law or equity, which Employee and Employer have or claim,
or might hereafter have or claim against the Releasees based upon or
arising out of any matter or thing whatsoever, from the beginning of
the world through the date of this Agreement, including but not limited
to any rights, claims, complaints or actions or causes of action which
were or could have been asserted by Employee or Employer arising out of
or related to Employee's employment by the Employer or Employee's
resignation therefrom, the purchase (or sale to Employer) of any
Employer securities or Security Capital securities by Employee, or
under any local, state, or federal law dealing with employment
discrimination including, without limitation, Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act, the
Americans with Disabilities Act, and the Workers Adjustment, Retraining
and Notification Act. Notwithstanding the foregoing, no such release
shall be applicable to any existing indemnity rights of Employee as an
officer or employee of Employer through the Separation Date, including
those under Employer's Amended Articles of Incorporation, Employer's
Bylaws, any Indemnification Agreements entered into between Employer
and Employee or between Security Capital and Employee, any insurance
rights in favor of Employee including the Directors and Officers
Liability Policy of Employer dated November 1, 1998, with Reliance
National, or any rights to exercise options which have vested as of the
Separation Date and granted under any stock option plans of Employer or
Security Capital.
b. Employee shall promptly submit to Employer an expense
account report accounting for all business expenses charged by Employee
to Employer and all advances received, and repay Employer for all
advances and all non-business related items charged by Employee to
Employer, if any. Employee hereby agrees that such advances and
non-business related expenses may, at the option of Employer, be
deducted by Employer from any of its payments to Employee under this
Agreement.
11. In consideration of the promises contained in this Agreement,
Employee agrees to each of the following: a. Except as may be required by the
lawful order of a court or agency of competent jurisdiction, or as expressly
permitted by the Homestead Consulting Agreement, Employee agrees to keep secret
and confidential indefinitely all non-public information concerning Employer or
any affiliate thereof which was acquired by or disclosed to Employee during the
course of Employee's employment with Employer or any affiliate thereof, and not
to disclose the same, either directly or indirectly, to any other person, firm
or business entity or to use it in any way. b. For a period of one (1) year from
the Separation Date, Employee covenants and agrees that Employee will not,
whether for Employee or for any other person, business, partnership,
association, firm, company or corporation, initiate contact with, solicit,
divert or take away any of the employees of Employer or any affiliate thereof
who are employees of Employer or any affiliate thereof at the time of such
initiation, solicitation or diversion.
12 Employee agrees to immediately turn over to Employer all notes,
offering materials, slide shows, investment summaries, memoranda, records,
documents and all other information, no matter how produced or reproduced, kept
by Employee or in Employee's possession or control, used in or pertaining to the
business of Employer, it being hereby acknowledged that all of said items are
the sole and exclusive property of the Employer.
13. Except as may be required to the contrary by an order issued by a
court of competent jurisdiction and except for any communication with members of
Employee's immediate family and any attorney or accountant rendering advice to
Employee in connection with this Agreement, Employee shall not, directly or
indirectly, discuss or communicate the facts of this Agreement, or any of its
terms and provisions with any third party.
14. Employer agrees not to contest Employee's claim for unemployment
benefits.
15. From and after the date of presentment of this Agreement, neither
party shall, directly or indirectly, take any action which is in fact, or is
intended to be, contrary to the material interests of the other party or any
affiliate of the other party, nor will either party disparage or make negative,
derogatory or defamatory statements about the other party, its related and
affiliated entities, its directors, officers, employees, shareholders, agents or
representative, or any of them, to any other person or business entity, except
as may be required by legal process or court order.
16. Nothing in this Agreement shall be deemed an admission of
wrongdoing or any kind of liability by either party.
<PAGE>
17. In the event Employee engages in a material breach of any of the
terms or provisions of this Agreement, then Employer shall provide to Employee
written notice of such claimed breach by Employee, and Employee shall have
thirty (30) days from receipt of such written notice from Employer to cease any
such conduct which Employer claims to be a material breach. If Employee fails to
cure such breach within such thirty (30) day period, then all of Employee's
obligations shall remain and shall be enforceable, but Employer's obligations
under this Agreement shall immediately terminate, including, without limitation,
all remaining monetary obligations of Employer to Employee which are outstanding
at the time of said breach. Similarly, Employee shall be relieved of any further
obligation under this Agreement if Employer materially breaches its convenants
in this Agreement.
18. This Agreement shall be binding upon and inure to the benefit of
both parties, their successor and assigns, and any affiliated or related entity,
as well as Employee's heirs, assigns, administrators, executors and legal
representatives.
19. This instrument constitutes the entire Agreement between the
parties with respect to the matters covered by this Agreement, and may not be
modified or amended in any way except by a subsequent, written agreement between
the parties.
20. If any provision of this Agreement shall be determined by any
court of competent jurisdiction to be invalid, illegal or unenforceable in whole
or in part, and such determination shall become final, such provision shall be
deemed to be severed or limited, but only to the extent required to render the
remaining provisions of this Agreement enforceable. This Agreement as thus
amended shall be enforced so as to give effect to the intention of the parties
insofar as this is possible. In addition, the parties hereby expressly empower a
court of competent jurisdiction to modify any provision of this Agreement to the
extent necessary to comply with existing law and to enforce this Agreement as
modified, provided, however, that no payments shall be due from Employer and all
payments made by Employer shall be refunded by Employee if any portion of
paragraph 10 a. is invalidated, severed or limited.
21. This Agreement shall be construed in accordance with the laws of
the State of Georgia.
22. The language used in this Agreement shall be deemed to be the
language chosen by the parties to express their mutual intent, and no rule of
strict construction shall be applied against any person.
23. This Agreement may be signed in multiple counterparts, each of
which shall be deemed to be an original for all purposes.
24. Employee may revoke this Agreement within twenty-one days of
Employee's signing it. If Employee revokes this Agreement, Employee shall return
any benefits Employee has received and all other provisions of this Agreement
shall not be effective or enforceable. Revocation, along with a cashier's check
for any benefits Employee may have received hereunder, should be delivered to
Employer's offices at 2100 RiverEdge Parkway, Atlanta, Georgia 30328, Attn:
James Potts. For such revocation to be effective, the notice and the cashier's
check must be received no later than 5:00 p.m. on the twenty-first calendar day
after Employee signs this Agreement.
25. EMPLOYEE AFFIRMS THAT EMPLOYEE HAS BEEN GIVEN A PERIOD OF AT LEAST
TWENTY-EIGHT DAYS WITHIN WHICH TO CONSIDER THIS AGREEMENT, AND THAT EMPLOYEE HAS
CAREFULLY READ AND REVIEWED ALL THE TERMS AND CONDITIONS CONTAINED IN THIS
AGREEMENT AND FULLY UNDERSTANDS THIS AGREEMENT TO BE A RELEASE OF ALL CLAIMS,
KNOWN OR UNKNOWN, PRESENT OR FUTURE, THAT EMPLOYEE HAS OR MAY HAVE AGAINST
EMPLOYER ARISING OUT OF EMPLOYEE'S EMPLOYMENT BY EMPLOYER OR ITS TERMINATION.
EMPLOYEE ALSO AFFIRMS THAT EMPLOYEE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY
PRIOR TO EXECUTING THIS AGREEMENT AND THAT EMPLOYEE HAS, IN FACT, BEEN GIVEN
FULL OPPORTUNITY TO REVIEW THIS AGREEMENT WITH COUNSEL, AND THAT EMPLOYEE SIGNS
IT VOLUNTARILY OF HIS OWN VOLITION, WITHOUT DURESS OR COERCION. EMPLOYEE
REPRESENTS THAT EMPLOYEE IS SIGNING THIS AGREEMENT BECAUSE OF THE COMPENSATION
TO BE PAID BY EMPLOYER UNDER THIS AGREEMENT WHICH EXCEEDS SEPARATION
COMPENSATION GENERALLY AVAILABLE UNDER EMPLOYER'S POLICIES.
<PAGE>
IN WITNESS THEREOF, the parties have executed this Agreement on the
date(s) set forth below.
HOMESTEAD VILLAGE INCORPORATED
By C. Ronald Blankenship
Title Interim Chairman and CEO
Date 2/28/00
DAVID C. DRESSLER, JR.
Date 3/3/00
CONSULTING AGREEMENT
THIS AGREEMENT is made and entered into as of April 1, 2000, by and
between Homestead Village Incorporated (the "Company") and David C. Dressler,
Jr. (the "Consultant").
WHEREAS the Company desires to engage the Consultant's expertise and
experience in a consulting capacity; and
WHEREAS the Consultant desires to render services to the Company as
provided herein, under the terms and conditions set out below;
THEREFORE, the Company hereby engages the services of the Consultant,
and in consideration of the mutual promises contained herein, the parties agree
as follows:
1. Term. The term of this Consulting Agreement (the "Agreement") shall
be a twelve-month period, beginning on April 1, 2000 and ending on March 31,
2001. This Agreement may be terminated earlier as provided in Section 4.
2. Services. The Consultant shall provide professional services
("Services") to the Company. Services shall consist of advice and consultation
with respect to the marketing and sale of the Company's remaining
land-held-for-sale listed on Schedule A and certain developed properties of the
Company listed on Exhibit A (collectively the "Properties"), and oversight of
the construction of an expansion of an existing facility at Milpitas,
California, all under the direction of C. Ronald Blankenship, Interim Chairman
of the Company, and engaging in other projects as directed by Mr. Blankenship or
the Company. Such advice shall include: (a) advice on the pricing of the
Properties; (b) introductions to potential purchasers for the Properties; (c)
introductions to, and providing advice on, the selection of real estate brokers
to market the Properties; (d) advice on the terms of sale for the Properties,
such advice to be provided during initial contract negotiations and with respect
to any amendments to the contract so negotiated; (e) advice on the acceptability
of offers received with respect to the Properties; (f) advice on any consultants
required to be retained in connection with sale of the Properties, including,
without limitation, local counsel, development or land use advisors,
environmental consultants, soils engineers, surveyors, title company, escrow
agents; (g) assistance in evaluating the performance of prospective purchasers
of their contractual obligations and whether to exercise any seller termination
rights under any pending contract, and (h) such other advice as Consultant and
the Company shall deem appropriate in connection with the marketing and sale of
the Properties. Notwithstanding the foregoing, the ultimate responsibility for
making all decisions regarding the marketing and sale of the Properties shall
remain with the Company and shall be subject to the approval of Mr. Blankenship
and James C. Potts, Executive Vice President of the Company.
2.1. Services shall be performed in a prompt and efficient
manner to the reasonable satisfaction of the Company. The Consultant
may provide Services at the Company's office in Atlanta, Georgia, or in
such other Company office as mutually agreed, and the Consultant may
utilize the Company's equipment and administrative support located at
that office.
2.2. The Consultant shall devote such time to the performance
of the Services under this Agreement as is reasonably necessary to the
satisfactory performance thereof. The Consultant shall provide regular
written reports to Messrs. Blankenship and Potts on the status of the
marketing and sale of the Properties.
2.3. The Consultant shall, in providing such Services, abide
by all federal and/or state laws and regulations applicable to both the
Company and the Consultant.
<PAGE>
2.4. The Company reserves the right to change the Properties
on Schedule A at any time during the term of this Agreement, provided
that such changes shall not result in the Consultant being paid less
than the amount outlined in Section 4.
3. Fees. For the Services to be rendered pursuant to this Agreement,
the Consultant shall be paid a monthly consulting fee of $40,000 ("Monthly Fee")
(which shall be netted against future Transaction Fees described in Section
3.1), payable on the last day of each month. In addition to the Monthly Fee and
the Transaction Fees, Consultant shall be entitled to receive reimbursement of
any direct business expenses incurred by Consultant for the Services provided
(e.g., cellular phone, business travel and other normal business expenses).
Under this Agreement, the Company shall not be obligated to provide nor shall
the Consultant be entitled to receive any vacation, sick leave, or any other
benefits provided by the Company to its employees.
3.1. The Consultant shall be paid a transaction fee
("Transaction Fee") on the sale of all properties listed on Schedule A.
It is anticipated by the parties that the "Gross Receipts" (as defined
below) from the sale of such Properties will be between $90 million and
$100 million. The Consultant's Transaction Fee will be 1% of the first
$90 million of Gross Receipts from the sale of such Properties, and 2%
of Gross Receipts in excess of $90 million from the sale of such
Properties. "Gross Receipts" shall mean the net sales price received by
the Company for such Properties, excluding the first 2% of the gross
sales price paid to a third-party broker. The Transaction Fees will be
earned on any Properties which are sold, or under either a binding
agreement for sale or a binding letter of intent, on or before March
31, 2001, and which close. All Transaction Fees earned will be
reconciled monthly and will be paid on the first day of July, October,
January and April during the term of this Agreement. Any Monthly Fees
paid prior to payment of any Transaction Fees will be deducted from the
Transaction Fees.
3.2. The Company may terminate the Agreement without Cause (as
defined below) at any time after September 30, 2000, as provided in
Section 4. If the Company terminates the Agreement without Cause after
September 30, 2000, then the Company will pay the Consultant the
greatest of (a) $360,000, or (b) 80% of the total commission value of
contracted properties and "bona fide offers" (as defined below) on
Properties listed on Schedule A, or (c) the unpaid Transaction Fees due
on properties listed on Schedule A sold or under contract at the date
of termination and which close. A "bona fide offer" means a written
offer on a designated Property at 100% or greater of the allocated
value of that Property shown on Schedule A on reasonable commercial
terms. Any Monthly Fees or Transaction Fees paid to the Consultant at
the time of termination of the Agreement in excess of this minimum
amount shall be retained by the Consultant.
3.3. For the Services rendered pursuant to this Agreement, the
Consultant shall be solely responsible for and pay all state, federal,
and local taxes applicable to the Monthly Fees and Transaction Fees
paid. Additionally, for the Services rendered pursuant to this
Agreement, the Company shall not be obligated to pay for any premium of
insurance under which the Consultant may be entitled to receive
coverage under any group hospitalization or medical plan or insurance
plan or policy maintained by the Company.
3.4. Monthly Fees, Transaction Fees and expense reimbursements
under this Agreement shall be made payable to Consultant and shall be
mailed to Consultant at 1876 Beach Avenue, Atlantic Beach, Florida
32233.
4. Termination of Agreement. Either party may immediately terminate
this Agreement if Cause exists. Additionally, the Consultant may at any time
immediately terminate this Agreement upon two (2) weeks written notice to the
Company, and after September 30, 2000, the Company may immediately terminate
this Agreement upon two (2) weeks' written notice to the Consultant. If there is
any time period between the date either party gives notice of the termination of
this Agreement and the date of termination of this Agreement, the Consultant
must continue to perform Services under this Agreement, must return any files or
property belonging to the Company, must work with the Company in determining the
status of projects and must assist the Company in making any transition
reasonably necessary as a result of the termination of this Agreement. If the
Agreement is terminated by the Company for Cause or by the Consultant without
Cause, the Consultant shall be paid the Monthly Fee and any unpaid Transaction
Fees, net of all Monthly Fees actually paid, through the end of the month in
which termination occurs, and the Company shall have no further monetary
obligations to the Consultant under the Agreement.
<PAGE>
4.1. As used in this Agreement, the term "Cause" is defined as
any of the following:
a. The Consultant's willful malfeasance towards the Company,
conviction of a felony, or commission of fraud or embezzlement
against the Company, including but not limited to any act or
acts of personal dishonesty taken by the Consultant and
intended to result in the material personal enrichment of the
Consultant at the expense of the Company; or
b. An act or omission of the Consultant involving gross
negligence or willful misconduct, or the Consultant's material
misrepresentation or failure to report to the Company
concerning material information within the areas of
Consultant's responsibilities hereunder; or
c. A breach by either party of any provision in this Agreement
after a reasonable opportunity to cure such breach.
5. Covenant Not To Compete. The Consultant agrees that, during the term
of this Agreement, Consultant will not, directly or indirectly, either through
any kind of ownership or as a director, officer, agent, employee or consultant,
engage in any business that competes with the Company.
6. Independent Contractor. The Consultant shall be an independent
contractor and not an employee or agent of the Company for purposes of the
Services performed pursuant to this Agreement.
6.1. The Consultant shall have no authority, express or
implied, to bind the Company and shall not hold himself out as
representing the Company in any manner, as an employee, agent, or in
any other capacity, except upon the consent of the Company.
7. Conflict of Interest. During the term of this Agreement, the
Consultant shall not use the relationship between the Consultant and the Company
in any manner that adversely affects the Company and shall not act on behalf of
himself or others in any manner that conflicts with the interests of the
Company.
8. Confidential Information. The Consultant understands and agrees
that, prior to his engagement as a consultant and during the term of this
Agreement, the Consultant has had and will have access to certain proprietary
information belonging to the Company, which information includes information
designated as confidential by the Company and not generally known by non-Company
personnel (all such information shall be hereafter referred to as the
"Confidential Information"). The Company desires to protect such Confidential
Information from subsequent use or disclosure by the Consultant or any other
person or entity acting in concert with the Consultant. The Consultant agrees
that, during the term of this Agreement and after the expiration of this
Agreement, the Consultant shall not use Confidential Information belonging to
the Company for the Consultant's own purposes or for the purposes of any person
or entity other than the Company and shall not disclose any such Confidential
Information to non-Company personnel except as required in connection with the
Consultant's duties under this Agreement, without the prior written consent of
the Company. The obligations set forth in this Section 8 shall survive the
termination of the Consultant's consulting relationship with the Company created
by this Agreement and shall be fully enforceable by the Company at all times
thereafter.
9. Indemnification. The Company hereby agrees to indemnify, defend and
hold harmless Consultant, from and against any and all expenses (including
attorney's fees) as incurred, judgments, fines, taxes, penalties and amounts
paid in settlement actually and reasonably incurred by Consultant in connection
with any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative, by reason of the fact that he
is or was a consultant to the Company or is or was serving at the request of the
Company as a consultant.
10. Entire Agreement, Amendment. This Agreement constitutes the entire
agreement between the parties with respect to the matters covered by this
Agreement, and may not be modified or amended in any way except by a subsequent,
written agreement signed by both parties.
11. Waiver of Breach. The waiver by either party of any breach of this
Agreement shall not be deemed a waiver of any other breach of the same or any
other provision of this Agreement.
12. Assignment. Except as provided below, Consultant may not assign
this Agreement or any of his duties or obligations hereunder to any other person
without the Company's prior written consent. Consultant may assign this
Agreement to any entity controlled by Consultant, provided that entity agrees to
be bound by the terms and conditions of this Agreement.
13. Legal Construction. In the event that any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other such provisions and this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had not been contained herein.
14. Successors. This Agreement shall be binding upon and inure to the
benefit of both parties, the Company's successors and assigns, as well as to the
Consultant's heirs, administrators, executors and legal representatives.
15. Governing Law. The validity, interpretation, and effect of this
Agreement and of any of its respective terms or provisions, as well as the
rights and duties of the parties hereunder, shall be governed by the laws of the
State of Georgia. The parties agree that venue in an action to enforce this
Agreement will lie in Fulton County, Georgia, and that neither party will
challenge venue if a lawsuit to enforce this Agreement is brought in such
county.
<PAGE>
EXECUTED this day of _______, 2000.
HOMESTEAD VILLAGE INCORPORATED
By:
Name: C. Ronald Blankenship
Title: Interim Chairman and CEO
CONSULTANT
David C. Dressler, Jr.
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT (this "Agreement") is entered into as of
this 31st day of December, 1999, by and between Security Capital Group
Incorporated, a Maryland corporation ("Parent"), and Homestead Village
Incorporated, a Maryland corporation ("Subsidiary").
WHEREAS, Parent, Subsidiary and others are members of an affiliated
group of corporations as defined in section 1504 (a) of the Internal Revenue
Code of 1986, as amended (the "Code"), of which Parent is the common parent; and
WHEREAS, the parties desire to agree upon an equitable method
consistent with representations made in Subsidiary's Prospectus Supplement dated
April 5, 1999, for determining the financial consequences to Parent and
Subsidiary of filing consolidated Federal income tax returns by Parent,
Subsidiary and others;
NOW, THEREFORE, in consideration of the foregoing promises and mutual
covenants contained herein, the parties agree as follows:
1. DEFINITIONS
(a) Terms used in this Agreement shall have the meanings ascribed to
them in the Code, and the regulations and rulings issued
thereunder, as from time to time in effect. Concepts referred to
in this Agreement shall be interpreted in view of the provisions
of the Code and the regulations and rulings thereunder then in
effect.
(b) For purposes of this Agreement, the terms set forth below shall be
defined as follows:
(i) "Capital Transactions" means a sale, merger, or other
transaction pursuant to which Parent disposes of a number
of shares as a result of which Parent owns less than 50%
of the shares of Subsidiary.
(ii) "Group" means Parent and all corporations (whether now
existing or hereafter formed or acquired) that at the time
would be entitled or required to join with Parent in
filing a consolidated Federal income tax return.
(iii) "Parent" means Parent, or any successor common parent
corporation of the Group
(iv) "Member" means any corporate entity entitled to be included
in the Group.
(v) "Subsidiary Tax Liability" means the hypothetical Federal
income tax liability of Subsidiary for a taxable year
determined by multiplying the consolidated Federal income
tax liability of the Group (calculated before credits and
net operating losses attributable to Non-Subsidiary Members)
for such taxable year as reflected on the consolidated
Federal income tax return filed by Parent on behalf of the
Group for such year, by a fraction, the numerator of which
is the hypothetical Federal taxable income of Subsidiary for
such taxable year, computed as though Subsidiary filed a
separate Federal income tax return for such taxable year,
and the denominator of which is the aggregate hypothetical
Federal taxable income for all the Members for such taxable
year, computed as if each such Member filed a separate
Federal income tax return for such taxable year (but with
the hypothetical Federal taxable income of no such Member
being less than zero). Such hypothetical Federal income tax
liability shall be determined at the end of the taxable year
and shall reflect any tax elections, conventions, treatments
or methods which are actually utilized by the Group in
filing its consolidated Federal income tax return. In
determining its hypothetical Federal taxable income for a
taxable year, a Member shall take into account any net
operating loss carryover, credit carryover or other tax
attribute incurred by such Member in any previous year;
provided that Subsidiary shall not take into account any
Subsidiary Pre-Consolidation Net Operating Loss carryover to
the extent actually previously utilized in any prior taxable
year to offset any tax liability of the Group and provided
further that Subsidiary shall not take into account any
Subsidiary Post-Consolidation Net Operating Loss.
<PAGE>
(vi) "Subsidiary Estimated Tax Liability" means the hypothetical
estimated consolidated Federal income tax liability for
Subsidiary determined in accordance with the principles of
paragraph (b)(v).
(vii)"Subsidiary Tax Refund" means an amount determined by
multiplying the Federal income tax refund received by the Group
for a taxable year by the fraction determined for Subsidiary
under paragraph (b) (v) for the taxable year with respect to
which such refund is received, but only in the event Subsidiary
has actually made Subsidiary Tax Liability payments.
(viii) "Subsidiary Pre-Consolidation Net Operating Losses" means all
operating losses generated by Subsidiary prior to May 28, 1999.
(ix) "Subsidiary Post-Consolidation Net Operating Losses" means all
operating losses generated by Subsidiary during the period
beginning May 28, 1999 and ending on the date on which Subsidiary
ceases to be a Member.
2. ALLOCATIONS OF CONSOLIDATED
FEDERAL INCOME TAX LIABILITY
(a) Filing by Parent
Parent shall file consolidated Federal income tax returns for
each taxable year ending after the date hereof.
(b) Payment of Tax Liability
For each taxable year ending after the date hereof during which
Subsidiary is included in a consolidated Federal income tax return
with Parent, Subsidiary will pay to Parent an amount equal to its
Subsidiary Tax Liability. To the extent that the obligation to pay
such amount has not been fully satisfied pursuant to paragraph
2(c) of this Agreement, Subsidiary shall pay any such remaining
amount to Parent on the last date on which Parent is required to
make its final payment of Federal income taxes for the taxable
year without incurring any penalties or additions to tax.
(c) Estimated Payments
On any date on which Parent is required to make an estimated
payment of the consolidated Federal income tax of the Group under
Section 6655 of the Code, Subsidiary will make estimated payments
to Parent in an amount equal to its Subsidiary Estimated Tax
Liability. If the total of such estimated payments made by
Subsidiary to Parent with respect to a taxable year shall be in
excess of the liability of Subsidiary to Parent pursuant to
paragraph 2(b)(i) of this Agreement for such taxable year, Parent
shall pay the amount of such excess to Subsidiary on the later of
(1) the date on which Parent is required to make its final
payment of Federal income taxes for the taxable year without
incurring any penalties or additions to taxes or (2) the date of
final determination of Parent's consolidated tax liability. In no
instance shall Parent knowingly withhold excess estimated tax
payments attributable to Subsidiary.
<PAGE>
(d) Tax Refunds
(i) Parent shall pay to Subsidiary the amount of the
Subsidiary Tax Refund for each taxable year ending after
the date hereof.
(ii) The payments described in this paragraph 2(d) shall be
made not later than five days after such refund is
received by Parent.
(e) Pre-Consolidation Net Operating Losses
All Subsidiary Pre-Consolidation Net Operating Losses will inure
100% to the benefit of Parent in the event a Capital Transaction
occurs.
3. CHANGES IN TAX LIABILITY
(a) If the Subsidiary Tax Liability of Subsidiary is changed as the
result of any final administrative or judicial determination
(including a final "determination" as defined in Section 1313(a)
of the Code) with respect to consolidated Federal income tax
returns actually filed by the Group, then the amount of the
payments required from Subsidiary to Parent under paragraph
2(b)(i) or the amount of the payment required from Parent to
Subsidiary under paragraph 2(d)(i), as the case may be, shall be
recomputed by substituting the amount of Subsidiary's Subsidiary
Tax Liability (or Subsidiary Tax Refund) after the adjustments
described above in place of Subsidiary's Subsidiary Tax Liability
(or Subsidiary Tax Refund), provided that the principles of
paragraph 1(b)(v) shall be applied in connection with such
recomputation notwithstanding any contrary determination. If such
final determination results in an increase in the Subsidiary Tax
Liability, Subsidiary shall pay to Parent not later than five
days after such final determination an amount equal to the excess
of the new Subsidiary Tax Liability over the amount previously
paid to Parent by Subsidiary. If such final determination results
in a Subsidiary Tax Refund or increases the amount of a
Subsidiary Tax Refund, Parent shall pay to Subsidiary not later
than five days after receiving such refund an amount equal to the
excess of the new Subsidiary Tax Refund over the amount
previously paid to Subsidiary by Parent. The parties recognize
that such new liability (or refund) for any taxable year is not
necessarily Subsidiary's final liability (or refund) for that
year, and may be recomputed more than once.
(b) Payments made pursuant to paragraph (a) shall bear interest in the
same manner as any late payment or refund of Federal income tax.
<PAGE>
4. PAYMENT
(a) Any payment required by Subsidiary to Parent under this agreement
shall be made (i) first, by reducing the amount of any account
payable created under paragraph 4(b) (but not below zero), and
(ii) then by entering or increasing an account payable to Parent
on the books of account of Subsidiary.
(b) Any payment required by Parent to Subsidiary pursuant to this
agreement shall be made (i) first by reducing the amount of any
account payable created under paragraph 4(a) (but not below zero)
and (ii) then by entering or increasing an account payable to
Subsidiary on the books of account of Parent.
(c) Any account payable created under paragraph 4(a) or (b) shall be
due in whole or in part on five days' written notice by Subsidiary
or Parent, as the case may be, whose liability such account
payable is, and any due but unpaid amounts shall bear interest
from and after such due date at the prime rate of interest then
most recently utilized by Parent in its principal short-term
credit agreement, plus two percent (2%) per annum.
5. INDEMNITY
Parent agrees to indemnify, defend and hold Subsidiary harmless
from and against any and all liabilities for Federal income tax
and Federal estimated income tax (including, in both cases,
interest and penalties thereon) with respect to any taxable year
to which this agreement applies; provided that the amount of such
indemnity shall be reduced by and shall offset any payment
required to be made by Subsidiary pursuant to this Agreement.
6. EFFECT OF AGREEMENT
(a) As between Parent and Subsidiary, the provisions of this
Agreement shall fix the liability of each to the other as to the
matters covered hereunder, even if such provisions are not
controlling for tax or other purposes (including, but not limited
to, the computation of earnings and profits for Federal income
tax purposes).
(b) This Agreement shall be effective as between Parent and
Subsidiary in respect of all taxable years beginning 1999 until
Subsidiary ceases to be a Member of the Group.
<PAGE>
7. STATE AND LOCAL TAXES
In the event Parent actually files consolidated, combined or
unitary income or franchise tax returns or reports in any state or
local jurisdiction on behalf of and pays such taxes owed by all or
part of the Group, the principles and procedures (including
indemnity in paragraph 5) stated in this Agreement shall apply for
purposes of allocating such state tax liability.
8. MISCELLANEOUS PROVISIONS
(a) This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter contained herein. No
alteration, amendment or modification of any of the terms of this
Agreement shall be valid unless made by an instrument signed in
writing by an authorized officer of each party.
(b) This Agreement has been made in and shall be construed and
enforced in accordance with the law of the State of Maryland from
time to time obtaining, without regard to the conflicts of law
provisions thereof.
(c) This Agreement shall be binding upon and inure to the benefit of
each party hereto and its respective successors and assigns.
(d) All notices and other communications hereunder shall be deemed to
have been duly given if delivered by hand or mailed, certified or
registered mail, with postage prepaid addressed to the party to
which the notice or other communication is given.
(e) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(f) The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not constitute a part hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to
be signed by their duly authorized representatives as of the date first above
written.
Security Capital Group Incorporated
By: /s/ Jeffrey A. Klopf
Jeffrey A. Klopf
Senior Vice President
Homestead Village Incorporated
By: /s/ David C. Dressler, Jr.
David C. Dressler, Jr.
President
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is made and
entered into by and between Homestead Village Incorporated, a Maryland
corporation ("the Company"), and SCGroup Incorporated, a Texas corporation
("SCGroup"). This Agreement shall supersede and replace the Administrative
Services Agreement executed by the parties on January 1, 1999 upon expiration of
that earlier agreement on December 31, 1999.
WHEREAS, the Company wishes to purchase from SCGroup certain
administrative services designed to assist the Company in the cost-efficient
management of the Company's administrative and business affairs in the manner
and pursuant to terms and conditions as more specifically described herein; and
WHEREAS, SCGroup desires to provide or cause to be provided those
services requested by the Company under such terms and conditions; and
WHEREAS, SCGroup will perform similar administrative services for other
entities (collectively "SCGroup Clients") which may vary from time to time.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
Section 1. Services
1.1 Scope of Services. The specific services to be provided by
SCGroup to the Company (each a "Service" and collectively the "Services") are
and shall be described in Schedule A.
1.2 Selection of Services.
(a) On or before September 15 of each calendar
year, SCGroup shall deliver to the Company a list of (i) the services (other
than Risk Management services) to be offered by SCGroup during the succeeding
calendar year, (ii) the charges and performance standards associated with such
services, and (iii) any additional or different terms and conditions applicable
to such service offerings. Thereafter, on or before September 30, the Company
shall notify SCGroup in writing of the services it wishes to purchase during the
succeeding calendar year; provided that, if the Company fails to respond by such
date, it shall be deemed to have selected the same Services purchased by such
Company during the then current calendar year.
(b) With respect to Risk Management services, SCGroup
shall deliver a description of such services offered for the fiscal year
beginning each July 1, together with the terms, charges and performance
standards for such services on or prior to June 1 of each year. On or before
June 15, the Company shall notify SCGroup in writing whether the Company wishes
to purchase Risk Management services from SCGroup; provided that if the Company
fails to respond by June 15, the Company shall be deemed to have (i) purchased
Risk Management services, if the Company purchased such services for the then
current fiscal year or (ii) declined to purchase such services if the Company
did not purchase such services for the then current fiscal year. After the
Company selects or is deemed to have selected the Risk Management services for
the succeeding fiscal year, the scope of such services may not be expanded,
reduced or otherwise modified by the Company without the written consent of
SCGroup.
(c) On or before November 30, SCGroup shall prepare a
Schedule A describing the specific Services to be provided to the Company during
the succeeding calendar year. SCGroup also shall revise Schedules B, C, D and E
on or before that date to reflect the charges, performance standards and other
terms and conditions applicable to such Services. After the Company selects or
is deemed to have selected the Services to be provided during the succeeding
calendar year, the scope of such Services may not be expanded, reduced or
otherwise modified by the Company without the written consent of SCGroup.
1.3 Access, Information, Cooperation and Assistance. The
Company will provide SCGroup with all access, Company information, cooperation
and assistance necessary for SCGroup to perform the Services in accordance with
this Agreement.
<PAGE>
1.4 Increases in Volume of Service. If the Company completes a
transaction, such as the acquisition of a new business unit, that will result in
an increase of twenty-five (25%) percent or more in the volume of services to be
delivered in any service category (e.g., Disbursements, Cash Management,
Corporate Tax) as designated on Schedule A, the Company shall promptly notify
SCGroup of such change. SCGroup shall exercise commercially reasonable efforts
to accommodate and deliver the increased volume of services as soon as
practicable and, in any event, within 90 days of its receipt of notice of such
increased volume.
1.5 Subcontracting. SCGroup may delegate and subcontract some
or all of its obligations under this Agreement to one or more third parties. If
SCGroup does so, it will remain responsible for the performance of all
obligations performed by such subcontractors to the same extent as if such
obligations were performed by SCGroup employees.
Section 2. Charges.
2.1 Charges. The charges to be paid by the Company to SCGroup
for the Services to be performed by SCGroup in any calendar year shall be set
forth in Schedule B ("Charges"). Unless otherwise agreed, such Charges shall be
subject to modification only in accordance with Sections 1.2 or 1.4. Unless
otherwise agreed, the Charges paid by the Company in each service category in
any calendar year shall equal at least seventy-five (75%) percent of the Charges
paid by the Company in the same service category during the preceding calendar
year. For any service category in which the Company paid no Charges during the
preceding year, the Charges shall equal at least seventy-five (75%) percent of
the Charges that would have been paid by the Company in the then current
calendar year based on the volume estimates agreed upon by the parties. In
either event, if the Charges in any service category fail to reach the
applicable minimum, the Company shall pay the shortfall to SCGroup on or before
January 15 of the succeeding calendar year.
2.2 Pass-Through Expenses. Pass-through expenses are listed in
Schedule C. Unless otherwise agreed by the parties, pass-through expenses shall
be paid by the Company directly. SCGroup will promptly provide the Company with
the original third-party invoice for such expenses, together with a statement
that SCGroup has reviewed and validated the invoiced charges. SCGroup will
highlight any charges that appear to be inappropriate and will work with the
Company to reconcile all bills with the third-party suppliers.
2.3 Retained Expenses. The Company shall retain financial
responsibility for those functions and expense items shown as retained expenses
in Schedule D. The Company will be billed directly by third parties for such
services. The Company agrees to pay such expenses in a timely manner and in the
ordinary course of business.
2.4 Extra Services. Any services requested by the Company beyond those set forth
in Schedule A will be performed in accordance with mutually agreed terms,
conditions and charges.
2.5 Payment for Services.
(a) At the beginning of each calendar month, SCGroup shall
invoice the Company for the Charges specified in Schedule B for the
Services received by the Company during the preceding month. Such
Charges shall be payable in full within 20 days of receipt of such
invoice by the Company. Any past due amounts shall be subject to a late
payment fee equal to the Wells Fargo Bank N.A. prime lending rate plus
2 percent on the past due balance or the maximum rate allowable by law,
whichever is less. The Company shall cause payment to be received by
SCGroup at SCGroup's offices at 7777 Market Center Avenue, El Paso,
Texas 79912, or by wire transfer in accordance with the wire
instructions provided from time to time to the Company in writing by
SCGroup.
<PAGE>
(b) The Company shall provide SCGroup with prompt written
notification of any disputed Charges prior to the payment date of such
Charges. The notification shall provide a description of the specific
reasons for the dispute. No payment may be withheld for undisputed
Charges.
2.6 Taxes.
(a) Each party will pay any real estate or personal property
taxes on property it owns or leases, franchise and privilege taxes on
its business, and taxes based on its net income or gross receipts.
(b) SCGroup will pay all sales, use, excise, value-added,
services, consumption, and other taxes and duties payable by SCGroup on
any goods or services used or consumed by SCGroup in providing the
Services where the tax is imposed on SCGroup's acquisition or use of
such goods or services and the amount of tax is measured by SCGroup's
costs in acquiring such goods or services.
(c) In the case of any sales, use, excise, value-added,
services, consumption, or other tax that is assessed on the provision
of the Services as a whole, or on any particular hardware, software, or
Service received by the Company from SCGroup, the Company will pay such
taxes.
(d) The Parties agree to fully cooperate with each other to
enable each to more accurately determine its own tax liability and to
minimize such liability to the extent legally permissible.
Section 3. Term. The term of this Agreement shall commence on January
1, 2000 and, unless terminated earlier in accordance with Section 10, shall end
on December 31, 2002 (the "Initial Term"). Absent written notice of non-renewal
as provided in this Section 3, this Agreement shall be automatically renewed for
successive one-year terms (each, a "Renewal Term") upon the expiration of the
Initial Term and each Renewal Term. Notice of non-renewal, if given, shall be
given in writing by either party hereto not less than ninety (90) calendar days
before the expiration of the Initial Term or any Renewal Term.
Section 4. Audit of Services. At any time during regular business hours
and as often as reasonably requested by the Company's officers, SCGroup shall
permit the Company or its authorized representatives to examine and make copies
and abstracts from the records and books of SCGroup for the purpose of auditing
the performance and Charges of SCGroup under the terms of this Agreement;
provided, that all costs and expenses of such inspection shall be borne by the
Company and provided further that the Company shall have no right and shall not
make copies of abstracts of any SCGroup Materials (as defined in Section 9.2).
Section 5. Company Data. Data obtained by SCGroup from the Company in
connection with the performance of any Services ("Company Data") is and shall
remain the exclusive property of the Company. SCGroup is authorized to have
access to and make use of the Company Data as necessary and appropriate for the
performance by or for SCGroup of its obligations under this Agreement. Upon the
termination or expiration of this Agreement, SCGroup will return to the Company
all Company Data then in its possession. SCGroup will not use Company Data for
any purpose other than for providing the Services.
Section 6. Confidentiality. Except as otherwise provided in this
Agreement, SCGroup and the Company each agree that all information communicated
to it by the other, whether before or after the effective date of this
Agreement, will be received in strict confidence, will be used only for purposes
of this Agreement, and will not be disclosed by the recipient party without the
prior written consent of the other party. Each party agrees to use the same
means it uses to protect its own Confidential Information, but in any event not
less than reasonable means, to prevent the disclosure of such information to
outside parties. However, neither party will be prevented from disclosing
information to its counsel or regular public accountants, or from disclosing
information which belongs to such party, or is (a) already known by the
recipient party without an obligation of confidentiality; (b) publicly known or
becomes publicly known through no unauthorized act of the recipient party; (c)
rightfully received from a third party; (d) independently developed without use
of the other party's confidential information; (e) disclosed without similar
restrictions to a third party by the party owning the confidential information;
or (f) required to be disclosed pursuant to a requirement of a governmental
agency or legal requirement if the disclosing party provides the other party
with notice of this requirement prior to disclosure.
<PAGE>
Section 7. Performance Standards
7.1 Service Levels. SC Group shall exercise commercially
reasonable efforts to perform the Services in accordance with the service levels
set forth in Schedule E. To the extent any service level is determined by the
parties to be unattainable using commercially reasonable efforts, SCGroup will
identify the level of service which is reasonably attainable, the modifications
or changes necessary to attain the higher service level and the costs associated
with such modifications or changes. The parties will meet as necessary to
evaluate and revise the service levels. SCGroup will measure the quality and
quantity of the Services actually delivered by SCGroup. The data obtained by
SCGroup will be one of the bases for evaluating and possibly revising Schedule
E. All such revisions must be agreed to by the Company and SCGroup. If
requested, the Company will provide copies of relevant information in its
possession to SCGroup to assist in any review or revision of the service levels.
7.2 Failure to Attain Service Levels. If SCGroup fails to
attain any service level, SCGroup will (i) promptly investigate the cause of the
problem; (ii) prepare a report identifying the cause of the problem and
recommending solutions; and (iii) use commercially reasonable efforts to correct
the problem and to begin meeting the service levels as soon as practicable.
Section 8. Prevention of Performance. SCGroup shall not be determined
to be in violation of this Agreement if it is prevented from performing any
Services hereunder, in whole or in part, by the acts or omissions of the Company
or a third party or for any other reason beyond its reasonable control,
including without limitation acts of God, nature or public enemy, war, civil
disturbance, labor dispute, failure or fluctuation in electrical power, heat,
light, air conditioning or telecommunication service, or limitations of law,
regulations or rules of the Federal, state or local government or of any agency
thereof.
Section 9. Software and Other Intellectual Property.
9.1 Company Materials. To the extent the Company
possesses any ownership, license or other right (including any patent,
copyright, trademark, trade secret or other proprietary right) in any software,
equipment, data, information, process or material ("Company Materials"), it
shall retain such right or interest and, except as provided in this Section,
SCGroup shall not acquire any right or interest in such Company Materials
pursuant to this Agreement. The Company hereby grants to SCGroup, without
charge, the limited nonexclusive nontransferable right to access and use Company
Materials during the term of this Agreement as and to the extent necessary for
the performance of the Services.
9.2 SCGroup Materials. To the extent SCGroup possesses any
ownership, license or other right (including any patent, copyright, trademark,
trade secret or other proprietary right) in any software, equipment, data,
information, process or material ("SCGroup Materials") used in providing the
Services, it shall retain such right or interest and the Company shall not
acquire any right or interest in such SCGroup Materials pursuant to this
Agreement.
9.3 Intellectual Property Rights. If, in the course of
providing Services under this Agreement, the Company requests and SCGroup agrees
to develop any Software, process or other material to the specification of the
Company, not being SCGroup Materials or an enhancement of SCGroup Materials, and
the Company pays all of the Charges associated with such development ("Work
Product"), then all legal and beneficial ownership rights therein (including all
patent, copyright, trademark, trade secret or other proprietary rights) shall
belong to the Company. SCGroup hereby assigns to the Company all right, title
and interest that arises in SCGroup with respect to such Work Product, including
all the patent, copyright, trademark, trade secret or other proprietary rights
related thereto, and SCGroup agrees to take all reasonable steps and execute all
documents necessary to perfect title to such Work Product in the Company.
SCGroup shall be permitted to access and use such Software, process or other
material as and to the extent necessary for the provision of the Services.
9.4 SCGroup Ownership Rights. Except as provided for in
Section 9.3 above, all patent, copyright, trademark, trade secret or other
proprietary rights in any Software, process or other material created by
SCGroup, its employees or agents and all legal and beneficial rights therein
shall belong to SCGroup.
<PAGE>
Section 10. Termination.
10.1 Termination for Cause. Either party may terminate this
Agreement, in whole or in part, by giving written notice to the other party, if
such other party materially breaches any of its duties or obligations set forth
herein and fails to cure such breach within thirty (30) days of written notice
of such breach. If less than all Services are terminated, the parties will
equitably adjust the Charges to be paid by the Company hereunder for the
remaining Services.
10.2 Terminate for Insolvency. Either party may terminate this
Agreement, upon written notice to the other party, if such other party (a) files
for bankruptcy; (b) becomes or is declared insolvent (c) is the subject of any
proceedings related to its liquidation or insolvency or the appointment of a
receiver or similar officer; (d) makes an assignment for the benefit of all or
substantially all of its creditors; or (e) enters into an agreement for the
composition, extension, or readjustment of substantially all of its obligations.
SECTION 11. DISCLAIMER AND LIMITATION OF LIABILITY AND INTELLECTUAL
PROPERTY CLAIMS BETWEEN PARTIES.
11.1 DISCLAIMER. EXCEPT AS SPECIFICALLY STATED IN THIS
AGREEMENT, NEITHER SCGROUP NOR THE COMPANY MAKES ANY REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, REGARDING ANY MATTER, INCLUDING THE
MERCHANTABILITY, SUITABILITY, ORIGINALITY, TITLE, OR FITNESS FOR A PARTICULAR
USE OR PURPOSE.
11.2 LIMITATION OF LIABILITY. IN NO EVENT SHALL A PARTY BE
LIABLE FOR INDIRECT, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES EVEN
IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Additionally,
the total aggregate liability of either party for claims asserted by the other
party under or in connection with this Agreement, regardless of the form of the
action or the theory of recovery, shall be limited to the total Charges paid by
the Company to SCGroup during the 12 months preceding the event which is the
subject of the claim (the "Liability Cap"); provided, however, that the
Liability Cap shall not apply with respect to (i) claims that are the subject of
the indemnification provisions set forth herein, or (ii) any failure to pay
Charges due and owing to SCGroup under this Agreement.
Section 12. Indemnification.
12.1 By SCGroup. SCGroup shall indemnify, defend and hold
harmless the Company and its officers, directors, employees, agents, successors,
and assigns from any and all Losses attributable to third party claims arising
from willful misconduct or gross negligence by SCGroup in the performance of its
obligations under this Agreement.
12.2 By the Company. Except as provided in Section 12.1, the
Company shall indemnify, defend and hold harmless SCGroup and its officers,
directors, employees, agents, successors, and assigns from any and all Losses
attributable to third party claims arising under or in connection with this
Agreement.
Section 13. Relationship of the Parties.
13.1 Independent Contractor Status. SCGroup is an Independent
Contractor. This Agreement will not be construed as creating any partnership,
agency relationship or other form of legal association that would impose
liability upon one party for the other party's actions or failure to act. Nor
will this Agreement be construed as providing either party with the right, power
or authority (express or implied) to create any duty for, or obligation of, the
other party.
13.2 Responsibility for Employees. Each party will be
responsible for the management, direction and control of its employees and other
agents. All SCGroup employees used in performing SCGroup's obligations under
this contract shall be employed solely and exclusively by SCGroup, and all
Company employees used in performing the Company's obligations under this
Agreement shall be employed solely and exclusively by the Company. Thus, SCGroup
and the Company shall not be considered a joint or single employer of any
employee.
<PAGE>
13.3 SCGroup Control of Services. Except where this Agreement
expressly provides that SCGroup will perform certain identified Services as
agent for the Company, the Services will be under the control, management and
supervision of SCGroup.
Section 14. Notices.
14.1 Manner of Delivery. Each notice, demand, request,
consent, report, approval or communication (each a "Notice") which is or may
be required to be given by either party to the other party in connection with
this Agreement and the transactions contemplated hereby, shall be in writing,
and given by telecopy, personal delivery, receipted delivery service, or by
certified mail, return receipt requested, prepaid and properly addressed to
the party to be served.
14.2 Addresses. Notices shall be addressed as follows:
If to the Company:
Homestead Village Incorporated
7777 Market Center Avenue
El Paso, TX 79912
Attention: Bryan J. Flanagan
If to SCGroup:
SCGroup Incorporated
7777 Market Center Avenue
El Paso, Texas 79912
Attention: Vincent L. Dodds
14.3 Effective Date of Notice. Notices shall be effective on
the date sent via telecopy, the date delivered personally or by receipted
delivery service, or three (3) days after the date mailed.
14.4 Change of Address. Each party may designate by notice to
the others in writing, given in the foregoing manner, a new address to which
any notice may thereafter be so given, served or sent.
Section 15. Entire Agreement. This Agreement, together with the
Schedules hereto, constitutes and sets forth the entire agreement and
understanding of the parties pertaining to the subject matter hereof, and no
prior or contemporaneous written or oral agreements, understandings,
undertakings, negotiations, promises, discussions, warranties or covenants not
specifically referred to or contained herein or attached hereto shall be valid
and enforceable. No supplement, modification, termination in whole or in part,
or waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provision hereof (whether or not similar), nor shall any such waiver
constitute a continuing waiver unless otherwise expressly provided.
Section 16. Priority. If there is any apparent conflict or
inconsistency between the provisions set forth in this Agreement, and the
provisions set forth in any schedule, exhibit, attachment or supplement
attached hereto, to the extent possible such provisions will be interpreted in
a manner so as to make them consistent. If it is not possible to interpret
such provisions consistently, the provisions set forth in the body of this
Agreement will prevail.
Section 17. No Third Party Beneficiaries. The parties do not
intend, nor will any clause of this Agreement be interpreted to create, for
any third party any obligation to or benefit from the Company or SCGroup.
Section 18. Survival. All provisions of this Agreement which
contemplate performance or observance following the expiration or earlier
termination of this Agreement, will survive any such expiration or earlier
termination. Additionally, all provisions of this Agreement will survive the
expiration or earlier termination of this Agreement to the fullest extent
necessary to give the parties the full benefit of the bargain expressed
herein.
Section 19. Consents and Approvals. Where agreement, approval,
permission, acceptance, consent or similar action by either party is required
by any provision of this Agreement, such action will not be unreasonably
delayed, conditioned or withheld.
Section 20. Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, each of their respective
successors and permitted assigns, but may not be assigned by either party
without the prior written consent of the other party, and no other persons
shall have or derive any right, benefit or obligation hereunder.
<PAGE>
Section 21. Headings. The headings and titles of the various
paragraphs of this Agreement are inserted merely for the purpose of
convenience, and do not expressly or by implication limit, define, extend or
affect the meaning or interpretation of this Agreement or the specific terms
or text of the paragraph so designated.
Section 22. Governing Law. This Agreement shall be governed
in all respects, whether as to validity, construction, capacity,
performance or otherwise, by the laws of the State of Texas.
Section 23. Severability. If any provision of this Agreement shall be
held invalid by a court with jurisdiction over the parties to this Agreement,
then and in that event such provision shall be deleted from the Agreement,
which shall then be construed to give effect to the remaining provisions
thereof. If any one or more of the provisions contained in this Agreement or
in any other instrument referred to herein shall, for any reason, be held to
be invalid, illegal or unenforceable in any respect, then in that event, to
the maximum extent permitted by law, such invalidity, illegality or
enforceability shall not affect any other provisions of this Agreement or any
other such instrument.
Section 24. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but
all of which taken together shall be considered one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
HOMESTEAD VILLAGE INCORPORATED
By: /s/ James C. Potts
James C. Potts
Managing Director
SCGROUP INCORPORATED
By: /s/ Paul Szurek
Paul Szurek
Managing Director
$110,000,000
SECOND
AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
HOMESTEAD VILLAGE INCORPORATED,
THE LENDERS NAMED HEREIN,
AND
COMMERZBANK AG, NEW YORK BRANCH,
AS ADMINISTRATIVE AGENT FOR THE LENDERS
DATED AS OF FEBRUARY 29, 2000
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this Agreement ), dated
as of February 29, 2000, among HOMESTEAD VILLAGE INCORPORATED, a Maryland
corporation (the Borrower ), COMMERZBANK AG, NEW YORK BRANCH, and the other
lenders listed on Exhibit A annexed hereto, as amended from time to time (each a
Lender and collectively, the Lenders ) and COMMERZBANK AG, NEW YORK BRANCH,
as contractual representative for the Lenders on the terms provided herein (the
Administrative Agent ).
W I T N E S S E T H:
WHEREAS, the Administrative Agent arranged a revolving credit facility
in the original principal amount of $50,000,000 on behalf of the Borrower
pursuant to a Credit Agreement dated as of May 6, 1997 among Borrower,
Administrative Agent and certain lenders named therein (said Agreement, as
amended to, but not including, this date, the Original Agreement );
WHEREAS, the parties to the Original Agreement amended and restated the
Original Agreement in its entirety pursuant to the terms of an Amended and
Restated Credit Agreement dated as of March 18, 1999 (the First Restatement );
and
WHEREAS, the parties to the First Restatement have agreed to amend and
restate the First Restatement in its entirety, including the letters modifying,
amending or waiving the terms thereof.
NOW, THEREFORE, in consideration of the fees, representations,
warranties, covenants and agreements of the Borrower set forth herein and in the
Loan Documents, the parties hereto agree as follows:
ARTICLE I.. DEFINITIONS; CONSTRUCTION
Section 1.1 Definitions As used herein, the following terms shall have
the following meanings:
Accounting Period means any accounting period within
Borrower's fiscal year, provided that such fiscal year is in accordance with
GAAP and generally coincides with the calendar year.
Acquisition Costs means the actual purchase price paid by
Borrower or a Subsidiary of Borrower to acquire a Property.
<PAGE>
-2-
Adjusted EBITDA means, with respect to any quarter, EBITDA
for such quarter, plus non-cash charges, minus a reserve for replacements
equivalent to the greater of (i) the average of actual, historical recurring
Property capital expenditures incurred during the four calender quarters
immediately preceding the calender quarter in which the calculation is made and
(ii) four percent (4.0%) of the gross revenues derived from the Properties
during the calendar quarter immediately preceding the quarter in which the
calculation is made.
Adjusted LIBOR Rate means, with respect to each Interest
Period, the rate obtained by dividing (i) the LIBOR Rate for such Interest
Period by (ii) a percentage equal to one minus the actual rate (stated as a
decimal) of all reserves then actually required to be maintained by each Lender
(provided that reasonable evidence of the imposition of such requirement is
furnished to Borrower) against eurocurrency liabilities as specified in
Regulation D (or against any other category of liabilities that includes
deposits by reference to which the interest rate on borrowings hereunder is
determined or any category of extensions of credit or other assets that includes
loans by a non-United States office of the Administrative Agent to United States
residents) or by any other Requirement of Law relating to reserve or capital
adequacy requirements.
Adjusted Maximum Availability Amount means the Maximum
Availability Amount, except that, for periods occurring prior to the Closing
Date, the Adjusted Maximum Availability Amount shall mean $170,000,000.
Adjusted Pool NOI means, as of the last day of any calendar
quarter, the NOI derived from the Mortgaged Properties during such quarter and
the three calendar quarters immediately preceding such quarter less (i) a
reserve for replacements equivalent to four percent (4.0%) of gross revenues
derived from such Mortgaged Properties during such period and (ii) a management
fee equal to four percent (4.0%) of gross revenues derived from such Mortgaged
Properties during such period.
Administrative Agent means Commerzbank AG, New York Branch,
in its capacity as contractual representative for the Lenders hereunder, or such
successor Administrative Agent as may be appointed pursuant to Section 7.9 of
this Agreement.
Affiliate means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under common
control with such Person, whether through the ownership of voting securities, by
contract, or otherwise. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power to (i) vote fifty
percent (50%) or more of the securities having ordinary voting power for the
election of directors of such corporation or (ii) direct or cause the direction
of the management and policies of such corporation, through the ownership of
voting securities, by contract or otherwise.
Agreement means this Agreement, as amended, supplemented, or
modified from time to time.
Alternate Rate means, as of any date of determination, a per
annum rate equal to the greater of (a) the Prime Lending Rate plus one and
one-half percent (1.5%) and (b) the Federal Funds Rate plus two percent (2%).
Applicable Margin means two and one-half percent (2.5%).
<PAGE>
-15-
Appraised Value shall have the following meanings:
(i) At all times prior to May 1, 2001:
(x) With respect to each of the fifty-six (56) Mortgaged
Properties to which a value is ascribed on Schedule 1 annexed hereto, Appraised
Value shall mean the value ascribed on Schedule 1 annexed hereto; and
(y) With respect to each of the Mortgaged Properties to
which a value is not ascribed on Schedule 1 annexed hereto, (x) until such time
as Borrower shall have delivered to Administrative Agent a FIRREA Appraisal of
such Mortgaged Property in accordance with the terms of Section 5.2(k) hereof,
Appraised Value shall mean undepreciated GAAP cost value and (y) upon delivery
of a FIRREA Appraisal as aforesaid, Appraised Value shall mean the value set
forth in the FIRREA Appraisal of the Mortgaged Property; and
(ii) During the period commencing May 1, 2001 and at all times
thereafter up to and including the Maturity Date, Appraised Value shall mean the
value ascribed to the Mortgaged Properties in the Updated Appraisals delivered
to Administrative Agent pursuant to the terms of Section 5.2(l) hereof.
Average Undrawn Balance means the average daily amount of
the Revolving Portion of the Loan which remains undrawn upon by the Borrower for
the related period of determination (on the basis of a year of 365/366 days for
the actual number of days which have elapsed during such period).
Bankruptcy Code has the meaning provided in Section 6.1(g).
Borrower has the meaning set forth in the introductory
paragraph to this Agreement.
Borrower's Authorized Representative means any duly elected
officer designated by the Borrower in a written notice to the Administrative
Agent, as such officer may be changed from time to time by written notice to the
Administrative Agent.
Business Day means any day excluding Saturday, Sunday and
any other day on which banks are required or authorized to close in New York
City or on which trading is not carried on by and between banks in Dollar
deposits in the applicable interbank Eurodollar market.
Capital Stock means any and all shares, interests,
participation, or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests, including but not
limited to partnership interests, in a Person (other than a corporation), and
any and all warrants or options to purchase any of the foregoing.
Closing Date means the date hereof.
<PAGE>
Code means the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto.
Collateral means, collectively, the Mortgaged Properties and
all other property and interests in property now owned or hereafter acquired and
upon which a Lien has been or is purported or intended to have been granted in
favor of the Administrative Agent or its predecessor -in-interest as
Administrative Agent, Wells Fargo Bank, National Association.
Construction Budget means, with respect to any Project under
Development, the total budgeted costs (including soft and hard costs), required
to cause such Project under Development to become Construction Complete,
including the acquisition cost of land.
Construction Complete means, with respect to any Mortgaged
Property, that (a) construction of such Mortgaged Property is complete, in
accordance with the Plans and Specifications of such Mortgaged Property, (b)
final, permanent and unconditional certificates of occupancy permitting
occupancy of all portions of such Mortgaged Property as an extended stay
facility have been issued and are in full force and effect, (c) all portions of
such Mortgaged Property are, or may become at any time, without the consent or
approval of any Person, open for business to the general public as an extended
stay hotel, and (d) the Administrative Agent shall have received evidence
satisfactory to it that the conditions set forth in (a), (b) and (c) have been
satisfied.
Contractual Obligation means as to any Person, any material
provision of any security issued by such Person or of any agreement, instrument,
or other undertaking to which such Person is a party or by which it or any of
its property is bound.
Credit Exposure has the meaning provided in Section 7.17.
Debt Service means, with respect to any period, Interest
Expense for such period, plus scheduled amortization of all Indebtedness of
Borrower or its Subsidiaries (excluding balloon payments and bullet maturities
on loans.)
Debt Yield shall mean the quotient, expressed as a
percentage, obtained by dividing (x) the aggregate Net Operating Income derived
from the Mortgaged Properties during the four calendar quarters preceding the
calendar quarter in which the calculation occurs by (y) the average outstanding
principal balance of the Loan during the calendar quarter preceding the calendar
quarter in which the calculation occurs.
Decisions has the meaning set forth in Section 7.14.
Default means any condition or event that, with the giving
of notice or the lapse of time or both, would constitute an Event of Default
hereunder or under the Promissory Notes or the other Loan Documents.
Default Rate has the meaning set forth in Section 2.3(b)
hereof.
<PAGE>
Direct Costs means actual costs paid by Borrower or any
Subsidiary of Borrower for labor, materials, equipment, contractor and
subcontractor fees and all other costs (other than Acquisition Costs and
Indirect Costs) in connection with the construction of improvements on a
Property.
Dollar and the sign $ each mean lawful currency of the
United States of America.
EBITDA means, with respect to any period and any Person, the
net income of such Person, plus, to the extent included in the calculation of
earnings, interest expense (per GAAP), income taxes, depreciation and
amortization expense, other non-cash losses relating to restructuring,
downsizing in connection with a corporate personnel restructuring or other
unusual events, accounting changes, write-downs, reclassifications or
revaluations, distributed earnings of Unconsolidated Affiliates and losses on
sales of property, less, to the extent excluded in the calculation of earnings,
gains on sales of property.
Eligible Assignee means a Person who, at the time of
determination is (a) a Lender; (b) a commercial bank, trust company, savings and
loan association, savings bank, insurance company, investment bank or pension
fund organized under the laws of the United States of America or any state
thereof, and having total assets in excess of $5,000,000,000; or (c) a
commercial bank organized under the laws of any other country which is a member
of the Organization for Economic Cooperation and Development or a political
subdivision of any such country, and having total assets in excess of
$5,000,000,000, provided such bank is acting through a branch or agency located
in the United States of America. If such a Person is not currently a Lender,
such Person's senior unsecured long term indebtedness must be rated BBB or
higher by Standard & Poor's, BA2 or higher by Moody's Investor's Services, or
the equivalent or higher of either such rating by another rating agency
acceptable to the Administrative Agent.
Eligible Costs means, with respect to each Mortgaged
Property, the Eligible Cost ascribed thereto in Schedule 2 annexed hereto.
Environment means soil, surface waters, groundwaters, land,
stream, sediments, surface or subsurface strata and ambient air.
Environmental Discharge means any discharge of pollutants or
effluent into any aquifer or water source or system (whether naturally occurring
or man made), gaseous emissions (including, without limitation, air emissions),
particulate emissions and noise emissions, in each case, in violation of any
Relevant Environmental Law.
ERISA means the Employee Retirement Income Security Act of
1974, as amended from time to time.
ERISA Affiliate means each trade or business (whether or not
incorporated) that together with the Borrower or a Subsidiary of the Borrower
would be deemed to be a single employer within the meaning of Section 4001 of
ERISA.
<PAGE>
Event of Default has the meaning provided in Article VI.
Exchange Act means the Securities and Exchange Act of 1934,
as amended.
Federal Funds Rate means, for any day of determination, the
rate per annum (rounded upwards, if necessary, to the nearest 1/100th of one
percent) equal to the weighted average of the rates on overnight Federal Funds
transacted with members of the Federal Reserve System arranged by Federal Funds
brokers on such date, as published by the Federal Reserve Bank of New York on
the Business Day next succeeding such day, provided that (i) if such day is not
a Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the next
succeeding Business Day, and (ii) if no such rate is so published on such next
succeeding Business Day, the Federal Funds Rate for such day shall be the
average rate quoted to the Administrative Agent on such day on such transactions
as determined by the Administrative Agent.
Financing Statements means UCC-1 Financing Statements made
by the Borrower or a Subsidiary Mortgagor, as debtor, in favor of the
Administrative Agent, as secured party, covering all fixtures, equipment and
personal property of the Borrower or such Subsidiary Mortgagor at the Mortgaged
Properties.
FIRREA Appraisal means an appraisal conforming in all
respects with the requirements of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, 12 USC 1811, as amended and as the same may be
amended from time to time, which appraisal is otherwise satisfactory to the
Administrative Agent and is prepared by an appraiser satisfactory to the
Administrative Agent at the sole cost and expense of Borrower.
Free Cash Flow means, with respect to any Person for any
period, such Person's EBITDA for such period, plus Net Cash Proceeds of sales of
assets, less (i) interest expense paid or accrued (without duplication), (ii)
income taxes paid or accrued (without duplication), (iii) routine capital
expenditures on operating properties and (iv) to the extent excluded in the
calculation of earnings, payments made under the Sale-Leaseback Facility.
GAAP means generally accepted accounting principles as in
effect at the time of application applied on a consistent basis; provided,
however, if any change is adopted after the Closing Date in generally accepted
accounting principles which either Borrower or the Administrative Agent
determines to be adverse, and if either such party notifies the other of such
determination, then both Borrower and the Administrative Agent shall negotiate
in good faith the extent to which such change shall be adopted with respect to
the matters to which the definition of GAAP is applicable under the Loan
Documents, and the term GAAP shall mean (i) in the event a written agreement
with respect to such change is executed and delivered by both Borrower and
Required Lenders within thirty (30) days following such notice, generally
accepted accounting principles applied on a consistent basis giving effect to
such agreement or (ii) in any other event, generally accepted accounting
principles as in effect at the time immediately prior to the adoption of such
change applied on a consistent basis.
<PAGE>
Governmental Authority means any nation and any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or pertaining
to government, including, but not limited to, the Federal Reserve Board, any
Federal Reserve Bank, any other central banking authority, or any agency or
subdivision thereof.
Gross Asset Value Cost or GAV Cost means the value of
all cash, cash equivalents and Properties owned by the Borrower and its
Subsidiaries, valued at one hundred percent (100%) of cost.
Gross Asset Value Market (GAV Market) means Adjusted
EBITDA capitalized at a rate per annum equal to 11%, calculated with reference
to the four calendar quarters preceding the calendar quarter in which the
calculation occurs.
Guarantee Obligation means, as to any Person (the
Guaranteeing Person ), any obligation of (a) the Guaranteeing Person or (b)
another Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the Guaranteeing Person has issued a
reimbursement, counterindemnity, or similar obligation, in either case
guaranteeing any Indebtedness, leases, dividends, or other obligations (the
primary obligations ) of any other third Person (the primary obligor ) in any
manner, whether directly or indirectly, including, without limitation, any
obligation of the Guaranteeing Person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (x) for the purchase
or payment of any such primary obligation or (y) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase property, securities, or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the owner of any such
primary obligation against loss in respect thereof; provided, however that the
term Guarantee Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Guarantee Obligation of any Guaranteeing Person shall be deemed to be the lower
of (a) an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee Obligation is made and (b) the
maximum amount for which such Guaranteeing Person may be liable pursuant to the
terms of the instrument embodying such Guarantee Obligation, unless such primary
obligation and the maximum amount for which such Guaranteeing Person may be
liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such Guaranteeing Person's maximum reasonably
anticipated liability in respect thereof as determined by the Lenders in good
faith.
Hazardous Materials means any substance in quantities and/or
form:
(a) the presence of which requires or shall
hereafter require notification, investigation or remediation under any Relevant
Environmental Law; or
<PAGE>
(b) which is or becomes defined as a hazardous waste,
hazardous material or hazardous substance or controlled industrial waste
or Pollutant or Acontaminant under any Relevant Environmental Law, including
without limitation, which contains gasoline, diesel fuel or other petroleum
hydrocarbons or volatile organic compounds, or which contains polychlorinated
biphenyls or asbestos or urea formaldehyde foam insulation, or which contains or
emits radioactive particles, waves or material, including radon gas; or
(c) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is
or becomes regulated under any Relevant Environmental Law or by any Governmental
Authority; or
(d)pursuant to applicable Relevant Environmental Laws,
the presence of which on the Mortgaged Property causes or threatens to cause a
nuisance upon the Mortgaged Property or adjacent properties; or poses or
threatens to pose a hazard to the Mortgaged Property or to the health or safety
of persons or property on or about the Mortgaged Property.
HPT means HPT HSD Properties Trust, the purchaser-lessor
under the Sale- Leaseback Facility.
Implied Pool Debt Service means, as of the last day of any
calendar quarter, the debt service, calculated on an annualized basis, of a
self-liquidating loan with an original principal amount equal to the average
daily Adjusted Maximum Availability Amount during such calendar quarter,
amortized over 300 months (25 years) at an interest rate per annum equivalent to
the higher of (i) the actual interest rate under the Loan and (ii) the then
current 10-year Treasury Rate plus three percent (3.0%).
Indebtedness of any Person means, as of the date of any
determination thereof, without duplication:
(i) all obligations of such Person for borrowed money
and for the deferred purchase price of property or services, and obligations
evidenced by bonds, debentures, notes, or other similar instruments;
(ii) all rental or other obligations under leases
required to be capitalized under
GAAP;
(iii) all Guarantee Obligations of such Person, including
obligations of Unconsolidated Affiliates guaranteed by such Person or with
respect to which such Person is otherwise obligated on a recourse basis;
(iv) such Person's Ownership Share of all obligations and
liabilities of its Unconsolidated Affiliates;
<PAGE>
(v) all liabilities in respect of currency or interest rate
swap, cap or collar arrangements or any similar derivative instrument; provided
that if such currency or interest rate swap, cap or collar arrangements or any
similar derivative instrument has been entered into in order to hedge the
currency or interest rate exposure of such Person in respect of current or
contemplated Indebtedness, the amount of any liability in respect of such
arrangement or instrument shall not be included in the determination of
Indebtedness; and
(vi) Indebtedness of others secured by any Lien upon property
owned by such Person, whether or not assumed by such Person.
Indirect Costs means actual costs incurred by Borrower or a
Subsidiary of Borrower for title insurance, brokerage commissions, closing costs
and escrow fees, real estate taxes, legal fees design and architectural fees,
permits and all other costs or fees (other than Acquisition Costs and Direct
Costs) incurred in connection with the development of a Property.
Intellectual Property has the meaning set forth in Section
4.12.
Interest Expense means (without redundancy) the sum of all
accrued, paid or capitalized interest costs of Borrower and its consolidated
Affiliates (excluding capitalized interest funded from an interest reserve),
including, without limitation, payments made under the Sale-Leaseback Facility
(to the extent deemed interest costs under GAAP) plus (i) Borrower's Ownership
Share of interest expense in its Unconsolidated Affiliates and (ii) 100% of any
accrued, paid, or capitalized interest incurred (without redundancy) on any
obligation for which Borrower is wholly or partially liable under repayment,
interest carry or performance guarantees, or other relevant liabilities, minus,
to the extent included in the foregoing, financing costs and fees paid prior to
the Closing Date which relate to (x) Indebtedness which has been incurred prior
to the Closing Date, (y) the Sale-Leaseback Facility and (z) the Loan.
Interest Period has the meaning set forth in Section 2.4.
Leases means all leases, licenses and other arrangements
pursuant to which any Person has the right or option to occupy or use any
portion of any Mortgaged Property, and shall include all right, title and
interest to receive all rent and other revenue thereunder, and shall include all
guaranties of the obligations of all such Persons.
Lender or Lenders has the meaning set forth in the
introductory paragraph of this Agreement, and their permitted successors and
assigns.
Lending Office means, with respect to any of the Lenders,
the branch or branches (or affiliate or affiliates) from which any of such
Lender's loans are made or maintained and for the account of which all payments
of principal of, and interest on, such Lender's loans are made, as designated in
writing from time to time to the Administrative Agent and the Borrower.
<PAGE>
LIBO Rate means, with respect to any Interest Period, the
sum of the Applicable Margin plus the rate per annum appearing on Dow Jones
Markets (Telerate) Page 3750 (the Telerate Screen) at or about 11:00 a.m. (New
York time), subject to corrections (if any) made on the Telerate Screen, two
Business Days prior to the commencement of the Interest Period for which such
LIBO Rate will apply (the Rate Fixing Day ) for the offering of deposits in
Dollars for a period comparable to the Interest Period for which such LIBO Rate
will apply; provided, however, that if (x) no relevant rate appears on the
Telerate Screen for the purposes of the foregoing calculation or (y) the
Administrative Agent determines that no rate for a period of comparable duration
to that Interest Period appears on the Telerate Screen at the relevant time,
then LIBO Rate shall mean the Applicable Margin plus the arithmetic mean
(rounded upwards, if necessary, to two decimal places) of the respective rates,
as supplied to the Administrative Agent at its request, quoted by leading banks
to the Lenders in the London Interbank Market at or about 11:00 a.m. (New York
time) on the Rate Fixing Day for the offering of deposits in Dollars for a
period comparable to the Interest Period for which such LIBO Rate will apply. If
any of the Lenders is unable or otherwise fails to supply an offered rate by
11:30 a.m. (New York time) on the Rate Fixing Day, LIBO Rate shall be
determined on the basis of the quotations of the remaining Lenders so long as at
least two Lenders supply an offered rate. In the event there are less than two
Lenders supplying offered rates, then such offered rate shall be determined by
the Administrative Agent from an alternate, substantially similar independent
source available to the Administrative Agent or shall be calculated by the
Administrative Agent by a substantially similar methodology as that theretofore
used to determine such offered rate on the Telerate Screen in the London
Interbank market for a term comparable to such Interest Period and in an amount
equal to or comparable to the principal amount of the borrowing to which such
Interest Period relates. Each determination of the LIBO Rate by the
Administrative Agent, in absence of demonstrable error, shall be conclusive and
binding.
Lien means with respect to any asset: any mortgage, pledge,
security interest, encumbrance, lien, charge, or deposit arrangement or other
arrangement having the practical effect of the foregoing and shall include the
interest of a vendor or lessor under any conditional sale agreement, capitalized
lease, or other title retention agreement relating to such asset or the filing
of any financing statement under the UCC or comparable law.
Loan has the meaning provided in Section 2.1 hereof.
Loan Documents means, collectively, this Agreement, the
Promissory Notes, all Mortgages, all Financing Statements, the Environmental
Indemnity, all Subsidiary Mortgagor Guaranties (as that term is defined in the
First Restatement) and all other documents, certificates, affidavits and other
instruments executed and delivered by the Borrower and its Affiliates pursuant
thereto or in connection therewith, as each of the same may be amended, modified
or otherwise supplemented from time to time.
Loss has the meaning provided in Section 7.16(c).
Margin Stock has the meaning provided in Regulation U.
Material Adverse Change means any change, event or
circumstance which has or is reasonably likely to have a material adverse effect
on (i) the ability of the Borrower and its Subsidiaries to perform their
respective obligations under this Agreement or any of the other Loan Documents,
or (ii) the business, condition (financial or otherwise) or results of operation
of the Borrower and its Subsidiaries when taken as a whole.
Maturity Date means February 28, 2003.
<PAGE>
Maximum Availability Amount means, as of any date of
calculation, the sum of (x) the Revolving Portion of the Loan and (y) the
outstanding principal balance of the Term Portion of the Loan.
Maximum Dividend Amount means, as of any date of
determination, fifty percent (50%) of Free Cash Flow of Borrower derived during
the period commencing September 30, 1999 and ending on such date of
determination.
Mortgaged Properties means, collectively, each Property of
the Borrower or any Subsidiary Mortgagor which is (and for so long as same is)
mortgaged to the Administrative Agent pursuant to the terms hereof, and shall
include all of the Property , as such term is defined in the Mortgages.
Mortgages means those certain deeds of trust, deeds to
secure debt, mortgages and security agreements with assignments of leases,
rents, operating agreements and management agreements and fixture filings
delivered by the Borrower or any Subsidiary Mortgagor in favor of the
Administrative Agent and covering the Mortgaged Properties, as the same may be
amended, modified, or otherwise supplemented from time to time.
Net Cash Proceeds means with respect to any sale, transfer
or other disposition by the Borrower or a Subsidiary of any asset (including
stock of a Subsidiary), the aggregate cash proceeds (including cash proceeds
received by way of deferred payment of principal pursuant to a note, installment
receivable, reserve for adjustment or otherwise, but only as and when received)
received by the Borrower or a Subsidiary pursuant to such sale, transfer or
other disposition, net (subject to reserves for normal course post-closing
adjustments and reserves for indemnification obligations in connection with such
asset sale) of (i) the direct costs relating to such sale, transfer or other
disposition (including sales commissions and legal and accounting fees), (ii)
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), (iii)
amounts required to be applied to the repayment of any Indebtedness secured by a
Lien on the asset subject to such sale, transfer or other disposition (other
than hereunder), and (iv) liabilities of the entity, or relating to the business
or assets sold, transferred or otherwise disposed of which are retained by the
Borrower or the applicable Subsidiary.
Net Operating Income or NOI means, with respect to any
appropriate period and any Properties, the gross revenues from such Properties
for such period less all direct operating expenses of such Properties,
including, without limitation, expenses for the following to the extent same
relate to such Properties: personnel, landscaping, contracts, utilities,
housekeeping, repairs and maintenance, marketing, administrative duties,
insurance and real estate taxes for such period (other than interest expense,
depreciation, amortization and expenditures capitalized in accordance with
GAAP).
Net Worth means the tangible net worth of the Borrower,
calculated on a GAAP basis, plus increases in accumulated depreciation and
amortization that occur subsequent to Closing.
<PAGE>
Non-public Information means any information delivered by
the Borrower to the Administrative Agent or the Lenders (in their capacities as
such) pursuant to this Agreement which is not publicly disclosed or known, or
which cannot be readily derived from information which is publicly disclosed or
known.
Notice of Borrowing means a notice in the form of Exhibit C
annexed hereto pursuant to which Borrower may request a disbursement of the
Revolving Portion of the Loan.
Notice of Conversion means, with respect to proposed
conversion of a Short-Notice Borrowing in accordance with the terms of Section
2.16 hereof, a notice substantially in the form of Exhibit D annexed hereto.
Notice of Additional Interest Period Selection means a
notice in the form of Exhibit E-1 annexed hereto pursuant to which Borrower may
specify an additional Interest Period or Interest Periods applicable to portions
of the Loan.
Notice of Interest Period Selection means a notice in the
form of Exhibit E annexed hereto pursuant to which Borrower shall specify an
Interest Period or Interest Periods applicable to the initial disbursement of
the Loan.
Notifying Lender has the meaning provided in Section 2.10.
Ownership Share means, with respect to any Subsidiary of a
Person that is not a wholly owned Subsidiary and any Unconsolidated Affiliate of
a Person, the greater of (i) such Person's relative nominal direct and indirect
ownership interest (expressed as a percentage) in such Subsidiary or
Unconsolidated Affiliate and (ii) such Persons relative direct and indirect
economic interest (expressed as a percentage) in such Subsidiary or
Unconsolidated Affiliate, determined in accordance with the applicable
provisions of the declaration of trust, articles or certificate of organization,
articles of organization, partnership agreement, joint venture agreement or
other applicable organizational document of such Subsidiary or Unconsolidated
Affiliate.
Participant has the meaning provided in Section 7.17.
Payment Office means the office of the Administrative Agent
located at Two World Financial Center, New York, New York 10281-1050.
Percentage means each Lender's percentage share of the Loan
as set forth on Exhibit A annexed hereto.
Period Fraction means, with respect to any period of time, a
fraction, the numerator of which is the actual number of days in such period,
and the denominator of which is 360.
Permissible Assumed Indebtedness has the meaning provided in
Section 5.3(a)(iv).
<PAGE>
Permitted Encumbrances means, with respect to each of the
Mortgaged Properties, (i) all exceptions to title insurance coverage set forth
in the title insurance policies insuring the Mortgages covering such Mortgaged
Properties, other than standard printed exceptions, as of the date such policies
are issued or updated by endorsement, (ii) all liens for real estate taxes and
assessments provided either (x) that the last day by which such taxes or
assessments may be paid without the imposition of any interest, fine or penalty
has not occurred, or (y) the amount or validity of such taxes or assessments are
being contested in good faith by appropriate proceedings which have the effect
of staying enforcement or execution of such liens and with respect to which
adequate reserves in conformity with GAAP have been provided on the books of
Borrower, (iii) mechanics and materialmen's liens, the existence of which do
not constitute or create a Material Adverse Change, and which remain
unsatisfied, unbonded or unstayed for no more than thirty (30) days other than
those the amount or validity of which are being contested in good faith by
appropriate proceedings which have the effect of staying enforcement or
execution of such liens and with respect to which adequate reserves in
conformity with GAAP have been provided on the books of Borrower, (iv) Leases
which are subordinate to the lien of the Mortgages and (v) such other matters
affecting title to the Mortgaged Properties as the Administrative Agent shall
from time to time approve in writing.
Person means any individual, partnership, firm, corporation,
association, joint venture, joint stock company, trust, unincorporated
organization or other entity, or any governmental or political subdivision or
agency, department, or instrumentality thereof.
Plan means any multiemployer plan or single employer plan,
as defined in Section 4001 and subject to Title IV of ERISA, which is
maintained, or at any time during the five calendar years preceding the date of
this Agreement was maintained, for employees of the Borrower or a Subsidiary of
the Borrower or an ERISA Affiliate.
Plans and Specifications means the final plans and
specifications filed with the appropriate Governmental Authorities with respect
to the construction of an extended stay hotel facility on a Mortgaged Property.
Presence means, when used in connection with Hazardous
Materials, treatment, use, storage, handling, repair, encapsulation, disposal,
transportation, spill, discharge and release.
Prime Lending Rate means the rate at which the
Administrative Agent announces in New York, New York from time to time as its
prime lending rate, as in effect from time to time. The Prime Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer by the Administrative Agent or any Lender. The
Administrative Agent and each Lender may make commercial loans or other loans at
rates of interest at, above or below the Prime Lending Rate.
Project under Development means a Property (a) on which
construction of an extended stay facility has commenced and (b) which lacks any
permit or certificate required for the lawful occupancy thereof as an
extended-stay facility.
<PAGE>
Promissory Notes means the promissory notes made by the
Borrower to each Lender substantially in the form of Exhibit F annexed hereto.
Properties means all land owned or leased by the Borrower
and/or any of its Subsidiaries, all buildings, structures, improvements,
fixtures and equipment, and parking areas located thereon and therein, and all
easements, rights, interests, privileges and other appurtenances thereto, of any
nature whatsoever. An individual Property is a portion of land owned or leased
by the Borrower and/or its Subsidiaries which is bound by a perimeter containing
no land not owned or leased by Borrower and/or any of its Subsidiaries, together
with all buildings, structures, improvements and parking areas fixtures and
equipment located thereon, and all easements, rights, interests, privileges and
other appurtenances thereto, of any nature whatsoever.
Purchasing Lender has the meaning provided in Section 7.18.
Reaffirmation of Environmental Indemnity means the Fourth
Reaffirmation of Environmental Indemnity to be executed by the Borrower in favor
of the Administrative Agent, substantially in the form of Exhibit B annexed
hereto.
Reaffirmation of Subsidiary Guaranty means the Reaffirmation
of Subsidiary Guaranty in favor of the Administrative Agent in the form of
Exhibit H annexed hereto.
Realty means SC Realty Incorporated, a Nevada corporation.
Regulation D and Regulation U mean Regulation D and
Regulation U, respectively, of the Board of Governors of the Federal Reserve
System as from time to time in effect and any successor thereto.
Release has the meaning provided in Section 8.11.
Release Parcel has the meaning provided in Section 8.11.
Release Price means, with respect to each Mortgaged
Property, the release price allocated thereto on Schedule 2 annexed hereto.
Release Request has the meaning provided in Section 8.11.
<PAGE>
Relevant Environmental Laws means all Requirements of Law
and all other applicable Federal, state and local environmental statutes,
regulations, rules, ordinances, codes, licenses, permits, approvals, plans,
authorizations, guidelines, concessions, franchises, orders and similar items,
and rules of common law (whether now existing or hereafter enacted or
promulgated and whether now contemplated, anticipated or foreseeable or not) of
all courts and Governmental Authorities, and all applicable judicial and
administrative and regulatory decrees, judgments and orders, including common
law rulings and determinations, relating to injury to or the protection of the
Environment, including, without limitation, all requirements pertaining to
reporting, licensing, permitting, investigation, remediation and removal of
emissions, discharges, releases or threatened releases of Hazardous Materials
into the Environment, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials.
Required Lenders means the Lenders holding at least sixty
six and two thirds percent (66 2/3%) of the Maximum Availability Amount.
Requirement of Law means, as to any Person, the certificate
of incorporation and by-laws, certificate of partnership and partnership
agreement or other organizational or governing documents of such Person, and any
law, treaty, rule, or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
Revolving Portion of the Loan shall have the meaning
provided in Section 2.15.
Sale-Leaseback Facility means the lease dated February 23,
1999 between HPT, as lessor, and HVI (2) Incorporated, a Delaware corporation,
as lessee.
Stockholders Equity means stockholders equity as reflected
on the balance sheet of the Borrower determined in accordance with GAAP.
Studies means environmental studies and investigations
respecting (i) the condition and circumstances of the Environment on, under,
about or affecting any Mortgaged Property, (ii) any actual or suspected
Environmental Discharge or Presence of any Hazardous Materials on, under, about
or affecting any Mortgaged Property, and (iii) any actual or suspected violation
of any Relevant Environmental Laws on, under, about or related to any Mortgaged
Property.
Subsidiary of any Person means a corporation, partnership,
limited liability, trust or other entity of which a majority of the outstanding
shares of stock or beneficial interests of each class having ordinary voting
power is owned by such Person, by one or more Subsidiaries of such Person, or by
such Person and one or more of its Subsidiaries.
Subsidiary Mortgagor means any wholly-owned Subsidiary of
Borrower or wholly-owned Subsidiary of a wholly-owned Subsidiary of Borrower.
Taxes has the meaning provided in Section 2.17.
Term Portion of the Loan means that portion of the Loan
which is not the Revolving Portion of the Loan.
Total Costs means, with respect to any Property, the sum of
(i) the Acquisition Costs with respect to such Property, (ii) the Direct Costs
with respect to such Property, and (iii) the Indirect Costs with respect to such
Property, all calculated on a cost to completion basis.
<PAGE>
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Total Liabilities includes all GAAP liabilities and certain
non-GAAP (off balance sheet) liabilities with no redundancy. Included are the
following: non-recourse mortgage debt; letters of credit; binding purchase
obligations; repurchase obligations; forward commitments; unsecured debt;
accounts payable; accrued expenses, capitalized lease obligations, and to the
extent required under GAAP to be reported as a liability, any other lease
obligations (including ground leases); guarantees of indebtedness; subordinated
debt; unfunded obligations of Borrower and its Subsidiaries; forward equity
commitments (but excluding forward equity subscriptions for which stock is
issued within thirty (30) days of receipt of equity proceeds); Derivative
Exposure (as hereinafter defined); and any other non-GAAP liability that the
Security and Exchange Commission has determined, either currently or in the
future, should be treated as debt. Total Liabilities will include (without
redundancy): (a) one hundred percent (100%) of the recourse liability of
Borrower and its Subsidiaries under (i) guarantees of indebtedness or (ii) loans
where Borrower or a Subsidiary of Borrower is liable for debt as a general
partner and (b) Borrower's and its Subsidiaries Ownership Share of non-recourse
debt in their Unconsolidated Affiliates. As used herein, Derivative Exposure
means the maximum liability (including costs, fees and expenses), based upon a
liquidation or termination as of the date of the applicable covenant compliance
test, of any Person under any interest rate swap, collar, cap or other interest
rate protection agreements, treasury locks, foreign currency exchange
agreements, commodity purchase or option agreements or other interest or
exchange rate or commodity price hedging agreements.
For purposes of purchase obligations, repurchase obligations
and forward commitments, the amount of Total Liabilities of a Person at any
given time in respect of a contract to purchase real property shall be
determined as follows: (x) if, at such time, the seller of such real property
would be entitled to specific enforcement of the contract against such Person,
then the amount of Total Liabilities shall equal the total purchase price
payable by such Person under the contract, otherwise, (y) the amount of Total
Liabilities shall equal the aggregate amount of due diligence deposits, earnest
money payments and other similar payments made by such Person under the contract
which, at such time, would be subject to forfeiture upon termination of such
contract.
For purposes of purchase obligations, repurchase obligations
and forward commitments, the amount of Total Liabilities of a Person at any
given time in respect of a contract to purchase a property being renovated or
developed by a third party shall equal the maximum amount reasonably estimated
to be payable under such contract during the remaining term of such contract.
Treasury Rate means for any day the weekly average auction
rate on United States Treasury Bonds with a maturity of ten years, as published
in the Federal Reserve Bulletin and made available each week by the Federal
Reserve Board in Statistical Release H.15(519) or any successor publication.
UCC means the Uniform Commercial Code as from time to time
in effect in the relevant jurisdiction.
Unconsolidated Affiliate means, with respect to any Person,
an unconsolidated affiliate of such Person (determined in accordance with GAAP).
Updated Appraisals shall have the meaning set forth in
Section 5.2(l).
<PAGE>
Use Requirements means any and all building codes or
permits, certificates of occupancy or compliance, restrictions of record,
easements, reciprocal easements or other agreements, subdivision, zoning,
wetlands protection, or land use laws or ordinances and any and all applicable
rules or regulations of any Governmental Authority affecting any part of any
Mortgaged Property.
Section 1.2 Accounting Terms and Determinations. Unless otherwise defined
or specified herein, all accounting terms shall be construed herein, all
accounting determinations hereunder shall be made, all financial statements
required to be delivered hereunder shall be prepared, and all financial records
shall be maintained in accordance with GAAP.
Section 1.3 Other Definitional Terms. The words Ahereof, Aherein, and
Ahereunder and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, section, schedule, exhibit, and like references are to
this Agreement unless otherwise specified. References to agreements,
instruments, documents, statutes, and regulations include all amendments,
supplements, and modifications thereof as may be in effect from time to time.
ARTICLE II. THE LOAN
Section 2.1 The Loan. Subject to and upon the terms and conditions herein
set forth, each Lender, severally and not jointly, agrees to make a loan to
Borrower on the Closing Date in the amount of $110,000,000 (such loans of the
Lenders, the ALoan ), pro rata in accordance with such Lender's Percentage.
Borrower hereby agrees to accept the Loan. Borrower may not reborrow any portion
of the Loan, except as provided in Section 2.15 hereof. The Loan shall be
disbursed to Borrower upon the satisfaction of the conditions set forth in
Article III of this Agreement.
Section 2.2 Promissory Notes; Collateral
(a) The Borrower's obligation to pay the principal of, and
interest on, the Loan shall be evidenced by one or more Promissory Notes in the
face amount of each Lender's Percentage of the Loan, with blanks as to payee,
date and principal amount appropriately completed. The determination by the
Administrative Agent of the amount of principal outstanding hereunder or under
any Promissory Note shall, except for patent error, be final, conclusive and
binding upon the Borrower for all purposes.
(b) Each borrowing, repayment and permitted reborrowing
hereunder shall be recorded by the Administrative Agent and the entries in such
records shall, except for patent error, be final, conclusive and binding on the
Borrower; provided, however, that no failure to make or error in making a
recordation of a borrowing shall in any way limit, affect or modify the
obligation of the Borrower to repay any obligations, or the rights of the
Administrative Agent and the Lenders to any amounts due under this Agreement,
the Loan Documents and the Promissory Notes.
<PAGE>
(c) Except as otherwise set forth in the Loan Documents, each
item of Collateral shall secure the payment and performance of all indebtedness
and obligations of the Borrower under this Agreement, including without
limitation, any increased cost under Section 2.11 hereof, and each other Loan
Document.
Section 2.3 Interest on the Loan.
(a) Subject to the provisions of Section 2.15 hereof, the
unpaid principal amount of the Loan shall bear interest at a rate per annum for
each Interest Period equal to the Adjusted LIBO Rate. Interest on the Loan shall
accrue from the date of any borrowing hereunder to but excluding the date of any
repayment thereof and shall be payable (i) in arrears on the first day of each
calendar month, (ii) at maturity (whether by acceleration or otherwise) and
(iii) after maturity, on demand. Notwithstanding the foregoing, should the Loan
bear interest at the Alternate Rate pursuant to the terms of this Agreement,
interest shall be payable (i) in arrears on the first day of each calendar
month, (ii) at maturity (whether by acceleration or otherwise) and (iii) after
maturity, on demand.
(b) Overdue principal and, to the extent permitted by law,
overdue interest in respect of the Loan, and all other overdue amounts owing
hereunder, shall bear interest for each day that such amounts are overdue at a
rate (the Default Rate ) equal to three percent (3%) per annum plus the
interest rate otherwise applicable thereto from the first day such amounts are
overdue to but excluding the date such overdue amounts are paid.
(c) The Administrative Agent, upon determining the Adjusted
LIBO Rate for any Interest Period, shall promptly notify by telephone (confirmed
in writing) or in writing the Borrower thereof. All such determinations shall be
binding on all parties, absent patent error.
<PAGE>
(d) It is expressly stipulated and agreed to be the intent of
the Lenders and Borrower at all times to comply with the applicable law
governing the highest lawful interest rate. If the applicable law is ever
judicially interpreted so as to render usurious any amount called for under this
Agreement or under any of the other Loan Documents, or contracted for, charged,
taken, reserved or received with respect to the Indebtedness evidenced thereby,
or if acceleration of the maturity of the obligations, or the rights of the
Administrative Agent and the Lenders to any amounts due, under this Agreement,
the Loan Documents and the Promissory Notes, any prepayment by Borrower, or any
other circumstance whatsoever, results in Borrower having paid any interest,
penalty, fee or other amount in excess of that permitted by applicable law, then
it is the express intent of Borrower and Lenders that all excess amounts
theretofore collected by Lenders be credited on the principal balance of the
Loan (or, at Lenders option, paid over to Borrower), and the provisions of this
Agreement and the other Loan Documents immediately be deemed reformed and the
amounts thereafter collectible hereunder and thereunder reduced, without the
necessity of the execution of any new document, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder and thereunder. The right to accelerate maturity of the
obligations, or the rights of the Administrative Agent and the Lenders to any
amounts due, under this Agreement, the Loan Documents and the Promissory Notes,
does not include the right to accelerate any interest which has not otherwise
accrued on the date of such acceleration, and Lenders do not intend to collect
any unearned interest in the event of acceleration. All sums paid or agreed to
be paid to Lenders for the use, forbearance or detention of the obligations, or
the rights of the Administrative Agent and the Lenders to any amounts due, under
this Agreement, the Loan Documents and the Promissory Notes shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such obligations and amounts until payment in full
so that the rate or amount of interest on account of such secured obligations
does not exceed the maximum rate or amount of interest permitted under
applicable law.
Section 2.4 Interest Periods. One or more interest periods (each an
AInterest Period ) shall be applicable with respect to the outstanding principal
amount of the Loan. Each Interest Period shall be a period of one, two, three or
six months as specified by Borrower in accordance with the terms of this
Agreement. Simultaneously with the execution and delivery hereof, Borrower shall
furnish the Administrative Agent with a Notice of Interest Period Selection
specifying the initial Interest Period or Interest Periods applicable to the
Loan. Notwithstanding the foregoing:
(i) the initial Interest Period for all or any
portion of the Loan shall commence on the date of the disbursement of the Loan;
(ii) Provided that no Event of Default shall have
occurred and be continuing, at the end of the initial Interest Period and each
subsequent Interest Period applicable to any portion of the Loan, the Borrower
shall be permitted to select an additional Interest Period for the applicable
portion of the Loan by delivering a Notice of Additional Interest Period
Selection to the Administrative Agent at any time prior to 12:00 noon (New York
time) on the third Business Day prior to the expiration of the then current
Interest Period applicable to such portion of the Loan, provided that if no
Interest Period selection is delivered to the Administrative Agent by such time,
the Borrower shall be deemed to have selected an Interest Period of one month
and such Interest Period selected or deemed to have been selected for such
portion of the Loan may not be changed without the consent of the Administrative
Agent;
(iii) if any Interest Period would otherwise
expire on a day which is not a Business Day, such Interest Period shall expire
on the next succeeding Business Day, provided that if any Interest Period in
respect of a portion of the Loan (other than a borrowing referred to in Section
2.10(b)(ii) or Section 2.11(b)(ii)) would otherwise expire on a day that is not
a Business Day but is a day of the month after which no further Business Day
occurs in such month, such Interest Period shall expire on the next preceding
Business Day;
(iv) any Interest Period in respect of a portion
of the Loan which begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall, subject to clause (v) below, end on the
last Business Day of a calendar month;
(v) no Interest Period shall extend beyond the
Maturity Date; and
(vi there shall be no more than six Interest Periods
in effect at any time.
<PAGE>
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Section 2.5 Repayment of the Loan. The Borrower shall repay to the
Administrative Agent, for the account of the Lenders, the unpaid principal
amount of the Loan, together with all accrued and unpaid interest thereon and
any other sums due and payable to the Lenders hereunder or under the other Loan
Documents, on the Maturity Date.
Section 2.6 Prepayments of the Loan. The Loan may be prepaid in full or in
part without penalty, premium or additional charge, except as set forth in
Section 2.13 hereof; provided such prepayment shall be at least equal to
$100,000 and provided further that in no event may any prepayment (other than a
prepayment in full of the entire unpaid principal balance of the Loan) cause the
Maximum Availability Amount to be less than $50,000,000. Any partial prepayment
of the Loan shall be applied to the Revolving Portion of the Loan, unless
Borrower, simultaneously with the making of such prepayment, instructs the
Administrative Agent to apply the same to the Term Portion of the Loan.
Notwithstanding the foregoing, any prepayment made in connection with the
Release of a Mortgaged Property pursuant to Section 2.15 shall be applied only
to the Term Portion of the Loan. Borrower shall furnish the Administrative Agent
with not less than three (3) business days notice of the prepayment in full of
the Loan. At the time of any prepayment in full of the Loan, Borrower shall pay
all accrued and unpaid interest and all fees and other amounts due to the
Administrative Agent and the Lenders under this Agreement and the other Loan
Documents.
Section 2.7 Fees. The Borrower shall pay to the Administrative Agent for
the account of the Lenders a commitment fee (the ACommitment Fee ) equal to
three eighths of one percent (0.375%) per annum of the Average Undrawn Balance
of the Revolving Portion of the Loan. The amount of the Commitment Fee shall be
calculated by the Administrative Agent and, absent patent error, shall be
binding on all parties. The Commitment Fee shall be due and payable (i)
quarterly in arrears on the last day of each calendar quarter, and (ii) on the
Maturity Date or earlier termination of the Loan. Each payment on account of the
Commitment Fee for a period which is less than a full calendar quarter shall be
prorated. The Borrower agrees to pay to the Administrative Agent such fees for
services rendered by the Administrative Agent as shall be separately agreed upon
in writing between the Borrower and the Administrative Agent.
Section 2.8 Payments, Etc
(a) All payments under this Agreement shall be pro rata among
the Lenders in accordance with their Percentages and shall be made by the
Borrower, without defense, setoff, or counterclaim, to the Administrative Agent
not later than 12:00 noon (New York time) on the date when due and shall be made
in Dollars in immediately available funds at the Payment Office and any funds
received by the Administrative Agent after such time shall, for all purposes of
this Agreement, be deemed to have been paid on the next succeeding Business Day.
The Administrative Agent shall thereafter cause to be distributed to the
Lenders, on the Business Day when paid, in like funds their Percentage of
payments so received. Notwithstanding the foregoing, any payments received by
the Administrative Agent after 12:00 noon (New York time) shall be distributed
to the Lenders on the following Business Day.
<PAGE>
(b) Whenever any payment to be made hereunder or under the
Promissory Notes shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day
(unless the relevant Interest Period expires on the next preceding Business Day
pursuant to Section 2.4(iii), in which case the due date shall be the next
preceding Business Day) and, with respect to payments of principal, interest
thereon shall be payable at the applicable rate during such extension.
(c) All computations of interest on the unpaid principal
amount of the Loan shall be made on the basis of a year of (x) in the case of
interest computed on the basis of the Adjusted LIBO Rate, 360 days, and (y) in
the case of interest computed on the basis of the Alternate Rate, 365/366 days,
in either case for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest is
payable.
Section 2.9 Interest Rate not Ascertainable, etc. If the Administrative
Agent shall have determined (which determination shall be conclusive and binding
upon the Borrower) that on any date for determining the LIBO Rate for any
Interest Period, by reason of any circumstances affecting the interbank
Eurodollar market generally, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in the
definition of Adjusted LIBO Rate, then, and in any such event, the
Administrative Agent shall forthwith give notice (by telephone confirmed in
writing) to the Borrower of such determination. Until the Administrative Agent
notifies the Borrower that the circumstances giving rise to the suspension
described herein no longer exist:
(i) each borrowing of the Revolving Portion
of the Loan made pursuant to Section 2.15 hereof shall bear interest at the then
applicable Alternate Rate; and
(ii) the entire unpaid principal amount of the Loan
shall immediately convert into
a Loan bearing interest at the then applicable Alternate Rate with an Interest
Period ending on the date on which the Interest Period applicable to the
affected borrowing expires.
Section 2.10 Illegality
(i) If any Lender (a ANotifying Lender ) shall have determined
at any time that the making or continuance of any portion of the Loan has become
unlawful by compliance by such Lender in good faith with any applicable
Requirement of Law adopted or becoming effective after the date hereof, then, in
any such event, the Notifying Lender shall give prompt notice (by telephone
confirmed in writing) to the Administrative Agent and the Borrower of such
determination.
(ii) Upon the giving of the notice to the Administrative Agent
and the Borrower referred to in subsection (a) above, (i) the Borrower's right
to request and the Notifying Lender's obligation to fund any portion of the
Revolving Portion of the Loan shall be suspended and (ii) any portion of the
Loan held by such Lender shall immediately convert into a Loan bearing interest
at the then applicable Alternate Rate with an Interest Period ending on the date
on which the Interest Period applicable to the affected borrowing expires.
<PAGE>
Section 2.11 Increased Costs
(a) If, by reason of (x) after the date hereof, the
implementation of or any change (including, without limitation, any change by
way of imposition or increase of reserve or capital adequacy requirements) in,
or in the interpretation by any Governmental Authority or any other recognized
authority of, any law or regulation, or (y) the compliance with any guideline or
request from any central bank or other Governmental Authority or
quasi-Governmental Authority exercising control over banks or financial
institutions generally (whether or not having the force of law) adopted or
becoming effective after the date hereof:
(i) any Lender (or its Lending Office) shall be
subject to any tax, duty, or other charge with respect to the Loan or its
obligation to fund any portion of the Revolving Portion of the Loan, or shall
change the basis of taxation of payments to any Lender of the principal of or
interest on the Loan or its obligation to fund any portion of the Revolving
Portion of the Loan (except for changes in the rate of tax on the overall net
income of such Lender or its Lending Office imposed by the jurisdiction in which
such Lender's principal executive office or Lending Office is located); or
(ii) any reserve, special deposit, or similar
requirement (including, without limitation, any reserve, special deposit, or
similar requirement imposed by the Board of Governors of the Federal Reserve
System) against assets of, deposits with or for the account of, or credit
extended by, any Lender or its Lending Office shall be imposed or deemed
applicable or any other condition affecting borrowings hereunder shall be
imposed on such Lender or its Lending Office or the interbank Eurodollar market;
and as a result thereof there shall be any cost to such Lender of agreeing to
make or maintain the Loan or to fund any portion of the Revolving Portion of the
Loan (excluding any cost reflected in the Adjusted LIBO Rate or in the Alternate
Rate), or there shall be a reduction in the amount received or receivable by
such Lender or its Lending Office (excluding any reduction reflected in the
Adjusted LIBO Rate or in the Alternate Rate), then the Borrower shall from time
to time, upon written notice and demand (including such Lender's reasonable
details with respect to such increased cost) promptly given by the
Administrative Agent, pay to the Administrative Agent for the account of such
Lender, within five Business Days after the date specified in such notice and
demand, additional amounts sufficient to indemnify such Lender against such
increased cost. In the event that a Lender becomes aware of the imposition of a
cost to such Lender or a reduction in the amount to be received or receivable by
such Lender or its Lending Office which is an additional cost pursuant to this
Section 2.11, such Lender shall promptly notify the Administrative Agent and the
Borrower in writing of such imposition or reduction, which notice shall include
such Lender's reasonable details with respect to such increased cost. With
respect to costs or reductions incurred by a Lender pursuant to this Section
2.11 relating to any period in which any portion of the Loan remains
outstanding, the provisions of this Section 2.11 shall survive the termination
of this Agreement and the payment of the Promissory Notes and all other amounts
payable hereunder.
<PAGE>
(b) If the Required Lenders shall notify the Borrower in
writing (with a copy to the Administrative Agent) that at any time, because of
the circumstances described in clause (x) or (y) in Section 2.11(a) or any other
circumstances arising after the Closing Date and relating to any period in which
any portion of the Loan remains outstanding affecting the interbank Eurodollar
market generally, the then applicable Adjusted LIBO Rate, as determined by the
Administrative Agent, will not adequately and fairly reflect the cost to the
Lenders of funding the borrowings, then, subject to Section 2.11(c), thereafter:
(i) any borrowing of the Revolving Portion of
the Loan shall bear interest at the Alternate Rate; and
(ii) any affected portion of the Loan shall
immediately convert to a loan bearing interest at the Alternate Rate with an
Interest Period ending on the date on which the Interest Period applicable to
the affected portion expires.
(c) If the Required Lenders shall notify the Borrower in
writing (with a copy to the Administrative Agent) that at any time, because of
the circumstances described in clause (x) or (y) in Section 2.11(a) or any other
circumstances arising after the Closing Date and relating to any period in which
any portion of the Loan remains outstanding affecting the interbank Eurodollar
market generally, then the Borrower shall be entitled to require each Lender to
which such circumstances apply to assign its Credit Exposure at par to any
Person selected by Borrower that is a financial institution reasonably
acceptable to the Administrative Agent, which assignment shall be effected
pursuant to Section 7.18 hereof.
Section 2.12 Change of Lending Office. Each Lender agrees that it will use
reasonable efforts to designate an alternate Lending Office with respect to
portions of the Loan affected by the matters or circumstances described in
Section 2.9, 2.10 or 2.11 to reduce the liability of the Borrower or avoid the
results provided thereunder, so long as such designation is not disadvantageous
to such Lender as determined by such Lender in its sole discretion.
Section 2.13 Funding Losses. The Borrower shall compensate each Lender,
upon such Lender's written request to the Administrative Agent and the
Administrative Agent's delivery thereof to the Borrower (which request shall set
forth in reasonable detail the basis for requesting such amounts), for all
losses, expenses, and liabilities (including, without limitation, any interest
paid by such Lender to lenders of funds borrowed by it to make or carry its
Percentage of the Loan to the extent not recovered by such Lender in connection
with the re-employment of such funds but excluding loss of anticipated profits),
which such Lender may sustain: (i) if for any reason (other than a default by
such Lender) a borrowing of the Revolving Portion of the Loan does not occur on
the date specified therefor in a Notice of Borrowing (whether or not withdrawn);
(ii) if any repayment of a portion of the Loan occurs on a date which is not the
Maturity Date or the last day of an Interest Period applicable to such portion
(subject to Section 2.6(b)); (iii) if, for any reason, the Borrower defaults in
its obligation to repay any portion of the Loan when required by the terms of
this Agreement; or (iv) the occurrence of any of the events described in Section
2.9, 2.10 or 2.11. With respect to losses, expenses and liabilities which a
Lender may sustain as described in this Section 2.13 relating to any period in
which any portion of the Loan remains unpaid, the provisions of this Section
2.13 shall survive the termination of this Agreement and the payment of the
Promissory Notes and all other amounts payable hereunder.
<PAGE>
Section 2.14 Taxes
(a) All payments made by the Borrower under this Agreement and
the Promissory Notes shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp, or other
taxes, levies, imposts, duties, charges, fees, deductions, reserves or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any Governmental Authority, excluding in the case of each Lender, net income
taxes and franchise taxes (imposed in lieu of net income taxes) imposed on such
Lender as a result of a present or former connection between the jurisdiction of
the government or taxing authority imposing such tax and such Lender (excluding
a connection arising solely from such Lender having executed, delivered, or
performed its obligations or received a payment under, or enforced, this
Agreement or the Promissory Notes) or any political subdivision or taxing
authority thereof or therein (all such non-excluded taxes, levies, imposts,
duties, charges, fees, deductions and withholdings being hereinafter called
Taxes ). If any Taxes are required to be withheld from any amounts payable to
any Lender hereunder or under the Promissory Notes, the amounts so payable to
such Lender shall be increased to the extent necessary to yield to such Lender
(after payment of all Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and the
appropriate Promissory Note. Whenever any Taxes are payable by the Borrower
pursuant to applicable law, as promptly as possible thereafter the Borrower
shall send to the Administrative Agent a certified copy of an original official
receipt received by the Borrower showing payment thereof. If the Borrower fails
to pay any Taxes when due to the appropriate taxing authority or fails to remit
to the Administrative Agent the required receipts or other required documentary
evidence (other than any such failure due to failure of any Lender to furnish
the documents required to be furnished by such Lender pursuant to Section
2.14(b)), the Borrower shall indemnify, defend and hold harmless the
Administrative Agent and each Lender for any incremental taxes, interest, or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure. With respect to any obligations of the Borrower
pursuant to this Section 2.14 relating to any period in which any portion of the
Loan remains outstanding, the agreements in this Section 2.14, as they apply to
any borrowing hereunder, shall survive the termination of this Agreement and the
payment of the Promissory Notes and all other amounts payable hereunder.
(b) The Administrative Agent and each Lender shall furnish
Borrower and the Administrative Agent, at least thirty (30) days prior to the
date on which the first payment to each Lender (including each Purchasing
Lender) is due, and annually thereafter during the term of the Loan, with United
States Internal Revenue Service Form 1001, 4224, W-8 or W-9 (or any other
successor form) or any other document evidencing such Lender's exemption from
withholding of Taxes from any amounts payable to such Lender hereunder under as
of the Closing Date. If any Taxes are required to be withheld from any amounts
payable to any Lender hereunder or under the Promissory Notes, then the Borrower
shall be entitled to require such Lender to assign its Credit Exposure at par to
any Person selected by Borrower that is an Eligible Assignee reasonably
acceptable to the Administrative Agent, which assignment shall be effected
pursuant to Section 7.18 hereof.
<PAGE>
Section 2.15 Revolving Portion of the Loan
(1) Subject to the terms and conditions hereof, the Borrower
may reborrow portions of the Loan in an aggregate principal amount of up to
$35,000,000 (the ARevolving Portion of the Loan ). Subject to the terms and
conditions of this Agreement, the Borrower may borrow, repay and reborrow the
Revolving Portion of the Loan, provided that:
(i) the Administrative Agent shall have received
a Notice of Borrowing either (x) prior to 12:00 noon (New York time) on the
third Business Day prior to the date of the proposed borrowing (any such
proposed borrowing, a ALong-Notice Borrowing ) or (y) prior to 11:30 A.M. (New
York time) on the date of the proposed borrowing (any such proposed borrowing, a
AShort-Notice Borrowing ). Each Notice of Borrowing shall be irrevocable and
shall advise the Administrative Agent as to whether it pertains to a Long-Notice
Borrowing or a Short-Notice Borrowing, provided that any Notice of Borrowing
which purports to pertain to a Short-Notice Borrowing but which is received by
the Administrative Agent after 11:30 A.M. (New York time) on the date of the
proposed borrowing shall be deemed to constitute a request for a Short-Notice
Borrowing on the next Business Day.
(ii) before as well as after giving effect to the
proposed borrowing, no Default or
Event of Default shall have occurred or be continuing;
(iii) subject to the provisions of Section 5.5
hereof, all representations and warranties contained herein (including, without
limitation, those incorporated herein by reference, but not including those
expressly provided to be made only as of the Closing Date) shall be true and
correct in all material respects (before as well as after giving effect to the
proposed borrowing) with the same effect as though such representations and
warranties had been made on and as of the date of the proposed borrowing and
Borrower shall be in compliance in all material respects (before as well as
after giving effect to the proposed borrowing) with all covenants and agreements
contained in Article V hereof and elsewhere in this Agreement.
(iv) there shall have been no Material Adverse Change
and no Requirement of Law or Contractual Obligation of the Borrower or any
Subsidiary which could reasonably be expected to result in a Material Adverse
Change;
(v) no litigation, investigation or proceeding
before or by any arbitrator or Governmental Authority shall be continuing or
threatened against the Borrower or any Subsidiary thereof in connection with
this Agreement and the other Loan Documents which could result in a Material
Adverse Change;
(vi) the proposed borrowing shall not cause the
aggregate outstanding principal amount of the Loan to exceed the lowest of (i)
the Maximum Availability Amount, (ii) $110,000,000 and (iii) an amount which
would violate the provisions of Section 5.3(k) hereof.
(vii) the proposed borrowing shall not cause the
aggregate outstanding principal amount of the Revolving Portion of the Loan to
exceed $35,000,000.
<PAGE>
(b) Each Long-Notice Borrowing shall be in an amount equal to
$1,000,000 or a whole multiple of $100,000 in excess thereof. Each Short-Notice
Borrowing shall be in an amount equal to $2,000,000 or a whole multiple of
$100,000 in excess thereof.
(c) There shall be no more than ten borrowings of the
Revolving Portion of the Loan in any calendar month.
(d) Interest on Long-Notice Borrowings shall accrue at the
Adjusted LIBO Rate, subject to and in accordance with the provisions of this
Article 2. Each Notice of Borrowing which pertains to a Long-Notice Borrowing
shall specify the Interest Period applicable thereto. Interest shall accrue on
Short-Notice Borrowings at the Alternate Rate.
(e) The proceeds of any borrowing of the Revolving Portion of
the Loan shall be used solely to fund ongoing cash needs, interest payments,
dividend payments, working capital requirements and reserve requirements of the
Borrower.
Section 2.16 Conversion Option. Provided that there is no Default or Event
of Default hereunder, the Borrower shall have the option to convert Short-Notice
Borrowings to borrowings bearing interest at the Adjusted LIBO Rate. Any
proposed conversion shall pertain to Short-Notice Borrowings in an amount equal
to $2,000,000 or a whole multiple of $100,000 in excess thereof. In the event
the Borrower shall elect to convert a Short-Notice Borrowing as aforesaid, the
Borrower shall deliver a Notice of Conversion to the Administrative Agent no
later than 11:30 A.M. (New York time) at least three (3) Business Days prior to
the date of the proposed conversion. A Notice of Conversion shall specify the
proposed conversion date, the amount of the Short-Notice Borrowing to be
converted and the Interest Rate applicable thereto. If no Interest Period is
specified in a Notice of Conversion, the Borrower shall be deemed to have
selected an Interest Period of one month. Any Notice of Conversion shall be
irrevocable and the Borrower shall be obligated to convert the Short-Notice
Borrowing to which it relates in accordance therewith.
ARTICLE III. CONDITIONS TO BORROWINGS
The obligation of the Lenders to disburse the Loan to Borrower on the
Closing Date is subject to the satisfaction of the following conditions:
Section 3.1 Conditions oPrecedent to Closing. On or prior to the Closing
Date, all obligations of the Borrower hereunder to the Administrative Agent and
the Lenders incurred prior to the Closing Date and any amounts payable to the
Administrative Agent or the Lenders on the Closing Date (other than legal fees
payable pursuant to the last paragraph of subsection 3.1(a)), shall have been
paid in full. In addition, the following conditions shall be satisfied:
(1) Receipt of Documents. The Administrative Agent shall have
received the following, each dated as of or prior to the Closing Date, in form
and substance satisfactory to the Administrative Agent:
<PAGE>
(i) an officer's certificate, dated the Closing Date, signed
by any Chairman, the President, any Senior Vice President, any Vice President or
the Controller of the Borrower, and attested to by the Secretary or any
Assistant Secretary of the Borrower, in the form of Exhibit G annexed hereto
with appropriate insertions, together with copies of the Articles of
Incorporation of the Borrower certified, as of a recent date, by the Secretary
of State of the State of the Borrower's incorporation and the By-Laws of
Borrower and the resolutions of the Borrower referred to in such certificate;
and certified copies of all other documents, if any, evidencing corporate action
or governmental authorization or approval with respect to this Agreement, the
Promissory Notes and the Loan Documents;
(ii) duly executed and completed replacement or
substitute Promissory Notes payable to the order of each Lender;
(iii) a duly executed and delivered Reaffirmation of Environ-
mental Indemnity;
(iv) a duly executed and delivered Reaffirmation of Subsidiary
Guaranty;
(v) an opinion of counsel to the Borrower as to such matters
as the Administrative Agent shall require;
(vi) preliminary financial statements in the forms prescribed
by Sections 5.2(a) to (d) hereof for fiscal year 1999, the accounting period
ending in December, 1999 and the most recent Accounting Period, to be followed
on or before March 31, 2000 by final financial statements in the aforesaid forms
for the aforesaid periods which disclose a financial condition of the Borrower
and the Mortgaged Properties which is no worse in all material respects than
that disclosed by the preliminary financial statements;
(vii) copies of all financial statements, reports, and proxy
statements mailed to the Borrower's shareholders within the last year, and
copies of all registration statements, periodic reports, and other documents
filed by the Borrower with the Securities and Exchange Commission (or any
successor thereto) and any national securities exchange within the last year;
(viii) such consents or acknowledgments, with respect to such
of the transactions hereunder, from such Persons as the Administrative Agent or
its counsel may reasonably determine to be necessary or appropriate;
(ix) (A) a good standing certificate from the State of
Maryland in respect of the Borrower as of a recent date; and (B) a certificate
of the Secretary of State of each state in which the Borrower owns a Mortgaged
Property or is required to qualify to do business, as to due qualification to do
business as a foreign entity and good standing of Borrower as of a recent date;
and
(x) title policy endorsements which have the effect
of redating the title policies insuring the Liens of the Mortgages with no
additional exceptions; and
<PAGE>
(xi) originals of an estoppel letter executed by HPT.
Execution and delivery of this Agreement by Borrower shall constitute Borrower's
agreement and covenant to pay to the Administrative Agent, promptly upon demand
(together with a reasonably detailed invoice(s) in respect thereof), all
reasonable fees and disbursements of counsel to the Administrative Agent and the
Lenders incurred prior to or on the Closing Date.
Section 3.2 Post Closing Covenant. On or before March 10, 2000, the
Borrower shall furnish the Administrative Agent with a certificate of good
standing with respect to each of the entities listed on Schedule 9 annexed
hereto from the Secretary of State of its state of incorporation or
organization, and, if such entity owns a Mortgaged Property in a state other
than its state of incorporation or organization, a certificate from the
applicable Secretary of State as to its qualification to do business in such
state.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants the following as of the date hereof
and, except with respect to the representations and warranties expressly
provided herein as being made only as of the Closing Date, further represents
and warrants on the date of any borrowing of the Revolving Portion of the Loan.
Section 4.1 Corporate Existence. Borrower is duly organized and validly
existing under the laws of the jurisdiction of its incorporation. In addition,
Borrower is in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where it owns property or where the
conduct of its business or the ownership of its property or assets (including,
without limitation, the Mortgaged Properties) requires such qualification
(unless the failure to be so qualified or in good standing would not constitute
a Material Adverse Change), and has all corporate powers and all governmental
licenses, authorizations, consents, and approvals required to carry on its
business as is now or is proposed to be conducted (unless the failure to have
same would not constitute a Material Adverse Change).
The execution, delivery, and performance by Borrower of this
Agreement and of the Loan Documents (i) are within the Borrower's powers, and
(ii) have been duly authorized by all necessary action.
Section 4.3 Governmental Approvals. No authorization or approval or other
action by, and no notice to or filing or registration with, any Governmental
Authority is required in connection with the execution, delivery, and
performance by Borrower of this Agreement or the other Loan Documents (unless
the failure to have obtained or made same would not constitute a Material
Adverse Change).
<PAGE>
Section 4.4 Binding Effect. This Agreement and the other Loan Documents
have each been duly executed by Borrower and each constitutes a legal, valid,
and binding obligation of Borrower, enforceable against Borrower in accordance
with its terms, except as enforcement thereof may be subject to (i) the effect
of any applicable bankruptcy, insolvency, reorganization, moratorium, or similar
law affecting creditors, rights generally, and (ii) general principles of equity
(regardless of whether such enforcement is sought in a proceeding in equity or
at law).
Section 4.5 Financial Information and No Material Adverse Change
(a) Each of the financial statements delivered pursuant to
Sections 3.1(a)(vi) were prepared in accordance with GAAP and fairly present the
financial condition and results of operation of the Persons and/or properties
covered thereby on the dates and for the periods covered thereby, except as
disclosed in the notes thereto and, with respect to normally recurring year-end
adjustments. As of the date hereof Borrower does not have any material
liability, absolute or contingent, not reflected in such financial statements,
the notes thereto or Schedule 4 hereof.
(b) Since December 31, 1999, there has been no Material
Adverse Change, except as otherwise disclosed in writing to the Administrative
Agent and in the reports on Forms 10-Q and 8-K filed by the Borrower with the
Securities and Exchange Commission.
Section 4.6 Litigation. There is no action, suit, or proceeding, or any
governmental investigation or any arbitration, in each case pending or, to the
knowledge of the Borrower, threatened against Borrower, or any property of the
Borrower before any court or arbitrator or any governmental or administrative
body, agency, or official (i) which challenges the validity of this Agreement or
any of the other Loan Documents or (ii) which, as reasonably likely to be
determined, and taking into account any insurance with respect thereto, would
constitute a Material Adverse Change.
Section 4.7 Compliance with Law. The Borrower is in compliance with all
Requirements of Law, the Borrower's Certificate of Incorporation and By-Laws and
all Contractual Obligations binding on or affecting it or any of its properties
(other than where the failure to so comply would not constitute a Material
Adverse Change). The execution and delivery by Borrower of this Agreement, the
Promissory Notes and the Loan Documents do not, and the performance by Borrower
of this Agreement, the Promissory Notes and each of the Loan Documents will not,
(a) violate any Requirement of Law, (b) violate or contravene any provision of
the Borrower's Certificate of Incorporation and By-Laws, or any law, rule,
regulation, order, writ, judgment, decree, determination or award applicable to
the Borrower, (c) violate, contravene or result in a breach of or constitute a
default under any Contractual Obligation, or (d) result in, or require the
creation or imposition of, any Lien upon or with respect to any of its property
or assets (including, without limitation, the Mortgaged Properties) other than
the Liens created by the Loan Documents (other than, in any such case, where
such violation, contravention, default or result would not constitute a Material
Adverse Change).
<PAGE>
Section 4.8 Labor Matters
(a) There are no strikes, work stoppages, slowdowns or
lockouts pending, or reasonably likely to occur in the immediate future, against
or involving the Borrower or any of its Subsidiaries, other than those which in
the aggregate would not constitute or result in a Material Adverse Change.
(b) There are no arbitrations or grievances pending against or
involving the Borrower or any of its Subsidiaries, nor, to the best knowledge of
Borrower, are there any arbitrations or grievances threatened involving the
Borrower or any of its Subsidiaries, other than those which in the aggregate
would not constitute or result in a Material Adverse Change.
(c) Neither the Borrower nor any of its Subsidiaries are
parties to, or have any obligations under, any collective bargaining agreement,
other than collective bargaining agreement(s) copies of which (certified by the
Borrower as being true, correct and complete) have been furnished to the
Administrative Agent.
(d) There are no representation proceedings pending, or, to
the best knowledge of the Borrower, threatened with the National Labor Relations
Board, and no labor organization or group of employees of the Borrower or any of
its Subsidiaries have made a pending demand for recognition, other than those
which in the aggregate would not constitute or result in a Material Adverse
Change.
(e) There are no unfair labor practice charges, grievances or
complaints pending or in process or, to the best knowledge of Borrower,
threatened by or on behalf of any employee or group of employees of the Borrower
or any of its Subsidiaries other than those which in the aggregate would not
constitute or result in a Material Adverse Change.
(f) There are no complaints or charges against the Borrower or
any of its Subsidiaries pending or, to the best knowledge of Borrower,
threatened to be filed with any Governmental Authority or arbitrator based on,
arising out of, in connection with, or otherwise relating to the employment by
the Borrower or any of its Subsidiaries of any individual, other than those
which in the aggregate would not constitute or result in a Material Adverse
Change.
(g) The Borrower and each of its Subsidiaries is in compliance
with all laws, and all orders of any court, governmental agency or arbitrator,
relating to the employment of labor, including all such laws relating to wages,
hours, collective bargaining, discrimination, civil rights, and the payment of
withholding and/or social security and similar taxes, other than such
non-compliances as in the aggregate would not constitute or result in a Material
Adverse Change.
<PAGE>
Section 4.9 ERISA. As of the date of this Agreement and throughout the term
of this Agreement, (i) the Borrower is not and will not be an Aemployee benefit
plan as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA,
(ii) the assets of the Borrower do not and will not constitute Aplan assets of
one or more such plans within the meaning of 29 C.F.R. ' 2510.3-101 and (iii)
the Borrower is not and will not be a Agovernment plan within the meaning of
Section 3(32) of ERISA.
Section 4.10 No Default. The Borrower is not in default under, or with
respect to, any of its Contractual Obligations in any respect which could
reasonably be expected to result in a Material Adverse Change and no Default or
Event of Default has occurred and is continuing.
Section 4.11 Improvements. Subject to the provisions of Section 5.5 hereof:
(a) All of the improvements located on the Mortgaged
Properties and the use of such improvements are covered by existing valid
certificates of occupancy and all other certificates and permits required by
applicable laws, rules, regulations, and ordinances or in connection with the
use, occupancy, and operation thereof.
(b) No material portion of any of the Mortgaged Properties,
nor any improvements located on such Mortgaged Properties that are material to
the operation, use, or value thereof, have been damaged in any respect as a
result of any fire, explosion, accident, flood, or other casualty, except to the
extent that the same have been or will with due diligence and in compliance with
this Agreement and all of the other Loan Documents be restored to their
condition prior thereto.
(c) No written notices of violation of any federal, state, or
local law or ordinance or order or requirement have been received with respect
to any Mortgaged Properties.
Section 4.12 Intellectual Property. Borrower owns, or is licensed to use,
all trademarks, trade names, copyrights, technology, know-how, and processes
necessary for the conduct of its business as currently conducted (the
Intellectual Property ) except for those the failure to own or license which
could not reasonably be expected to have a Material Adverse Change. No claim has
been asserted and is pending by any Person challenging or questioning the use of
any such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does the Borrower know of any valid basis for any
such claim (other than claims which would not constitute a Material Adverse
Change). The use of such Intellectual Property by the Borrower does not infringe
on the rights of any Person, except for such claims and infringements that, in
the aggregate, could not reasonably be expected to have a Material Adverse
Change.
<PAGE>
Section 4.13 Taxes. Borrower has filed or caused to be filed all tax
returns that, to the knowledge of Borrower, are required to be filed and has
paid all taxes shown to be due and payable on such returns or on any assessments
made against it or any of its property and all other taxes, fees, or other
charges now due and payable imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which adequate reserves in conformity with GAAP have been provided on
the books of Borrower). No tax Lien has been filed which could constitute a Lien
senior in priority to the Lien of any of the Mortgages or Financing Statements
and which has not been (or will not be) removed or discharged of record within
ten (10) days after Borrower's notice of such Lien (or the taxes to which such
Lien relates are being contested in good faith by appropriate proceedings which
have the effect of staying enforcement or execution of such Lien and with
respect to which adequate reserves in conformity with GAAP have been provided on
the books of Borrower).
Section 4.14 Investment Company Act; Other Regulations. Borrower is not an
Ainvestment company, or a company Acontrolled by an Ainvestment company, within
the meaning of the Investment Company Act of 1940, as amended. Borrower is not
subject to regulation under any Federal or state statute or regulation which
limits its ability to incur Indebtedness.
Section 4.15 SEcurity Capital. Security Capital Group Incorporated directly
or, through a wholly-owned Subsidiary, indirectly owns no less than (a) fifty
one percent (51%) of the voting stock in Borrower before dilution due to the
conversion of the mortgages in favor of Archstone Communities Trust shown on
Schedule 4 and (b) forty-six percent (46%) after such dilution.
Section 4.16 Insurance. Subject to the provisions of Section 5.5 hereof,
the Borrower keeps the Mortgaged Properties insured in the manner and in the
amounts set forth in subsection 5.1(k) hereof.
Section 4.17 Properties. Subject to the provisions of Section 5.5 hereof:
(a) Borrower and each Subsidiary Mortgagor, as the case may
be, has good and marketable title to all of the Mortgaged Properties, subject to
no mortgage, security interest, pledge, lien, charge, encumbrance or title
retention or other security agreement or arrangement of any nature whatsoever,
except Permitted Encumbrances. Borrower shall, and shall cause each Subsidiary
Mortgagor to, forever warrant and defend the title of their respective Mortgaged
Properties against the lawful claims and demands of all persons whomsoever
subject to the Permitted Encumbrances.
(b) There are no pending or, to the best knowledge of
Borrower, threatened proceedings or actions to revoke, attack, invalidate,
rescind, or modify in any material respect (i) the zoning of any Mortgaged
Property or any part thereof, or (ii) any building or other permits heretofore
issued with respect to any Mortgaged Property or any part thereof, or asserting
that any such zoning or permits do not permit the operation of any Mortgaged
Property or any part thereof or that any improvements located on such Mortgaged
Property cannot be operated in accordance with its intended use or is in
violation of applicable Use Requirements.
(c) The Mortgage covering each such Mortgaged Property creates
a valid and enforceable first Lien, on such property described therein, as
security for the repayment of the Indebtedness incurred by the Borrower
hereunder and under the other Loan Documents, subject only to the Permitted
Encumbrances applicable to such property.
<PAGE>
(d) The Collateral is now, and so long as any portion of the
Loan remains outstanding or any monetary obligation to the Administrative Agent
or the Lenders hereunder or under the Promissory Notes or the other Loan
Documents shall remain unpaid, will be owned solely by the Borrower or a
Subsidiary Mortgagor, as the case may be, and said Collateral, including the
proceeds resulting from the sale or other disposition (other than as permitted
by Section 5.3(k)) thereof, is and will remain free and clear of any Liens
except the Liens granted pursuant to the Loan Documents to the Administrative
Agent, which Liens shall, at all times, be first and prior on the Collateral and
all proceeds resulting from the sale or other disposition thereof, and no
further action need be taken to perfect said Liens.
(e) Neither the existence of any improvements upon a Mortgaged
Property nor the intended use or condition of any Mortgaged Property violates in
any material respect any Use Requirements. With respect to each Mortgaged
Property, neither the zoning nor any other right to carry on the use of such
Mortgaged Property as an extended stay facility, including ancillary facilities
related thereto, is to any extent dependent upon or related to any other real
estate. Each Mortgaged Property may be operated as an extended stay facility
with ancillary facilities related thereto and the Borrower has received no
written notices from any Governmental Authorities alleging any violation by any
Mortgaged Property of any Requirement of Law, including but not limited to
applicable Use Requirements. Each of the Mortgaged Properties includes an
extended-stay hotel facility which is Construction Complete and open for
business.
(f) Except as set forth in Schedule 6 annexed hereto, there
are no pending or, to the knowledge of the Borrower, threatened proceedings
relating to any (i) taking by eminent domain or other condemnation of any
portion of any Mortgaged Property, (ii) condemnation or relocation of any
roadways abutting any Mortgaged Property and (iii) denial of access to any
Mortgaged Property from any point of access to such Mortgaged Property, in any
such case not accounted for in the Plans and Specifications.
(g) Each Mortgaged Property has adequate and permanent legal
access to water, gas, and electrical supply, storm, and sanitary sewerage
facilities, other required public utilities (with respect to each of the
aforementioned items by means of either a direct connection to the source of
such utilities or through easements or connections available on publicly
dedicated roadways directly abutting such Mortgaged Property), parking, and
means of access between such Mortgaged Property and public highways over
recognized curb cuts, and all of the foregoing comply with all applicable Use
Requirements.
(h) Each Mortgaged Property constitutes a legally subdivided
lot under all applicable Use Requirements (or, if not subdivided, no subdivision
or platting of such Mortgaged Property is required under applicable Requirements
of Law), and for all material purposes each Mortgaged Property may be mortgaged,
conveyed, and otherwise dealt with as an independent parcel.
Section 4.18 Full and Accurate Disclosure. No statement of fact made by or
on behalf of the Borrower in this Agreement or in any of the other Loan
Documents (other than any Loan Documents to which neither the Borrower nor any
Affiliate is a party), or any certificate or financial statement furnished by
the Borrower to the Administrative Agent or any Lender when made or deemed made
or the date as of which such certificate or statement speaks or is deemed to
speak, as the case may be, contains any untrue statement of a material fact or,
to the best of Borrower's knowledge, omits to state any material fact necessary
to make statements contained herein or therein not misleading.
<PAGE>
Section 4.19 Solvency. Within the meaning of Section 548 of the Bankruptcy
Code, the Uniform Fraudulent Transfer Act and the Uniform Fraudulent Conveyance
Act as in effect in any relevant jurisdiction, and any similar laws or statutes,
and after giving effect to the transactions contemplated hereby: the fair
saleable value of the Borrower's assets exceeds and will, immediately following
the disbursement of the Loan or of any borrowing of the Revolving Portion of the
Loan, exceed the Borrower's total liabilities including, without limitation,
subordinated, unliquidated, disputed, and contingent liabilities; the fair
saleable value of the Borrower's assets is and will, immediately following the
disbursement of the Loan or of any borrowing of the Revolving Portion of the
Loan, be greater than the Borrower's probable liabilities, including the maximum
amount of its contingent liabilities on its debts as such debts become absolute
and matured; the Borrower's assets do not and, immediately following the
disbursement of the Loan or of any borrowing of the Revolving Portion of the
Loan, constitute unreasonably small capital to carry out its business as
conducted or as proposed to be conducted; and the Borrower does not intend to,
and does not believe that it will, incur debts and liabilities (including
without limitation contingent liabilities and other commitments) beyond its
ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be received by the Borrower and the amounts to be payable on
or in respect of obligations of the Borrower).
Section 4.20 Not Foreign Person. The Borrower is not a Aforeign person
within the meaning of Section 1445(f)(3) of the Code.
Section 4.21 Assessments. Subject to the provisions of Section 5.5 hereof,
except as set forth in budgets submitted to the Administrative Agent or its
predecessor-in-interest under the Original Agreement or the First Restatement,
there are no pending or, to the Borrower's knowledge, proposed special or other
assessments for public improvements or otherwise affecting any Mortgaged
Property, nor, to the Borrower's knowledge, are there any contemplated
improvements to any Mortgaged Property that may result in such special or other
assessments.
Section 4.22 Flood Zone. Except as disclosed by a survey heretofore
delivered to the Administrative Agent, no Mortgaged Property is located in a
flood hazard area as defined by the Federal Emergency Management Agency.
Section 4.23 Physical Condition. Subject to the provisions of Section 5.5
hereof, each Mortgaged Property is free of material structural defects and all
building systems contained therein are in good working order subject to ordinary
wear and tear.
Section 4.24 Operation of Premises. Subject to the provisions of Section
5.5 hereof, each Mortgaged Property is being operated and maintained in
accordance with the Borrower's usual and customary business practices.
<PAGE>
Section 4.25 Margin Regulations. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying any
margin stock or margin securities (within the meaning of Regulations T, U and X
issued by the Board of Governors of the Federal Reserve System), and no proceeds
of any borrowing will be used, directly or indirectly, to purchase or carry any
margin stock or margin securities or to extend credit to others for the purpose
of purchasing or carrying any margin stock or margin securities. None of the
transactions contemplated by this Agreement will violate or result in a
violation of Section 7 of the Securities Exchange Act of 1934, as amended.
Section 4.26 Hazardous Materials. Subject to the provisions of Section 5.5
hereof, except as disclosed in the Studies heretofore delivered to the
Administrative Agent, to the best of the Borrower's knowledge, no Hazardous
Materials are located on or about the Mortgaged Properties, and the Mortgaged
Properties do not contain any underground tanks for the storage or disposal of
Hazardous Materials. Further, subject to the provisions of Section 5.5 hereof,
except as disclosed in the Studies, (i) the Borrower has not, and to the
knowledge of the Borrower no other party has, (A) stored or treated Hazardous
Materials on the Mortgaged Properties, (B) disposed of Hazardous Materials or
incorporated Hazardous Materials on the Mortgaged Properties, and (C) permitted
any underground storage tanks to exist on the Mortgaged Properties, (ii) no
complaint, order, citation or notice with regard to air emissions, water
discharges, noise emissions, or Hazardous Materials, if any, or any other
environmental, health, or safety matters affecting the Mortgaged Properties or
any portion thereof, from any person, government or entity, has been issued to
the Borrower which has not been remedied or cured, and (iii) the Borrower has
complied with all Requirements of Law affecting the Mortgaged Properties.
Section 4.27 Representations and Warranties in the Loan Documents. Subject
to the provisions of Section 5.5 hereof, the representations and warranties in
each of the Loan Documents (except with respect to the representations and
warranties expressly provided as being made only as of the Closing Date) are
true, complete and correct in all material respects, and the Borrower hereby
confirms each such representation and warranty as being true, complete and
correct in all material respects as of the relevant dates with the same effect
as if set forth in its entirety herein.
Section 4.28 Loan Documents. The provisions of the Loan Documents are each
effective to create, in favor of the Administrative Agent, a legal, valid and
enforceable Lien on or security interest in all of the collateral described
therein, and when the appropriate recordings and filings have been effected in
the appropriate public offices (or, in the case of collateral represented by
certificates, when such certificates have been pledged to and received by the
Administrative Agent), the Loan Documents will constitute a perfected first Lien
on and security interest in all right, title, estate and interest of the
Borrower or a Subsidiary Mortgagor, as the case may be, in the collateral
described therein, prior and superior to all other Liens except for Permitted
Encumbrances and as otherwise permitted under this Agreement.
Section 4.29 Balloon Payments. Except as reflected on Schedule 4 hereof, as
of the Closing Date, there are no balloon payments, scheduled balloon amortizing
payments or scheduled amortizing payments required to be paid at any time in
respect of any Indebtedness (other than Permissible Assumed Indebtedness) of the
Borrower or its Subsidiaries.
Section 4.30 Subsidiaries
(a) Each Subsidiary Mortgagor is a Subsidiary of Borrower.
<PAGE>
(b) Each Subsidiary of Borrower has guaranteed the
Indebtedness hereunder and reaffirmed such guaranty pursuant to the
Reaffirmation of Guaranty, other than (i) any Non-Guarantor Subsidiary which has
no other Indebtedness other than non-recourse debt to third parties and
inter-company Indebtedness to the Borrower which would be accelerated by the
occurrence of a Default or Event of Default hereunder and (ii) the bankruptcy
remote Subsidiary which was formed for the purpose of entering into the Sale
Leaseback Facility. A Non-Guarantor Subsidiary shall mean a Subsidiary of
Borrower that all of the Lenders agree (i) is prohibited from providing a
guaranty or (ii) would not be an appropriate Person, for reasons acceptable to
Lenders, to provide a guaranty of the Indebtedness hereunder.
Section 4.31 Nature of Business. Neither the Borrower nor any Subsidiary of
Borrower is engaged in any business other than the ownership, construction,
development, operation and management of extended stay hotel facilities (other
than businesses and investments incidental to the development, operation and
management of extended stay hotel facilities), the management for a fee of other
lodging facilities or the licensing of the operation of extended stay facilities
under the AHomestead name, which licensing business does not have start-up costs
in excess of one million dollars ($1,000,000).
Section 4.32 Indebtedness. The Indebtedness set forth on Schedule 4 annexed
hereto represents the only outstanding Indebtedness of Borrower and its
Subsidiaries on the Closing Date.
ARTICLE V. COVENANTS
Section 5.1 Certain Affirmative Covenants. So long as any portion of the
Loan remains outstanding or any amounts due to the Lenders hereunder or under
the Promissory Notes or the other Loan Documents shall remain unpaid, the
Borrower will, and, to the extent any of the following relates to a Mortgaged
Property any portion of or interest in which is owned by any Subsidiary
Mortgagor, the Borrower will cause each such Subsidiary Mortgagor, with respect
to such Mortgaged Property, to (unless expressly waived by the Administrative
Agent or the Lenders as provided herein):
(a) Payment. Duly and punctually pay or reimburse when due or,
if there is no specified due date, when demanded, the principal and interest on
the Promissory Notes and all other amounts due under this Agreement and the
other Loan Documents.
(b) Existence, Etc. (i) Preserve and maintain its existence in
Maryland, and (ii) preserve and maintain its rights and franchises in each state
in which there exists a Mortgaged Property (unless the failure to so preserve
and maintain its rights and franchises would not constitute a Material Adverse
Change).
<PAGE>
(c) Compliance With Laws, Etc. Subject to the provisions of
Section 5.5 hereof, comply with all applicable Requirements of Law, Use
Requirements and all agreements and grants of easements or rights-of-way,
permits, declarations of covenants, conditions and restrictions, disposition and
development agreements, planned unit development agreements, management or
parking agreements, party wall agreements or other instruments affecting the
Mortgaged Properties.
(d) Payment of Taxes and Claims, Etc. Pay (i) all taxes,
assessments and governmental charges imposed upon it or upon its property (other
than the Mortgaged Properties), unless the failure to so pay would not
constitute or result in a Material Adverse Change, (ii) subject to the
provisions of Section 5.5 hereof and subparagraph (iii) of this Section 5.1(d),
all taxes, assessments and governmental charges imposed upon the Mortgaged
Properties, and all claims (including, without limitation, claims for labor,
materials, supplies, or services) which might, if unpaid, become a Lien upon the
Mortgaged Properties or any of them unless, in each case, the validity or amount
thereof is being contested in good faith by appropriate proceedings and the
Borrower has maintained adequate reserves with respect thereto, and (iii) all
taxes, assessments and governmental charges imposed upon the Mortgaged
Properties which would, if unpaid, become a Lien senior in priority to the Lien
of any of the Mortgages within ten (10) days after Borrower's notice of such
Lien (unless the taxes, assessments or governmental charges to which such Lien
relates are being contested in good faith by appropriate proceedings which have
the effect of staying enforcement or execution of such Lien and with respect to
which adequate reserves in conformity with GAAP have been provided on the books
of Borrower).
(e) Keeping of Books. Keep accurate records and books of
account in which full, accurate and correct entries shall be made of all
dealings or transactions in relation to its business and affairs in accordance
with GAAP. Upon reasonable prior notice and during normal business hours, the
Borrower shall permit representatives of any Lender to visit its offices and
inspect, examine and make abstracts from any of its books and records, and to
discuss the business, operations, and financial and other condition of the
Borrower with officers and employees of the Borrower and with its independent
certified public accountants, if any, in the presence of a representative of the
Borrower.
(f) Visitation, Inspection, Etc. Permit any representative of
the Administrative Agent or the Lenders to visit and inspect any of the
Mortgaged Properties, to examine its books and records and to make copies and
take extracts therefrom, and to discuss its affairs, finances, and accounts with
its officers, accountants, and agents, all upon reasonable notice from the
Administrative Agent during normal business hours.
(g) Maintenance of Property. Keep all Mortgaged Properties in
good working order and condition and operate Mortgaged Properties in a manner
consistent with the operation thereof as an extended stay facility, including
ancillary facilities related thereto, and otherwise consistent with prudent
business practices.
(h)0 Management of Properties. Subject to the provisions of
Section 5.5 hereof, Borrower or a Subsidiary of Borrower shall directly operate
and manage the business of the Borrower at each of the Mortgaged Properties;
provided, however, that with the prior written consent of all of the Lenders,
which consent shall not be unreasonably withheld, the Borrower may hire another
Person to operate and manage any Mortgaged Property.
<PAGE>
(i) Hazardous Materials Removal. Subject to the
provisions of Section 5.5 hereof, abate and/or remove any Hazardous Materials
present in, on or under any of the Mortgaged Properties in violation of any
applicable Requirement of Law.
(j) Covenants in the Loan Documents. Subject to the
provisions of Section 5.5 hereof, perform all covenants (affirmative and
negative) contained in each of the Loan Documents with the same effect as if set
forth in their entirety herein.
(k) Insurance. Subject to the provisions of Section
5.5 hereof, maintain upon or in connection with each of the Mortgaged
Properties:
(i) Property and casualty insurance coverage
evidenced by original or certified copies of insurance policies or binders for
such insurance, together with evidence that the premiums for such policies have
been paid current. Such insurance policies shall insure each of the Mortgaged
Properties for one hundred percent (100%) of their full replacement cost
(exclusive of footings and foundations) in so-called All risk form and with
coverage for floods, earthquakes (except as provided in subsection (ii) below)
and such other hazards (including collapse and explosion ) as the Lenders may
require for each of the Mortgaged Properties and as are consistent with
reasonable and customary requirements in the industry. Such insurance policies
shall contain replacement cost and agreed amount endorsements (with no reduction
for depreciation), an endorsement providing Building Ordinance Coverage and an
endorsement covering the costs of demolition and increased costs of construction
due to the enforcement of building codes or ordinances. To the extent there
exists a boiler on the premises of any of the Mortgaged Properties, Borrower
shall also furnish insurance providing boiler and machinery comprehensive
coverage for all mechanical and electrical equipment at each of such Mortgaged
Properties insuring against breakdown or explosion of such equipment on a
replacement cost value basis. Borrower shall also furnish business interruption
or loss of rental income insurance in connection with all policies covering
property and boiler and machinery insurance for a period of not less than one
(1) year endorsed, other than with respect to boiler and machinery insurance, to
provide a 180 day extended period of indemnity. All insurance required under
this subsection 5.1(k) shall be with companies and in amounts and with coverage
and deductibles satisfactory to the Lenders. All insurance required under this
subsection 5.1(k)(i) with respect to the Mortgaged Properties shall include
endorsements naming the Administrative Agent as loss payee, and shall have
endorsed thereon the standard mortgagee clause in favor of the Administrative
Agent. All companies issuing policies required under subsection 5.1(k) shall
have a current Best Insurance Reports rating no less favorable than A- , and
all such companies shall be licensed to do business in the states where the
applicable Mortgaged Property is located. All policies required under subsection
5.1(k) shall provide that (A) the insurance evidenced thereby shall not be
canceled or modified without, in the case of non-payment of premiums, at least
ten (10) days prior written notice from the insurance carrier to the
Administrative Agent, or, in any other circumstance, at least thirty (30) days
prior written notice from the insurance carrier to the Administrative Agent; and
(B) no act or thing done by the Borrower, or any Affiliate of any of Borrower
shall invalidate the policy as against the Lenders. The Borrower shall deliver
renewal certificates of all policies of insurance required under subsection
5.1(k) and requested by the Administrative Agent, together with written evidence
that the premiums are paid current, at least ten (10) days prior to the
expiration of the then current policy.
<PAGE>
(ii) earthquake insurance provided for in
subsection 5.1(k)(i) only for the Mortgaged Properties and only to the extent
(A) any Mortgaged Property is located in an earthquake prone area and (B) such
insurance is available at commercially reasonable rates.
(iii)0 Liability and worker's compensation
insurance evidenced by original or certified copies of insurance policies,
binders for such insurance policies, or certificates of insurance, together with
evidence that the premiums for such policies have been paid current. Such
insurance shall provide for (A) commercial general liability (including
contractual liability) covering each of the Mortgaged Properties and the
Borrower's and its Subsidiaries operations thereon in an amount not less than
$1,000,000 per occurrence and not less than $1,000,000 per occurrence in the
aggregate; (B) commercial automobile liability with a limit not less than
$1,000,000 combined single limit and be endorsed to cover owned, hired and
non-owned automobiles; and (C) worker's compensation insurance covering all of
the Borrower's and its Subsidiaries employees and contracted parties (including
their employees) situated at the Mortgaged Properties in accordance with the
statutory requirements of the states where the applicable Mortgaged Property is
located and including an endorsement for employer's liability coverage. The
Borrower shall also furnish umbrella liability coverage in excess of the
foregoing liability coverage with a limit of not less than $9,000,000. The
commercial general liability and automobile policies and umbrella liability
policy shall name the Lenders as additional insureds. Such policies shall also
contain a so-called Aproducts-completed operations endorsement.
(iv) Insurance insuring against loss or damage by
perils customarily included under standard Abuilder's risk completed value
non-reporting form and which include all insurance required to be carried by
Borrower, as Aowner, under the provisions of all construction contracts let by
Borrower; provided that such insurance shall insure all construction on all of
the Mortgaged Properties, including, without limitation, the construction of an
extended stay facility and ancillary facilities related thereto on each
Mortgaged Property, including all materials in storage and while in transit
during construction.
(v) flood insurance with respect to any
Mortgaged Property which is at any time identified by the Secretary of Housing
and Urban Development as having special flood hazards.
<PAGE>
(l) Further Assurances. The Borrower agrees upon demand of
the Administrative Agent (i) to do any act or execute any additional documents
(including, but not limited to, security agreements on any personalty included
or to be included in the Collateral) as may be reasonably required by the
Administrative Agent to confirm the Lien of the Loan Documents or to exercise or
enforce its rights under this Agreement, the Promissory Notes or the Loan
Documents and to realize thereon, and (ii) to execute and deliver to the
Administrative Agent and/or the Lenders such additional documents and to provide
such additional information as the Administrative Agent and/or the Lenders may
reasonably require to carry out or confirm the terms of this Agreement or the
other Loan Documents. This covenant shall survive the termination of this
Agreement until payment in full of all amounts due hereunder or under the
Promissory Notes and the Loan Documents, provided that the covenant shall be
reinstated if any payment of all amounts due hereunder or under the Promissory
Notes and the Loan Documents is required to be returned to the payor or any
other party under any applicable bankruptcy law.
(m) Year 2000 Compliance.
(i) Borrower has reviewed its business and
operations and has developed a plan (the Y2K Plan ) to address on a timely
basis the risk that computer applications used by it in performing date
sensitive functions and involving dates prior to December 31, 1999 and
thereafter (such risk being herein referred to as the AY2K Problem ) would
reasonably be expected to have a Material Adverse Effect.
(ii) Pursuant to the Y2K Plan, Borrower is taking
and will take reasonable efforts to address the Y2K Problem on an ongoing basis.
Section 5.2 Reporting Covenants. So long as the Loan remains in effect or
any monetary obligation to the Lenders hereunder or under the Promissory Notes
or the other Loan Documents shall remain unpaid, the Borrower will furnish to
the Administrative Agent at the Borrower's sole cost and expense (unless
expressly waived by the Administrative Agent or the Lenders as provided herein).
(a) Annual Financial Statements With Respect to the Borrower.
As soon as available and in any event within ninety (90) days after the end of
each fiscal year (unless the filing requirements have been extended by the
Securities and Exchange Commission (SEC ), in which case the 90-day period
shall be extended until the earlier of the date of filing with the SEC or such
extended date granted by the SEC), a consolidated balance sheet of the Borrower
and its Subsidiaries as at the end of such year and the related consolidated
statements of income, shareholders equity, and cash flow of the Borrower and
its Subsidiaries for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail and
accompanied by a report thereon of Arthur Andersen or other independent public
accountants of comparable recognized national standing acceptable to the
Administrative Agent, which such report shall be unqualified as to scope of
audit and shall state that such consolidated financial statements present fairly
the consolidated financial condition as at the end of such fiscal year, and the
consolidated results of operations and changes in cash flow for such fiscal
year, of the Borrower and its Subsidiaries in accordance with GAAP, and a
statement of sources and uses of funds in the form of Exhibit I, indicating to
Administrative Agent's satisfaction, that (A) the Borrower's sources and uses of
funds are in balance with respect to Borrower's business in general, (B) the
Borrower has adequate sources to make each Project under Development
Construction Complete and (C) the Borrower has adequate sources to satisfy the
Borrower's cash requirements.
<PAGE>
(b) Quarterly Financial Statements With Respect to the
Borrower. As soon as available and in any event within sixty (60) days after the
end of each fiscal quarter other than the last fiscal quarter of a fiscal year
(unless the filing requirements have been extended by the SEC in which case the
60-day period shall be extended until the earlier of the date of filing with the
SEC or such extended date granted by the SEC), a consolidated balance sheet of
the Borrower and its Subsidiaries as at the end of such quarter and the related
consolidated statements of income and cash flow of the Borrower and its
Subsidiaries for such fiscal quarter and/or for the portion of the Borrower's
fiscal year ended at the end of such quarter, setting forth in each case in
comparative form the figures for the corresponding quarter and the corresponding
portion of the Borrower's previous fiscal year, all in reasonable detail and
certified by the Controller or chief financial officer of the Borrower that they
are complete and correct and that they fairly present the consolidated financial
condition as at the end of such fiscal quarter, the consolidated results of
operations and changes in cash flow for such fiscal quarter and/or such portion
of the Borrower's fiscal year, of the Borrower and its Subsidiaries in
accordance with GAAP (subject to normal, year-end audit adjustments), and a
statement of sources and uses of funds in the form of Exhibit I, indicating to
Administrative Agent's satisfaction that (A) the Borrower's sources and uses of
funds are in balance with respect to Borrower's business in general, (B) the
Borrower has adequate sources to make each Project under Development
Construction Complete and (C) the Borrower has adequate sources to satisfy the
Borrower's cash requirements.
(c) Annual Financial Statements With Respect to Mortgaged
Properties. As soon as available and in any event within 90 days after the end
of each fiscal year of the Borrower or at such time as the financial statements
described in Section 5.2(a) above are furnished to the Administrative Agent, a
statement with respect to each of the Mortgaged Properties for such fiscal year,
each of which statements shall (i) be in the form of Exhibit J annexed hereto,
and contain in comparative form the information required to complete such
Exhibit in the manner and detail contemplated by such Exhibit, (ii) set forth
the Net Operating Income of each such Mortgaged Property in comparative form,
and (iii) be certified by the Controller or chief financial officer of the
Borrower that they are complete and correct and that they fairly present the
information required to complete such Exhibit for each such property as at the
end of such fiscal year, in accordance with GAAP and (iv) state that such
statement presents fairly the information required to complete such Exhibit for
each such property as at the end of such fiscal year, in accordance with GAAP.
(d) Quarterly Financial Statements With Respect to Mortgaged
Properties. As soon as available and in any event within thirty (30) days after
the end of each fiscal quarter of Borrower, a statement with respect to each of
the Mortgaged Properties as at the end of such fiscal quarter, each of which
statements shall (i) be in the form of Exhibit J annexed hereto, and contain in
comparative form the information required to complete such Exhibit in the manner
and detail contemplated by such Exhibit, (ii) set forth the Net Operating Income
of each such Mortgaged Property in comparative form, and (iii) be certified by
the Controller or chief financial officer of the Borrower that they are complete
and correct and that they fairly present the information required to complete
such Exhibit for each such property as at the end of such Accounting Period, in
accordance with GAAP (subject to normal, year-end audit adjustments).
<PAGE>
(e) No Default/Compliance Certificate. Together with the
financial statements required pursuant to subsections (a), (b), (c) and (d)
above, a certificate of the President, the Controller or the chief financial
officer of the Borrower to the effect that, based upon a review of the
Borrower's activities and such financial statements during the period covered
thereby, there exists no Event of Default and no Default under this Agreement,
or if there exists an Event of Default or a Default hereunder, specifying the
nature thereof and the Borrower's actions taken or proposed to be taken in
response thereto. The President, the Chief Financial Officer or the Controller
of the Borrower shall complete the form of certificate annexed as Exhibit G to
this Agreement and shall certify thereon that the Borrower is in compliance with
all financial covenants under this Agreement.
(f) Notice of Default or Events of Default. Promptly after
acquiring knowledge of the occurrence of a Default or an Event of Default (or
the occurrence of any event or existence of any condition which but for the
application of Section 5.5 would constitute a Default or Event of Default), a
certificate of the president or chief financial officer or the Controller of the
Borrower specifying the nature thereof and the Borrower's proposed response
thereto.
(g) Litigation. Promptly after (i) the occurrence thereof, the
Borrower shall deliver notice of the institution of or any development in any
action, suit, or proceeding or any governmental investigation or any
arbitration, before any court or arbitrator or any governmental or
administrative body, agency, or official, against the Borrower or any Mortgaged
Property in writing, (ii) the Borrower receives actual knowledge thereof, the
Borrower shall deliver notice of the threat of any such action, suit,
proceeding, investigation, or arbitration, or (iii) receipt thereof, the
Borrower shall deliver notice of any claims relating to the Lenders interests
or any proposal by a Governmental Authority to acquire any part of the Mortgaged
Properties (other than any such proceeding or development which, as reasonably
likely to be determined, would not constitute or result in a Material Adverse
Change).
(h) Adverse Change. Immediately after the Borrower knows of
the occurrence of any Material Adverse Change, a certificate of any Co-Chairman,
the President, any Senior Vice President, any Vice President or the Controller
or chief financial officer of the Borrower specifying the nature of such change.
(i) Shareholder Communications, Filings, Etc. Promptly upon
the mailing or filing thereof, the Borrower shall deliver copies of all
financial statements, reports, and proxy statements mailed to the Borrower's
shareholders generally, and copies of all final registration statements and
other final documents filed with the Securities and Exchange Commission (or any
successor thereto) or any national securities exchange.
(j) Title Endorsements. On or before March 31, 2001 and on or
before each March 31 occurring thereafter during the term of the Loan, title
policy endorsements which have the effect of redating the title policies
insuring the Liens of the Mortgages with no exceptions other than the Permitted
Exceptions, to be obtained at Borrower's sole cost and expense and to be dated
as of a date no later than the date which is thirty (30) days prior to the
outside date for the delivery thereof.
(k) FIRREA Appraisals. On or before the date which is sixty
(60) days after the Closing Date, FIRREA Appraisals with respect to each of the
eight Mortgaged Properties to which an appraised value is not ascribed on
Schedule 1 annexed hereto.
(l) Updated Appraisals. On or before April 30, 2001,
FIRREA Appraisals with respect to each of the Mortgaged Properties, dated as of
a date not more than 60 days prior to April 30, 2001. Such appraisals are
referred to herein , collectively, as the AUpdated Appraisals.
<PAGE>
(M) Other Information. With reasonable promptness, such
information about the Borrower, Realty and the Mortgaged Properties as the
Administrative Agent or the Lenders may reasonably request from time to time.
Section 5.3 Certain Negative Covenants. Neither Borrower nor, with
respect to subsection (a), (m) to (t), (v), (w) or (x), any Subsidiary of
Borrower will:
(a) Indebtedness. Create, incur, assume, or suffer to
exist, any Indebtedness other than:
(i) the Indebtedness hereunder and under the
other Loan Documents; and
(ii) Indebtedness outstanding on the date
hereof which is reflected in the Borrower's financial statements referred to in
Section 4.5(a) and in Schedule 4 annexed hereto;
(iii) unsecured liabilities (not the result of
borrowing) incurred in the ordinary course of business for current purposes and
not represented by any note or other evidence of Indebtedness and which are not
past due more than 90 days;
(iv) non-recourse Indebtedness to third
parties (Permissible Assumed Indebtedness);
(v) liability to a surety under performance bonds or
similar instruments incurred in connection with the Borrower's construction of
extended stay facilities on the Borrower's property;
(vi) Indebtedness due and payable solely to
a Subsidiary of Borrower or by a Subsidiary to Borrower; and
(vii) The guaranty of lease obligations under
the Sale-Leaseback Facility;
(viii) subject to Lenders prior written consent,
which consent shall not be unreasonably withheld, and provided no Default or
Event of Default has occurred, Indebtedness arising from the refinancing of the
Indebtedness referred to in Schedule 4 annexed hereto; provided:
(a) such refinanced Indebtedness is not
secured by any of the Collateral;
(b) then existing non-recourse
Indebtedness is not exchanged for recourse (however limited) Indebtedness;
(c) Borrower, prior to and following
the closing of such refinancing, is in compliance with the covenants set forth
in this Article V; and
<PAGE>
(d) such refinanced Indebtedness
does not make any change in, the condition or affairs of Borrower which, in any
Lender's opinion, increases its credit risk.
(b) Total Liabilities. (1) Permit there to be Total
Liabilities of Borrower, at any time, in excess of the amount equal fifty-five
percent (55%) of Gross Asset Value C Cost.
(i) Permit there to be Total Liabilities of
Borrower, at any time, in excess of the amount equal to:
(a) for the first calendar quarter of
2000, 65% of Gross Asset Value C Market;
(b) for the second calendar quarter of
2000, 60% of Gross Asset Value C Market;
(c) for the third calendar quarter of
2000, 57.5% of Gross Asset Value C Market; and
(d) for the fourth calendar quarter of
2000 and thereafter at all times up to and including the Maturity Date, 55% of
Gross Asset Value Market.
(c) Aggregate Indebtedness. (1) Permit there to be aggregate
Indebtedness of the Borrower, at any time, in excess of the amount equal to
fifty percent (50%) Gross Asset Value Cost.
(i) Permit there to be aggregate Indebtedness
of the Borrower, at any time, in excess of the amount equal to:
(a) for the first calendar quarter of
2000, 60% of Gross Asset Value Market;
(b) for the second calendar quarter of
2000, 55% of Gross Asset Value Market;
(c) for the third calendar quarter of
2000, 52.5% of Gross Asset Value Market; and
(d) for the fourth calendar quarter of
2000 and at all times thereafter up to and including the Maturity Date, 50% of
Gross Asset Value Market.
(d) Interest Expense Ratios. Maintain a ratio of EBITDA to
Interest Expense less than:
(i) for the first calendar quarter of 2000, 1.75:1.0;
<PAGE>
(ii) for the second calendar quarter of 2000,
1.90:1.0; and
(iii) for the third calendar quarter of 2000
and at all times thereafter up to and including the Maturity Date, 2.00:1.0.
(e) Debt Service Ratios. Maintain a ratio of Adjusted EBITDA
to Debt Service less than:
(i) for the first calendar quarter of 2000,
1.25:1.0; and
(ii) for the second calendar quarter of 2000
and at all times thereafter up to and including the Maturity Date, 1.5:1.0.
(f) Implied Debt Service Ratios. Maintain a ratio of Adjusted
Pool NOI to Implied Pool Debt Service less than:
(i) for the first calendar quarter of 2000,
2.00:1.0; and
(ii2) for the second calendar quarter of 2000
and at all times thereafter up to and including the Maturity Date, 2.25:1.0.
(g) Net Worth. Maintain, at any time, a Net Worth less than
eighty five percent (85%) of its Net Worth as of December 31, 1999, adjusted
upwards (but not downwards) by eighty five percent (85%) of the net cash
proceeds and other value derived form the Borrower's issuance of equity
securities after the Closing Date.
(h) Available Amount. Permit the aggregate principal amount of
the Loan at any time to exceed $110,000,000, or the aggregate principal amount
of all borrowings of the Revolving Portion of the Loan to exceed $35,000,000.
(i) Dividends and Distributions. Make any dividend or
distribution prior to March 31, 2000. Thereafter, make any dividend or
distribution which would cause the aggregate of all dividends or distributions
made by the Borrower at any time subsequent to March 31, 2000 to exceed the
Maximum Dividend Amount, as determined as of the date of the declaration of the
dividend or distribution, provided, however, that in no event may the Borrower
make a dividend or distribution during the continuance of a Default or Event of
Default.
(j) Debt Yield. Permit there at any time to be a Debt Yield
with respect to the Mortgaged Properties of less than 20%.
(k) Loan to Appraised Value and Loan to Eligible Costs.
(i) At all times during the period commencing
on the Closing Date and ending on April 30, 2001, permit the outstanding
principal balance of the Loan to exceed an amount equal to 20% of the aggregate
Appraised Value of the Mortgaged Properties.
<PAGE>
(ii) At all times during the period
commencing May 1, 2001 and ending on the Maturity Date, permit the outstanding
principal balance of the Loan to exceed an amount equal to 30% of the aggregate
Appraised Value of the Mortgaged Properties.
(iii) At all times during the term of the Loan, permit
the outstanding principal
amount of the Loan to exceed an amount equal to 25% of Eligible Costs applicable
to the Mortgaged Properties.
(l) Security Capital. Permit Security Capital Group
Incorporated to directly or, through a wholly-owned subsidiary, indirectly own
less than (a) fifty-one percent (51%) of the voting stock in Borrower before
dilution due to the conversion of the mortgages in favor of Archstone
Communities Trust shown on Schedule 4 or (b) forty-six percent (46%) after such
dilution.
(m) Sales, Transfers. Sell, transfer or enter into any
agreement for the sale or transfer of any of the Mortgaged Properties, other
than a sale or transfer or an agreement for the sale or transfer of a Mortgaged
Property with respect to which all conditions and requirements to the Release
thereof pursuant to Section 8.11 hereof are (as of the date of such agreement)
capable of being, and upon such sale or transfer shall be, satisfied.
(n) Liens. Create, incur, assume, or suffer to exist any Lien
on any Mortgaged Property to secure any Indebtedness of the Borrower or any
other Person, other than Permitted Encumbrances.
(o) Mergers, Sales, Etc. (i) Merge into or consolidate with
any other Person; (ii) sell, assign, lease, transfer, convey or otherwise
dispose of (in one transaction or a series of transactions) all or substantially
all of the Borrower's or such Subsidiary's assets, as the case may be, to any
Person or group (as such term is used in Section 13(d)(3) of the Exchange Act),
(iii) the liquidation or dissolution of the Borrower or such Subsidiary, as the
case may be, or the adoption of a plan by the stockholders of the Borrower or
such Subsidiary, as the case may be, relating to the dissolution or liquidation
of the Borrower or such Subsidiary, as the case may be, (iv) the acquisition by
any Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act), except for Realty or Affiliates thereof, of a direct or indirect majority
interest (more than 50%) of the voting power of the capital stock of the
Borrower by way of purchase, merger or consolidation or otherwise; or (v) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of the Borrower (which includes any
new directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Borrower was approved by a vote of at least
two thirds (2/3) of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Borrower.
(p) Changes in Property or Business. Except in connection
with the development of an extended stay facility and ancillary facilities
related thereto or with the prior written consent of the Required Lenders:
<PAGE>
(a) Make or allow any material change to be
made in the nature of the use of any Mortgaged Property, or any part thereof
from that in effect on the date hereof or the date acquired, as the case may be;
or
(b) Initiate or acquiesce in any change in any
Use Requirements now or hereafter in effect and affecting any Mortgaged Property
or any part thereof.
(q) Transactions with Affiliates. Purchase, acquire, or lease
any property from, or sell, transfer, or lease any property to, or lend or
advance any money to, or borrow any money from, or guarantee any obligation of,
or acquire any stock, obligations, or securities of, or enter into any merger or
consolidation agreement, or any management or similar agreement with, any
Affiliate, or enter into any other transaction or arrangement or make any
payments to (including, without limitation, on account of any management fees,
service fees, office charges, consulting fees, technical service charges, or tax
sharing charges) or otherwise deal with, in the ordinary course of business or
otherwise, any Affiliate on terms other than arm's-length commercially
reasonable terms (other than (i) any such transactions in effect on the Closing
Date and described in Schedule 7 annexed hereto, and (ii) any such transactions
between the Borrower and any of its wholly-owned Subsidiaries and between
wholly-owned Subsidiaries of Borrower).
(r) Use of Proceeds. Use the proceeds of any borrowing of the
Revolving Portion of the Loan for any purpose other than those set forth in
Section 2.15(e) hereof.
(s) Change of Business. Make or allow any material change in
the nature or scope of the business of the Borrower or any Subsidiary, except as
permitted under Section 4.31.
(t) Hazardous Materials. Subject to the provisions of
Section 5.5 hereof:
(i) Use or permit or suffer use of any
Mortgaged Property or any part thereof or any interest therein or conduct any
activity or operations thereon in any manner which:
(a) would involve or result in the
occurrence or presence of or exposure to Hazardous Materials at, upon, under,
across or within any Mortgaged Property or any part thereof not in the ordinary
course of operation;
(b) would violate any Relevant
Environmental Laws; or
(c) would result in the occurrence of
any Environmental Discharge.
<PAGE>
(ii) Install or suffer or permit installation
or Presence on, in or under any Mortgaged Property or any part thereof of any
underground or above-ground containers for the storage of fuel oil, gasoline or
other petroleum products or by-products, except (i) such above-ground containers
that are required for the operation of the Mortgaged Property and that are at
all times in compliance with all Relevant Environmental Laws and any other
applicable Requirements of Law and (ii) such underground containers that are
required for the operation of the Mortgaged Property and are at all times in
compliance with all Relevant Environmental Laws and any other applicable
Requirements of Law.
(u) Projects under Development.
(i) Permit there to be any Project under
Development other than those with respect to which Borrower shall have delivered
to Agent evidence reasonably satisfactory to Agent demonstrating that such
Projects under Development are capable of being made Construction Complete using
funds readily available to Borrower.
(ii) Permit the Total Costs of Projects under
Development, at any time, to exceed
ten percent (10%) of the lesser of (i) GAV Cost and (ii) GAV Market.
(iii) Permit the aggregate amount of
Construction Budgets to exceed ten percent (10%) of the lesser of (i) GAV Cost
and (ii) GAVC Market.
(v) Guarantors. Except as provided in Section 4.30(b), permit
or suffer any Subsidiary of Borrower to not guarantee the Indebtedness
hereunder.
(w) Investments.
(i) Except as set forth in Schedule 5
annexed hereto, Borrower and its Subsidiaries shall not own or hold any direct
or indirect interest in any Capital Stock, other than (x) Capital Stock in a
Subsidiary of Borrower and (y) Capital Stock which does not and will not
constitute plan assets , as defined in Section 4.9 hereof.
(ii) Borrower and its Subsidiaries will not in
the aggregate own or hold any direct or indirect interest with respect to
unimproved land in excess of (a) five percent (5%) of the lesser of (i) GAV
Cost and (ii) GAV Market.
(iii) Borrower and its Subsidiaries will not in
the aggregate own or hold any direct or indirect interest in any mortgage or
other debt or security instrument in excess of the lesser of ten percent (10%)
of the lesser of (i) GAV Cost and (ii) GAV Market.
(iv) Borrower and its Subsidiaries will not in
the aggregate own or hold any direct or indirect interest, whether economic or
nominal, in any limited liability company, joint venture or partnership (other
than a wholly owned Subsidiary) in excess of fifteen percent (15%) of the lesser
of (i) GAV Cost and (ii) GAV Market, provided that in no event shall Borrower
or its Subsidiaries hold an interest in any such entity unless Borrower or the
applicable Subsidiary owns not less than 25% of the beneficial interests in such
entity and has the sole power at all times to direct the management and affairs
of such entity.
<PAGE>
(v) Borrower and its Subsidiaries will not,
in the aggregate, own or hold any direct or indirect interest in unimproved
land, joint venture, limited liability company or partnership interests,
mortgages or other debt or security instruments or any other investments in
excess of twenty-five percent (25%) of the lesser of (i) GAV Cost and (ii) GAV
Market.
(x) Preferred Stock Issuance. Permit there to be any issuance
of preferred stock in Borrower or any Subsidiary Mortgagor.
Section 5.4 Material Casualties. The Borrower agrees that if at any
time prior to the repayment in full of the Loan (including, but not limited to,
at any time, prior to or after an Event of Default) any Mortgaged Property is
damaged by fire, earthquake or other casualty in such a manner or to such an
extent so that it is unlikely, in the Administrative Agent's reasonable
judgment, that such Mortgaged Property will be restored on or prior to the
Maturity Date to the same physical, leased and operating condition as it exists
prior to such casualty, the Borrower shall, within twenty (20) days of the
Administrative Agent's written request, direct that the insurance proceeds from
the casualty be delivered over to the Administrative Agent, to be applied by the
Administrative Agent to repayment of or the Borrower's obligations under this
Agreement and the other Loan Documents.
Section 5.5 Effect of Certain Representations of Covenants Being
Inaccurate or Breached. In the event that any of the representations and
warranties contained in Sections 4.11, 4.13, 4.15, 4.16, 4.17, 4.21, 4.23, 4.24,
4.26, 4.27, 4.30, 4.31 and 4.32 of this Agreement (or any representation or
warranty contained in any other Loan Document which is substantially similar to
any of the foregoing representations and warranties) are not accurate when made
or deemed made, or in the event that any of the covenants contained in Sections
5.1(c), (d)(ii), (h), (i), (j), (k) and (o) and 5.3(t) (or any covenant
contained in any other Loan Document which is substantially similar to any of
the foregoing covenants) are breached, then, notwithstanding anything to the
contrary, such breach or inaccuracy shall not constitute or be deemed a Default
or Event of Default, and Borrower shall not be deemed to have made any
misrepresentation, or breached any warranty or covenant unless and until (but
shall, at Administrative Agent's option, constitute and be deemed a Default and
Event of Default, and Borrower shall be deemed to have made such
misrepresentation, or breached such warranty or covenant, if and when):
<PAGE>
(a) (1) Borrower is given notice by the Administrative Agent
of the circumstances which, but for this Section 5.5, would constitute such
misrepresentation, or breach of warranty or covenant and such circumstances are
not remediated (i.e, the circumstances which would otherwise constitute such
misrepresentation, or breach of warranty or covenant no longer exist) within (1)
in the case of circumstances which can be remediated by the payment of a sum of
money only, 10 days after such notice is given, and (2) in the case of all other
circumstances, thirty (30) days after such notice is given plus, if such
circumstances cannot reasonably be remediated within thirty (30) days after such
notice is given and the Borrower has during such 30-day period commenced to
remediate such circumstances and thereafter diligently pursues all necessary
efforts to effect such remediation, such additional period of time as may be
required to effect such remediation; provided, however, that if at any time
during any cure period described above regarding circumstances the cost to
remediate which are quantifiable, Borrower shall not have provided evidence
satisfactory to the Administrative Agent that the Borrower has available to it
sufficient funds (other than from borrowings pursuant to this Agreement) to
promptly effect any such remediation, then the cure period provided for above
regarding such circumstances shall immediately expire; and
(ii) upon the expiration of the applicable
cure period described in Section 5.5(a)(i), if such circumstances have not been
remediated, the aggregate principal amount of all outstanding borrowings at such
time exceeds the Eligible Maximum Availability Amount , as herein defined, at
such time. The term Remediation Amount means the amount which Borrower
certifies to the Administrative Agent in writing (Borrower hereby agreeing to so
certify such amount promptly upon the Administrative Agent's request) as being
Borrower's reasonable estimate (determined in a manner reasonably acceptable to
the Administrative Agent, the basis for which determination shall be set forth
in reasonable detail in such certification) of the aggregate cost of remediating
all circumstances which would constitute a misrepresentation or breach of
warranty or covenant of any of the representations, warranties or covenants
described above in this Section 5.5. The term Eligible Maximum Availability
Amount means, as of the date of expiration of such applicable cure period, the
maximum outstanding principal balance permitted under Section 5.3(k) as of such
date recomputed by subtracting from the Eligible Costs and the Appraised Value
of the Mortgaged Properties the amount by which the Remediation Amount exceeds,
if at all, the lesser of (x) $3,000,000.00, and (y) the greater of (A)
$300,000.00, and (B) three percent (3%) of the greater of (I) the Eligible Costs
of the Mortgaged Properties, and (II) the Appraised Value of the Mortgaged
Properties; or
(b) all circumstances which would constitute a
misrepresentation or breach of warranty or covenant of any of the
representations, warranties or covenants described above in this Section 5.5,
when taken as a whole, constitute a Material Adverse Change.
In the event that any misrepresentation or breach of warranty or covenant with
respect to one or more Mortgaged Properties occurs which, pursuant to the
provisions of this Section 5.5, constitutes or will constitute a Default and
Event of Default, then, subject to the terms hereof, Borrower shall have the
right to substitute for such affected Mortgaged Properties one or more other
properties of the Borrower or its Subsidiaries, provided that (i) all of such
proposed substitute properties are acceptable in all respects to the Lenders in
their sole, absolute and subjective discretion, (ii) all other conditions herein
to a property becoming a Mortgaged Property are satisfied and complied with, and
(iii) both before and after giving effect to such proposed substitution, no
Default or Event of Default (other than as a result of such misrepresentation or
breach of warranty or covenant) shall exist.
Section 5.6 New Subsidiaries. In the event any Person becomes a
Subsidiary after the Closing Date, the Borrower shall deliver to the
Administrative Agent within twenty (20) Business Days of such event, each of the
following items, in form and substance satisfactory to the Administrative Agent:
(a) an accession agreement in the form annexed
hereto as Exhibit K executed by such Subsidiary;
<PAGE>
(b) the articles of incorporation, articles of organization,
certificate of limited partnership or other comparable organizational instrument
(if any) of such Subsidiary certified as of a recent date by the Secretary of
State of the State of formation of such Subsidiary;
(c) a Certificate of Good Standing or certificate of similar
meaning with respect to such Subsidiary issued as of a recent date by the
Secretary of State of the State of formation of such Subsidiary and certificates
of qualification to transact business or other comparable certificates issued by
each Secretary of State (and any state department of taxation, as applicable) of
each state in which such Subsidiary is required to be so qualified;
(d) a certificate of incumbency signed by the Secretary or
Assistant Secretary (or other individual performing similar functions) of such
Subsidiary with respect to each of the officers or other representatives of such
Subsidiary authorized to execute and deliver the Loan Documents to which such
Subsidiary is a party;
(e) copies certified by the Secretary or Assistant Secretary
of such Subsidiary (or other individual performing similar functions) of (i) the
bylaws of such Subsidiary, if a corporation, the operating agreement, if a
limited liability company, the partnership agreement, if a limited or general
partnership, or other comparable document in the case of any other form or legal
entity and (ii) all corporate, partnership, member or other similar action taken
by such Subsidiary to authorize the execution, delivery and performance of the
Loan Documents to which it is a party;
(f) an opinion of legal counsel to such Subsidiary, regarding
the due formation and good standing of such Subsidiary, the authorization,
execution, delivery and enforceability of the Loan Documents to which it is a
party, and such other matter as the Administrative Agent may reasonably request;
and
(g) such other documents and instruments as the
Administrative Agent may reasonably request.
ARTICLE VI. EVENTS OF DEFAULT
Section 6.1 Events of Default. The occurrence and continuance of any of
the following specified events shall constitute an Event of Default :
(a) Payments. The Borrower shall fail to pay (i) any principal
of the Loan when due, or (ii) within three (3) days when due (including, without
limitation, by mandatory prepayment) (1) any interest on the Loan or any fees or
(2) any other amount payable hereunder or under the other Loan Documents.
(b) Certain Property Representations and Covenants. Any
misrepresentation or breach of warranty or covenant occurs which, pursuant to
the provisions of Section 5.5 hereof, constitutes a Default and Event of
Default.
<PAGE>
(c) Other Covenants. The Borrower or any Subsidiary of
Borrower shall fail to observe or perform any covenant or agreement (other than
those referred to in Sections 6.1(a) and (b)) and such failure shall remain
unremedied (i) in the case of any amounts payable hereunder or under the other
Loan Documents for three (3) Business Days after notice from the Administrative
Agent, (ii) in the case of covenants or agreements contained in Section 5.2(a),
(b), (c) and (d) of this Agreement, for fifteen (15) Business Days after the
occurrence thereof; or (ii) in all other cases, for thirty (30) days after the
occurrence thereof. In the event that a breach of a covenant described in clause
(ii) above cannot be cured within thirty (30) days after the occurrence thereof
and the Borrower has during such 30-day period commenced to cure such breach and
thereafter diligently pursues all necessary efforts to effect a cure, an Event
of Default shall be deemed only to have occurred if the breach either cannot be
remedied, or remains unremedied, for sixty (60) days after the occurrence
thereof.
(d) Representations. Any representation, warranty, or
statement (other than those referred to in Section 6.1(b)) made or deemed to be
made by the Borrower or any other Person (other than the Administrative Agent or
any Lender) that is a party to any Loan Document under or in connection with any
Loan Document shall have been incorrect in any material respect as of the date
hereof, or as of the date deemed to have been made.
(e) Non-Payments of Other Indebtedness. The Borrower or any
Subsidiary of Borrower shall fail to make any payment of principal of or
interest on any Indebtedness of the Borrower or any such Subsidiary (other than
any Indebtedness under this Agreement or the other Loan Documents and other than
Permissible Assumed Indebtedness) in an aggregate principal amount of not less
than $5,000,000.00 within the applicable cure period or any event specified in
any note, agreement, indenture or other document evidencing or relating to any
such Indebtedness shall occur; and the effect of such failure or event is to
accelerate, or to permit the holder of such aggregate Indebtedness or any other
Person to accelerate, the maturity of such Indebtedness; or such Indebtedness
shall be required to be prepaid (other than by a regularly scheduled required
prepayment) in whole or in part prior to its stated maturity.
(f) Defaults Under Loan Documents. The Borrower or any other
Person (other than the Administrative Agent or any Lender) that is a party to
any Loan Document shall fail to observe or perform any covenant or agreement
(other than those referred to in Sections 6.1(a) and (b)) contained in any other
Loan Document, or any default shall occur under any other Loan Document (other
than those referred to in Sections 6.1(a) and (b)) and such failure or default
shall remain unremedied (i) in the case of any amounts payable under the other
Loan Documents, for three (3) days after notice from the Administrative Agent or
the Administrative Agent, (ii) in the case of covenants or agreements similar to
the covenants or agreements contained in Section 5.2(a), (b), (c) and (d) of
this Agreement, for fifteen (15) Business Days after the occurrence thereof; or
(iii) in all other cases, thirty (30) days after the occurrence thereof. In the
event that a breach of a covenant described in clause (ii) above cannot be cured
within thirty (30) days after the occurrence thereof and the Borrower has during
such 30-day period commenced to cure such breach and thereafter diligently
pursues all necessary efforts to effect a cure, an Event of Default shall be
deemed only to have occurred if the breach either cannot be remedied, or remains
unremedied, for sixty (60) days after the occurrence thereof.
<PAGE>
(g) Bankruptcy. The Borrower shall commence a voluntary case
concerning itself under Title 11 of the United States Code entitled ABankruptcy
as now or hereafter in effect, or any successor thereto (the ABankruptcy Code );
or an involuntary case is commenced against the Borrower and the petition is not
dismissed within ninety (90) days, after commencement of the case; or a
custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge
of, all or any substantial part of the property of the Borrower; or the Borrower
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency, or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Borrower or there is commenced against the Borrower any such proceeding which
remains undismissed for a period of ninety (90) days; or the Borrower is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Borrower suffers any
appointment of any custodian or the like for it or any substantial part of its
property to continue undischarged or unstayed for a period of ninety (90) days;
or the Borrower makes a general assignment for the benefit of creditors; or the
Borrower shall fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or the Borrower shall
call a meeting of its creditors with a view to arranging a composition or
adjustment of its debts; or the Borrower shall by any act or failure to act
indicate its consent to, approval of, or acquiescence in any of the foregoing;
or any action is taken by the Borrower for the purpose of effecting any of the
foregoing; or any of the foregoing shall occur with respect to any Subsidiary of
Borrower.
(h) Money Judgment. A judgment or order for the payment of
money in excess of $5,000,000 shall be rendered against the Borrower or any
Subsidiary of Borrower and such judgment or order shall continue unsatisfied (in
the case of a money judgment) and in effect for a period of thirty (30) days
during which execution shall not be effectively stayed or deferred (whether by
action of a court, by agreement, or otherwise) (or, if such judgment is covered
by insurance, such longer period during which the Borrower or such Subsidiary is
appealing or otherwise contesting such judgment in good faith).
(i) Cessation. Borrower or, without the prior consent of all
Lenders, which consent may not be unreasonably withheld, any Subsidiary of
Borrower which is not an Urban Subsidiary (as hereinafter defined) ceases, or
threatens to cease, to carry on all or a substantial part of its business. As
used herein, an Urban Subsidiary is a Subsidiary of Borrower which has
mortgaged property to the Administrative Agent, as agent, pursuant to the credit
facility referred to in subsection (j) below.
(j) Sale-Leaseback Facility. A default shall have occurred
under the Sale-Leaseback Facility and shall remain uncured beyond the expiration
of any applicable notice or grace period.
<PAGE>
Section 6.2 Global Remedies. Upon the occurrence and continuation of
an Event of Default, and at any time thereafter, if any Event of Default shall
then be continuing, the Required Lenders may, by written notice to the Borrower,
take any or all of the following actions, without prejudice to the rights of the
Lenders to enforce its claims against the Borrower: (i) declare the Loan
terminated, whereupon the Loan shall terminate immediately; (ii) declare all or
any portion of the principal of and any accrued interest on the Loan and all
other obligations owing hereunder and under the other Loan Documents, to be,
whereupon the same shall become, forthwith due and payable without presentment,
demand, protest, or other notice of any kind, all of which are hereby waived by
the Borrower; (iii) foreclose on any Collateral concurrently or in such order as
the Administrative Agent may from time to time see fit; or (iv) take any action
permitted under any Loan Document; provided, that, if any Event of Default
specified in Section 6.1(g) shall occur, the actions specified in clauses (i)
and (ii) above shall be deemed to have immediately and automatically occurred
without the giving of any notice to the Borrower.
<PAGE>
Section 6.3 Marshalling Waiver of Certain Rights; Recapture. Neither
the Administrative Agent nor the Lenders shall be under any obligation to
marshall any assets in favor of the Borrower or any other party or against or in
payment of any or all of the obligations of such parties. To the extent
permitted by law the Borrower waives and renounces the benefit of all valuation,
appraisement, homestead, exemption, stay, redemption, and moratorium rights
under or by virtue of the constitution and laws of the state in which the
Mortgaged Properties are located and of any other state or of the United States,
now existing or hereafter enacted. To the extent the Administrative Agent or any
Lender receives any payment by or on behalf of the Borrower, which payment or
any part thereof is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to the Borrower or its estate,
trustee, receiver, custodian, or any other party under any bankruptcy law, state
or federal law, common law, or equitable cause, then to the extent of such
payment or repayment, the obligation or part thereof which has been paid,
reduced, or satisfied by the amount so repaid shall be reinstated by the amount
so repaid and shall be included within the liabilities of the Borrower to such
party as of the date such initial payment, reduction, or satisfaction occurred,
together with interest at the Default Rate. The Borrower agrees that (i) the
Administrative Agent on behalf of the Lenders shall have the right to pursue all
of its rights and remedies in one proceeding, or separately and independently in
separate proceedings from time to time, as the Administrative Agent, in its
reasonable discretion, shall determine from time to time, (ii) the Collateral
may be sold at such proceeding or proceedings in one or more sales and in such
portions or combinations as the Administrative Agent, in its sole and absolute
discretion, shall determine, (iii) the Administrative Agent on behalf of the
Lenders shall not be required to marshall assets, sell any of the Collateral in
any inverse order of alienation, or be subject to any Aone action or Aelection
of remedies law or rule, (iv) the exercise by the Lenders of any remedies
against any one item of Collateral will not impede the Lenders from subsequently
or simultaneously exercising remedies against any other item of Collateral, and
(v) all Liens and other rights, remedies, or privileges provided to the
Administrative Agent and the Lenders under this Agreement and the other Loan
Documents shall remain in full force and effect until the Administrative Agent
and the Lenders have exhausted all of their remedies against the Collateral and
all of the Collateral has been foreclosed, sold or otherwise realized upon in
satisfaction of the Promissory Notes and the other obligations of the Borrower
to the Administrative Agent and the Lenders. Each Lender and its officers,
directors, shareholders, employees, counsel and agents shall not incur any
liability as a result of the sale of the Collateral, or any part thereof, in
accordance with the provisions of this Agreement or any Loan Document, or for
the failure to sell or offer for sale the Collateral, or any part thereof, for
any reason whatsoever. The Borrower waives any claims against each Lender and
its officers, directors, shareholders, employees, counsel and agents arising
with respect to the price at which the Collateral, or any part thereof, may have
been sold by reason of the fact that such price was less than the aggregate
amount of the indebtedness due under the Promissory Notes, this Agreement and
the other Loan Documents.
Section 6.4 Application of Proceeds
(a) All proceeds received by the Administrative Agent or the
Lenders in respect of the repayment of any sums due hereunder or in connection
with a foreclosure sale of all or any portion of the Collateral after the
occurrence of an Event of Default shall be applied, first, to the costs of
enforcement of the Lenders rights hereunder and under the other Loan Documents;
second, to pay any accrued and unpaid interest (including all interest owing at
the Default Rate), the principal amount of the Loan and any unpaid fees payable
under this Agreement and the other Loan Documents in such order of priority as
the Administrative Agent, in its sole and absolute discretion shall determine
but subject to the rights of the Lenders; and third, if any excess proceeds
exist, to the Borrower or any party entitled thereto as a matter of law. If the
amount of all proceeds received in liquidation of the Collateral which shall be
applied to payment of the indebtedness due in respect of this Agreement, the
Promissory Notes and the Loan Documents shall be insufficient to pay all such
indebtedness or obligations in full, the Borrower acknowledges that it shall
remain liable for any deficiency, together with interest thereon and costs of
collection thereof (including reasonable counsel fees and legal expenses).
(b) The Administrative Agent shall have the right, but not the
obligation, to deposit any proceeds in its possession which are available under
clause third of Section 6.4(a) above into a court of competent jurisdiction for
determination by such court of the disposition of such excess proceeds and upon
such deposit, the Administrative Agent shall have no further liability with
respect to such proceeds. All costs and expenses of the Administrative Agent in
connection with such action may be deducted or charged by the Administrative
Agent against such excess proceeds and shall otherwise be reimbursed by the
Borrower upon demand. The Administrative Agent shall have the right, but not the
obligation, to request and rely on the instructions of the Borrower in
connection with the disposition of any such excess proceeds and, upon compliance
with such instructions, shall have no further liability with respect to such
proceeds.
<PAGE>
Section 6.5 Attorneys in Fact. The Borrower hereby makes,
constitutes and appoints the Administrative Agent, and its agents and designees,
the true and lawful agents and attorneys-in-fact of the Borrower, with full
power of substitution, to take any or all of the following actions during the
continuance of an Event of Default: (i) to receive, open and dispose of all mail
addressed to the Borrower relating to the Collateral, (ii) to notify and direct
the United States Post Office authorities by notice given in the name of the
Borrower and signed on its behalf, to change the address for delivery of all
mail addressed to the Borrower relating to the Collateral to an address to be
designated by the Administrative Agent, and to cause such mail to be delivered
to such designated address where the Administrative Agent may open all such mail
and remove therefrom any notes, checks, acceptances, drafts, money orders or
other instruments in payment of the Collateral in which the Administrative Agent
has a security interest hereunder and any documents relative thereto, with full
power to endorse the name of the Borrower upon any such notes, checks,
acceptances, drafts, money orders or other form of payment or on Collateral or
security of any kind and to effect the deposit and collection thereof, and the
Administrative Agent shall have the further right and power to endorse the name
of the Borrower on any documents otherwise relating to such Collateral, and
(iii) to do any and all other things necessary or proper to carry out the intent
of this Agreement and to perfect and protect the liens and rights of the
Administrative Agent created under this Agreement, including, without
limitation, to claim, bring suit, settle or adjust any insurance proceeds claims
relating to the Collateral. The Borrower agrees that neither the Lenders nor any
of their officers, directors, shareholders, employees, counsel, agents,
designees or attorneys-in-fact will be liable for any acts of commission or
omission, or for any error of judgment or mistake of fact or law, except for any
acts of gross negligence or willful misconduct. The powers granted hereunder are
coupled with an interest and shall be irrevocable during the term hereof.
ARTICLE VII. AGENCY AND INTERCREDITOR RELATIONSHIPS
Section 7.1 Appointment. Each Lender hereby irrevocably designates
and appoints Commerzbank AG, New York Branch as the contractual representative
of such Lender under the Loan Documents, and each such Lender irrevocably
authorizes Commerzbank AG, New York Branch to act as the contractual
representative for such Lender, to take such action on its behalf under the
provisions of this Agreement and the Loan Documents and to exercise such powers
and perform such duties as are expressly delegated to the Administrative Agent
by the terms of this Agreement and the Loan Documents, together with such other
powers as are reasonably incidental thereto. The Administrative Agent shall not
have any duties or responsibilities, except those expressly set forth in this
Agreement and the Loan Documents, or any fiduciary relationship with any Lender,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities on the part of the Administrative Agent shall be read into any of
the Loan Documents or otherwise exist against the Administrative Agent. The
provisions of this Article VII are solely for the benefit of the Administrative
Agent, the Administrative Agent and the Lenders, and the Borrower shall not have
any rights as a third party beneficiary or otherwise under any of the provisions
of this Article VII. In performing its respective functions and duties under the
Loan Documents, the Administrative Agent shall act solely as the contractual
representatives of the Lenders and do not assume nor shall the Administrative
Agent be deemed to have assumed any obligation or relationship of trust or
agency with or for the Borrower or any of such party's respective successors and
assigns.
Section 7.2 Delegation of Duties. The Administrative Agent may
execute any of their duties under the Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel (including their
internal counsel) concerning all matters pertaining to such duties. The
Administrative Agent shall not be responsible for the negligence or misconduct
of any agents or attorneys-in-fact selected by it with reasonable care.
<PAGE>
Section 7.3 Exculpatory Provisions. The Administrative Agent shall not be
(a) liable for any action lawfully taken or omitted to be taken by it, or any
Person described in Section 7.2, under or in connection with any Loan Document
(except for those actions arising from the gross negligence or willful
misconduct of the Administrative Agent), or (b) responsible in any manner to any
of the Lenders for (i) any recitals, statements, representations or warranties
made by the Borrower contained in any Loan Document, or by the Borrower in any
certificate, report, statement or other document referred to or provided for in,
or received under or in connection with any Loan Document or (ii) the value,
validity, effectiveness, genuineness, enforceability or sufficiency of any Loan
Document or any such certificate, report, statement or other document, or (iii)
any failure of the Borrower, or any Lender to perform or observe its respective
obligations hereunder or thereunder. Except as expressly required to do so under
the Loan Documents, the Administrative Agent shall not be under any obligation
to any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of any Loan Document, or to
inspect the properties, or the books or records of the Borrower. This Section
7.3 is intended to govern solely the relationship between each of the
Administrative Agent, on the one hand, and the Lenders, on the other.
Section 7.4 Reliance by the Administrative Agent. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation (including by telephone) believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, its internal counsel and counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under any Loan Document unless it shall first receive such advice or
concurrence of the Lenders required pursuant to this Agreement or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action.
Section 7.5 Notices
(a) The Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default unless
(i) such party has received notice from a Lender or the Borrower referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a notice of default or (ii) such party, in its capacity as the
Administrative Agent, has actual knowledge of such Default or Event of Default.
In the event that the Administrative Agent receives such a notice or obtains
such actual knowledge, it shall promptly give notice thereof to the Lenders. The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be directed by the Required Lenders; provided that
unless and until the Administrative Agent shall have received such directions,
the Administrative Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default or Event of
Default as the Administrative Agent shall deem advisable and in the best
interests of the Lenders. The Administrative Agent shall take no action with
respect to a Default or Event of Default except as directed by the
Administrative Agent in writing and shall have no liability to the Borrower or
its Subsidiaries or any Lender for acting on and carrying out any such
direction.
(b) Each Lender agrees that it shall promptly notify the
Administrative Agent in writing after it first has knowledge of any Default or
Event of Default or of any matter which in such Lender's judgment adversely
affects any Lender's respective interests in the Loan, which notice will
describe the Default or Event of Default or matter in reasonable detail. The
Administrative Agent shall give a copy of any such notice received by the
Administrative Agent to the other Lenders.
<PAGE>
(c) The Administrative Agent shall promptly give copies of the
financial reports it receives pursuant to Sections 5.2(a) and (b) hereof to the
other Lenders. The Administrative Agent shall promptly give copies of the
financial reports it receives pursuant to Sections 5.2(c) to (e) hereof to the
other Lenders.
Section 7.6 Non-Reliance on the Administrative Agent and Other Lenders.
Each Lender expressly acknowledges that neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or affiliates
has made any representations or warranties to it and that no act by either of
the Administrative Agent hereafter taken, including, without limitation, any
review of the affairs of the Borrower shall be deemed to constitute any
representation or warranty by the Administrative Agent. Each Lender represents
and warrants to the Administrative Agent that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, (a) made its own
appraisal of and investigation into the business, operations, property,
prospects, financial and other condition, creditworthiness and solvency of the
Borrower, (b) satisfied itself as to the due execution, legality, validity,
enforceability, genuineness, sufficiency and value of all of the Loan Documents
and all other instruments and documents furnished pursuant to any Loan Document,
and (c) made its own decision as to its Percentage of the Loan pursuant to this
Agreement. Each Lender also represents that it will, independently and without
reliance upon the Administrative Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analyses, appraisals and decisions in taking or not taking
action under this Agreement, and to make such investigation as it deems
necessary to inform itself as to the business, operations, property, prospects,
financial and other condition and creditworthiness of the Borrower. Except for
notices, reports and other documents expressly required pursuant to the Loan
Documents to be furnished by the Administrative Agent to the Lenders, the
Administrative Agent, as applicable, shall not have any duty or responsibility
to provide any Lender with any credit or other information concerning the
business, operations, property, prospects, financial and other condition or
creditworthiness of the Borrower which may come into the possession of the
Administrative Agent or any of their officers, directors, employees, agents,
attorneys-in-fact or affiliates.
<PAGE>
Section 7.7 Indemnification. The Lenders agree to indemnify each of the
Administrative Agent (in their capacities as such) and their officers,
directors, employees, representatives and agents (to the extent not reimbursed
by the Borrower and without limiting the obligation, if any, of the Borrower to
do so), ratably in accordance with their Percentages, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
(including, without limitation, the fees and disbursements of counsel for the
Administrative Agent or such Person in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
the Administrative Agent or such Person shall be designated a party thereto)
that may at any time be imposed on, incurred by or asserted against the
Administrative Agent or such Person as a result of, or arising out of, or in any
way related to or by reason of, any of the transactions contemplated by the Loan
Documents or the execution, delivery or performance of any Loan Document (but
excluding any such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from the gross negligence or willful misconduct of the Administrative Agent or
such Person as determined by a court of competent jurisdiction). The agreements
in this subsection shall survive the payment of the Promissory Notes and all
other amounts payable hereunder.
Section 7.8 Individual Capacity. The Administrative Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower and any of its Affiliates as though it were
not the Administrative Agent hereunder. With respect to portions of the Loan
made or renewed by it and any Promissory Note issued to it, the Administrative
Agent shall have the same rights and powers under this Agreement as any Lender
and may exercise the same as though they were not the Administrative Agent.
Section 7.9 The administrative Agents Resignation. The Administrative Agent
may resign at any time by giving notice thereof to the Administrative Agent, the
other Lenders and the Borrower. If the Administrative Agent's resignation is
given in conjunction with an assignment of the Administrative Agent's interest
in the Promissory Note held by the Administrative Agent to another Person or
Persons, the Administrative Agent, with the consent of the Required Lenders,
shall have the right to name a successor Administrative Agent by giving notice
thereof to the Administrative Agent, the Borrower and the other Lenders.
Otherwise, upon the resignation of the Administrative Agent, the Required
Lenders shall designate within forty-five (45) days in writing another Person as
the successor Administrative Agent. If such proposed successor Administrative
Agent agrees in writing to act as the Administrative Agent in accordance with
the terms hereof, such successor Administrative Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges, duties and
obligations of the resigning Administrative Agent, and the resigning
Administrative Agent shall be discharged from its duties and obligations as the
Administrative Agent under this Agreement. After any retiring Administrative
Agent's resignation hereunder, the provisions of this Article VII shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
the Administrative Agent under this Agreement.
<PAGE>
Section 7.10 Appointment of a Substitute Administrative Agent. Commerzbank
AG, New York Branch shall be the initial Administrative Agent under this
Agreement and the Loan Documents until the Loan Documents have been terminated
and the Lenders have been paid in full. In the event that the Administrative
Agent determines that it is not in the best interest of the Administrative Agent
to continue to act as the Administrative Agent, then the Administrative Agent
may, at its option and upon thirty (30) days prior written notice to the
Borrower and the Lenders, request a substitute Administrative Agent be selected
in accordance with the terms of this Section to act as the Administrative Agent
with respect to such matters. Within fifteen (15) days after receipt of such
notice, the Required Lenders shall select a proposed substitute agent and shall
notify the Borrower of the identity of such proposed substitute agent. In
addition, the Required Lenders, on not less than thirty (30) days notice to the
Administrative Agent, may elect to appoint a substitute Administrative Agent in
the event that the Administrative Agent has acted hereunder with willful
misconduct, gross negligence or exhibited a continuing pattern of negligence
with respect to its duties and obligations hereunder. Provided that no Event of
Default shall have occurred and be continuing, Borrower shall have the right to
approve any such proposed substitute agent. The succeeding substitute
Administrative Agent shall have all the rights, powers and duties of the
Administrative Agent and the term Administrative Agent shall mean such
substitute Administrative Agent, effective upon its appointment. In the event
that the substitute Administrative Agent wishes to resign, it may do so upon
thirty (30) days prior notice to the Borrower, the Administrative Agent and the
Lenders, and a new substitute Administrative Agent shall be appointed in
accordance with this Section. After any retiring substitute Administrative
Agent's resignation hereunder as substitute Administrative Agent, the provisions
of this Section 7.10 and Section 8.4 hereof shall inure to the benefit of such
retired substitute Administrative Agent as to any actions taken or omitted to be
taken by it while it was substitute Administrative Agent under this Agreement.
Section 7.11 Loans. Each Lender shall make available to the Borrower such
Lender's portion of the Loan subject to and in accordance with the provisions of
the Loan Documents. The Borrower shall look solely to each Lender for the
performance of such Lender's obligations, covenants and agreements under the
Loan Documents on the part of each Lender to be performed or observed with
respect to each such portion of the Loan, subject to and upon the conditions,
limitations and restrictions set forth herein and in the other Loan Documents,
as evidenced by the signature of each such party hereto. In the event any Lender
has not made available its Percentage of any borrowing, the Administrative Agent
may (but shall not be obligated to), and each Lender authorizes the
Administrative Agent to, advance for such Lender's account, pursuant to the
terms hereof, the amount of the borrowing to be made by such Lender and each
Lender agrees to reimburse the Administrative Agent in immediately available
funds for any amount so advanced on its behalf. If any such reimbursement is not
made in immediately available funds on the same day on which the Administrative
Agent shall have made such amount available on behalf of any Lender, such Lender
shall also pay interest thereon to the Administrative Agent at the Federal Funds
Rate.
Section 7.12 Priority of Loans. Each Lender's portion of the Loan shall be
of equal priority with each other Lender's portion of the Loan, and no portion
of the Loan shall have priority or preference over any other portion of the Loan
or the security therefor, except as provided in Sections 7.20 and 7.24 hereof.
Section 7.13 Books and Records. The Administrative Agent will keep
customary books and records relating to all borrowings hereunder, and such books
and records shall be available at the Administrative Agent's office for the
Lenders reasonable inspection during the Administrative Agent's normal business
hours. The original Loan Documents shall be kept at the New York office of the
Administrative Agent or at such other office of the Administrative Agent or at
such other place as may be designated from time to time by the Administrative
Agent and shall be made available to any Lender for inspection at such office
within a reasonable period of time following such Lender's written request to
inspect same.
<PAGE>
Section 7.14 Decisions of Lenders. Except as expressly set forth in
Sections 7.15 and 7.16 hereof, all decisions, consents, waivers, approvals and
other actions (collectively, ADecisions ) authorized to be taken under or in
connection with this Agreement and the other Loan Documents by any Lender shall
be taken by the Administrative Agent in its discretion reasonably exercised,
subject to the provisions of Section 7.4 hereof. Except as expressly provided in
Sections 7.15 and 7.16 hereof, the Administrative Agent (i) may consent or
withhold consent to any action by the Borrower, (ii) may exercise or refrain
from exercising any power, rights or remedies hereunder or under the other Loan
Documents or otherwise in respect of the borrowings made hereunder, and/or (iii)
may waive any conditions in any Loan Documents, so long as such consent,
exercise or waiver would not, in the Administrative Agent's judgment reasonably
exercised, represent a departure from the standards followed by the
Administrative Agent in the administration of loans held by the Administrative
Agent entirely for its own account. The Administrative Agent may request a
Decision with respect to matters described in Sections 7.15 and 7.16 hereof at
any time by making a request for such Decision in writing to all of the Lenders.
Any such request (x) shall contain an adequate description together with
relevant background information of the Decision being requested, (y) shall
specify the reasons for such request, and (z) shall state the effect of not
responding to such notice as set forth in this Section. The Administrative Agent
will provide the Lenders with such additional information as the Lenders may
reasonably request to assist such Lenders in reaching a Decision, to the extent
such information is in the Administrative Agent's possession or under its
control. The requested Decision shall be deemed approved by the Lenders if and
when the Administrative Agent receives written approval from the required
percentage of the Lenders as specified in Sections 7.15 and 7.16 hereof, as the
case may be. If a Lender does not deliver to the Administrative Agent a written
objection thereto within ten (10) Business Days after hand delivery, mailing or
delivery to an express courier service of the request by the Administrative
Agent, the Administrative Agent shall make a second written request for a
Decision from that Lender. If the Lender does not deliver to the Administrative
Agent a written objection within five (5) Business Days after hand delivery,
mailing or delivery to an express courier service of such a second request, such
Lender shall be deemed to have approved the requested Decision. If the
Administrative Agent is unable to contact the usual representatives of a Lender
for any reason, the Administrative Agent will make a good faith effort to
contact other representatives of such Lender as necessary to reach a Decision
within the allotted time. To the extent that the Administrative Agent reasonably
deems necessary, any such Decision may also be requested telephonically by the
Administrative Agent from each Lender with such telephonic request to be
confirmed in writing by the Administrative Agent. Any Decision as to which the
Administrative Agent has made telephonic requests for approval shall be deemed
approved by the Lenders after the Administrative Agent has received the written
approval of the required percentage of the Lenders as specified in Sections 7.15
and 7.16 hereof. The Borrower shall be promptly notified of the Decision, if
such Decision was made in response to a request by the Borrower.
<PAGE>
Section 7.15 Approvals by the Lenders. No amendment, supplement,
modification or waiver shall be effective unless consented to in writing by the
Required Lenders; provided, however, that any amendment, supplement,
modification or waiver which adds, deletes, changes or waives any provisions of
the Loan Documents the effect of which is to (i) extend either the Maturity Date
or any installment or required prepayment of any borrowings; (ii) reduce the
rate or extend the time of payment of interest on any borrowings; (iii) reduce
the principal amount of any borrowings; (iv) reduce the fees payable under this
Agreement and the other Loan Documents, or any other fee payable to the Lenders
or extend the due date of any such fee; (v) change any Lender's portion of the
Loan or the amount of any borrowing of any Lender (except to the extent
permitted by Sections 7.18 and 7.19 hereof); (vii) forgive any Indebtedness of
Borrower or any Subsidiary of Borrower; (viii) change any allocation of payments
among the Lenders, (ix) change any provision of this Section 7.15 or Section
7.16 or the definition of Required Lenders; (x) modify any financial covenants
or waive any Default or Event of Default (except as provided in Section 7.16),
(xi) release any guaranty, (xii) waive or release any lien on any of the
Mortgaged Properties (except as provided in Section 8.11) or (xiii) commence any
judicial or nonjudicial foreclosure proceeding (except as provided in Section
7.16), shall be ineffective in each case without the written consent of all the
Lenders. Furthermore, no amendment, supplement, modification or waive shall
amend, modify or waive any provision of any Loan Document, if the effect thereof
is to affect the rights or duties of the Administrative Agent, without the
written consent of the Administrative Agent. Any such amendment, supplement,
modification or waiver shall apply to each of the Lenders equally and shall be
binding upon the Borrower, the Lenders, Administrative Agent, the Administrative
Agent and all future holders of the Promissory Notes. In the case of any waiver,
the Borrower, the Lenders, the Administrative Agent shall be restored to their
former position and rights hereunder and under the outstanding Promissory Notes,
and any Default or Event of Default waived shall be deemed to be cured and not
continuing, but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
Section 7.16 Approvals by the Required Lenders
(a) Upon the Administrative Agent's receipt of a notice of
default (as defined in Section 7.5(a) hereof) with respect to an Event of
Default, the Administrative Agent shall consult with the Lenders in respect of
any such Event of Default to determine a course of action which is acceptable to
the Required Lenders. Subject to Section 7.15 hereof, the Administrative Agent
shall pursue any such course of action approved in writing by the Required
Lenders in respect of any such Event of Default, including, without limitation,
acceleration of the Loan. In the event that the Required Lenders cannot decide
which remedies, if any, are to be pursued, the Administrative Agent may commence
proceedings on behalf of the Lenders; provided, however, that if at any time
thereafter the Required Lenders shall direct that a different or additional
remedial action shall be taken, such different or additional remedial action
shall be taken in lieu of or in addition to such proceedings.
(b) The Borrower hereby consents and agrees to the provisions
of Sections 7.14 through 7.16 and any modifications thereof entered into by the
Administrative Agent and the Lenders of such provisions and specifically
acknowledges and agrees that, notwithstanding any provisions in the Loan
Documents requiring action by the ALenders or similar provisions in connection
with the declaration of an Event of Default, the acceleration of the
indebtedness evidenced by the Loan Documents and/or the exercise of any remedies
under the Loan Documents, the Administrative Agent is hereby empowered to act on
behalf of the Lenders in accordance with the provisions hereof and the authority
of the Administrative Agent with respect to any action taken by the
Administrative Agent pursuant to and in accordance with this Agreement shall not
be contested by the Borrower by reason of any different or conflicting provision
contained in any of the Loan Documents.
<PAGE>
Section 7.17 Participation. Any Lender may at any time after the execution
and delivery of this Agreement, sell to one or more Persons (each a AParticipant
) participating interests in any borrowing owing to such Lender, any Promissory
Note held by such Lender and/or any other interest of such Lender hereunder (in
respect of any such Lender, its ACredit Exposure ). Notwithstanding any such
sale by a Lender of participating interests to a Participant, such Lender's
rights and obligations hereunder shall remain unchanged, such Lender shall
remain solely responsible for the performance thereof, such Lender shall remain
the holder of any such Promissory Note for all purposes hereunder (except as
expressly provided below), and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of Sections 2.11, 2.13 and 2.14 hereof. Each Lender
agrees that any agreement between such Lender and any such Participant in
respect of such participating interest shall not restrict such Lender's right to
agree to any amendment, supplement, waiver or modification to any Loan Document,
except where the result of any of the foregoing would be to extend the final
maturity of any borrowing or any regularly scheduled installment thereof or
reduce the rate or extend the time of payment of interest thereon or reduce the
principal amount thereof.
Section 7.18 Assignments
(a) Any Lender may, in the ordinary course of its business and
in accordance with applicable law, at any time after the execution and delivery
of this Agreement and from time to time assign to any Lender or any other
Eligible Assignee (each a APurchasing Lender ) all or any part of its Credit
Exposure in amounts not less than $10,000,000. The Borrower, the Administrative
Agent and the Lenders agree that to the extent of any assignment, the Purchasing
Lender shall be deemed to have the same rights and benefits under the Loan
Documents and the same obligation to share pursuant to Section 7.24 hereof as it
would have had if it had been a Lender which was one of the original parties
hereto. The consent of the Administrative Agent and, provided no Default or
Event of Default has occurred, the Borrower shall be required prior to an
assignment becoming effective, which consents will not be unreasonably withheld,
delayed or conditioned; provided that the Administrative Agent shall be entitled
to continue to deal solely and directly with the assignor Lender in connection
with the interests so assigned to the Purchasing Lender unless and until such
Purchasing Lender executes a supplement to this Agreement, substantially in the
form of Exhibit L hereto (a AForm of Assignment and Assumption Agreement ).
(b) Upon (i) execution of a Form of Assignment and Assumption
Agreement, (ii) delivery of an executed copy thereof to the Borrower, the
Administrative Agent, (iii) payment by such Purchasing Lender to such transferor
Lender of an amount equal to the purchase price agreed between such transferor
Lender and such Purchasing Lender, and (iv) payment to the Administrative Agent
of an assignment fee of $2500 for each assignment by any Lender of all or any
portion of its Credit Exposure, such transferor Lender shall be released from
its obligations hereunder to the extent of such assignment and such Purchasing
Lender shall for all purposes be a Lender party to this Agreement and shall have
all the rights and obligations of a Lender under this Agreement to the same
extent as if it were an original party hereto, and no further consent or action
by the Borrower, the Lenders or the Administrative Agent shall be required. Such
Form of Assignment and Assumption Agreement shall be deemed to amend this
Agreement to the extent, and only to the extent, necessary to reflect the
addition of such Purchasing Lender as a Lender. Promptly after the consummation
of any transfer to a Purchasing Lender pursuant hereto, the transferor Lender,
the Administrative Agent and the Borrower shall make appropriate arrangements so
that a replacement Promissory Note is issued to such transferor Lender and a new
Promissory Note is issued to such Purchasing Lender, in each case in principal
amounts reflecting such transfer. The Purchasing Lender shall furnish to
Borrower and the Administrative Agent, at least 10 days prior to the date on
which the first payment to such Purchasing Lender is due, the documents
described in Section 2.17(b) hereof.
<PAGE>
(c) Commerzbank AG, New York Branch, agrees that it will not
assign to a Purchasing Lender any part of its Credit Exposure such that, after
giving effect to such assignment, Commerzbank AG, New York Branch's Percentage
shall be less than twenty five percent (25%), unless its failure to do so shall
(or in Commerzbank AG, New York Branch's reasonable judgment is likely to)
constitute a violation of any Requirement of Law. Notwithstanding the foregoing,
nothing herein shall restrict or limit Commerzbank AG, New York Branch, from
selling a participating interest in any portion, or all, of its Credit Exposure.
Section 7.19 Withholding. Notwithstanding anything to the contrary herein,
no Participant or other assignee of all or any part of the Credit Exposure of
any Lender (each, a ANon-Party Holder ), other than a Purchasing Lender, shall
be entitled to any of the benefits of Section 2.16 hereof.
Section 7.20 Amounts Received by Lenders. Each Lender agrees that it shall
act as a trustee for the benefit of the other Lenders to the extent of the
respective interests of the other Lenders in the Loan with respect to all sums
of any kind paid to or received by such Lender in payment of all or a portion of
the Loan by or on behalf of the Borrower.
Section 7.21 No Joint Venture. Neither the execution of this Agreement nor
the selling of an interest in the Loan nor any agreement to share in profits or
losses as provided herein is intended to be, nor shall it be construed to be,
the formation of a partnership or joint venture among the parties to this
Agreement.
Section 7.22 Acknowledgement by Parties Hereto. The agreement to and
acceptance of this Agreement by the parties hereto, indicated by the execution
of this Agreement, shall evidence (a) each party's acceptance of all the terms
and conditions of this Agreement and the other Loan Documents and (b) each
party's consent to the Administrative Agent acting as the contractual
representatives on behalf of the Lenders with regard to all aspects of the
administration, enforcement and collection of the Loan and to all matters
pertaining to the Loan Documents as provided for herein.
Section 7.23 Sharing of Payments. Each of the Lenders agrees that if it
should receive any amount under this Agreement or any of the other Loan
Documents (whether by voluntary payment, by realization upon security, by the
exercise of the right of banker's lien, by counterclaim or cross action, by the
enforcement of any right under the Loan Documents, or otherwise) which is
applicable to the payment of any borrowing of a sum which with respect to the
related sum or sums received by the other Lenders is in a greater proportion
than the total of such borrowings then owed and due to such Lender bears to the
total of borrowings made hereunder then owed and due to all of the Lenders
immediately prior to such receipt, then such Lender receiving such excess
payment shall purchase for cash without recourse or warranty from the other
Lenders an interest in such borrowings owing to such Lenders in such amount as
shall result in a proportional participation by all of the Lenders in such
amount; provided that if all or any portion of such excess amount is thereafter
recovered from such Lender, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.
<PAGE>
Section 7.24 Limitation of Liability. No claim may be made by the Borrower
or any other Person against the Administrative Agent or any Lender or any of
their affiliates, directors, officers, employees, attorneys or agent of any of
such Persons for any special, indirect or consequential damages in respect of
any claim for breach of contract or any other theory of liability arising out of
or under this Article VII; and the Borrower hereby waives, releases and agrees
not to sue upon any such claim for any such damages, whether or not accrued and
whether or not known or suspected to exist in its favor.
ARTICLE VIII. MISCELLANEOUS
Section 8.1 Notices. All notices, requests, and other communications to any
party hereunder shall be in writing (including bank wire, telecopy, or similar
teletransmission or writing) and shall be given to such party at its address or
telecopy number set forth on Schedule 8 annexed hereto or such other address or
telecopier number as such party may hereafter specify by notice to the
Administrative Agent and the Borrower. No notices, requests, and other
communications given to any Person other than the Administrative Agent
(including, without limitation, any Affiliate thereof) shall be deemed to have
been given to the Administrative Agent. Each such notice, request, or other
communication shall be effective (i) when delivered personally, (ii) if given by
telecopier, when such telecopy is transmitted to the telecopier number specified
in this Section 8.1, (iii) if given by certified or registered mail, return
receipt requested, 72 hours after such communication is deposited in the mails
with first class postage prepaid, addressed as aforesaid, or (iv) by Federal
Express or other recognized overnight delivery service (provided that, in either
such case, such delivery is made with a request for receipt), on the next
Business Day after such communication is deposited with such delivery service,
or (v) if given by any other means when delivered at the address specified in
this Section 8.1.
Section 8.2 Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the other Loan Documents, nor consent to any departure by
either party therefrom, shall in any event be effective unless the same shall be
in writing and signed by the party or its agent, if authorized to act on its
behalf, against whom enforcement of such waiver or amendment is sought, and then
such waiver or consent shall be effective only in the specific instance and for
the specified purpose for which given. None of the foregoing shall negate or
vitiate any of the provisions of Sections 7.14, 7.15 or 7.16.
<PAGE>
Section 8.3 No Waiver Remedies Cumulative. No failure or delay on the part
of the Lenders in exercising any right or remedy hereunder or under any other
Loan Document and no course of dealing between the Borrower and the
Administrative Agent or the Lenders shall operate as a waiver thereof, nor shall
any single or partial exercise of any right or remedy hereunder or under any
other Loan Document preclude any other or further exercise thereof or the
exercise of any other right or remedy hereunder. The rights and remedies herein
and in the other Loan Documents expressly provided are cumulative and not
exclusive of any rights or remedies that the Lenders would otherwise have. No
notice to or demand on the Borrower not required hereunder or under the other
Loan Documents in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of the Lenders to any other or further action in any circumstances
without notice or demand.
Section 8.4 Payment of Expenses, Etc. The Borrower shall:
(a) whether or not the transactions hereby contemplated are
consummated, pay all reasonable out-of-pocket costs and expenses of the
Administrative Agent and the Lenders in the administration (both before and
after the execution hereof and including advice of counsel as to the rights and
duties of the Administrative Agent or the Lenders) of, and in connection with
the preparation, execution, and delivery of, preservation of rights under,
enforcement of, and, after an Event of Default, refinancing, renegotiation, or
restructuring of, this Agreement and the other Loan Documents and the documents
and instruments referred to therein; any amendment, waiver, or consent relating
thereto (including, without limitation, the reasonable fees and disbursements of
counsel for the Administrative Agent and the Lenders);
(b) to the extent permitted by applicable law, pay and hold
the Administrative Agent and the Lenders harmless from and against any and all
present and future stamp, recording, and other similar taxes and fees with
respect to the foregoing matters and save the Lenders harmless from and against
any and all liabilities with respect to or resulting from any delay or omission
to pay such taxes and fees; and
(c) indemnify the Administrative Agent and the Lenders and
each of their officers, directors, employees, Affiliates, representatives, and
agents from, and hold each of them harmless against, any and all costs, losses,
liabilities, claims, damages and expenses incurred by any of them (whether or
not any of them is designated a party thereto) arising out of or by reason of
any litigation, or other proceeding related to any actual or proposed use by the
Borrower of the proceeds of the Loan or the Borrower entering into and
performing of this Agreement or the other Loan Documents or resulting from the
ownership of any Mortgaged Property, including, without limitation, the
reasonable fees and disbursements of counsel incurred in connection with any
such investigation, litigation, or other proceeding; provided that the Borrower
shall not be obligated to indemnify any such Person to the extent of any costs,
losses, liabilities, claims, damages, or expenses caused by the gross negligence
or willful misconduct of such Person.
If and to the extent that the obligations of the Borrower under this
Section 8.4 are unenforceable for any reason, the Borrower hereby agrees to make
the maximum contribution to the payment and satisfaction of such obligations
which is permissible under applicable law. The Borrower's obligations under this
Section 8.4 shall survive any termination of this Agreement and the payment of
the sums due hereunder and under the other Loan Documents.
<PAGE>
Section 8.5 Right of Setoff. Subject to the Administrative Agent's written
consent, in addition to and not in limitation of all rights of offset that the
Lenders may have under applicable law, the Lenders shall, upon the occurrence
and during the continuance of any Event of Default and whether or not the
Lenders have made any demand or the Borrower's obligations are matured, have the
right to appropriate and apply to the payment of the Borrower's obligations
hereunder and under the other Loan Documents, all deposits (general or special,
time or demand, provisional or final) of the Borrower then or thereafter held
by, and other indebtedness or property then or thereafter owing by, the Lenders.
Section 8.6 Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto, provided that the Borrower may not assign or
transfer any of its interest hereunder without the prior written consent of the
Lenders.
Section 8.7 Governing Law; Submission to Jurisdiction
(a) This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and be governed by the
law (without giving effect to the conflict of law principles thereof) of the
State of New York except as otherwise specifically provided in the Loan
Documents with respect to the perfection, priority and enforcement of liens upon
real property and fixtures not located in the State of New York.
(b) Any legal action or proceeding with respect to this
Agreement or the other Loan Documents or any document related thereto may be
brought in the courts of the State of New York or of the United States of
America for the Southern District of New York, and by execution and delivery of
this Agreement, the Borrower hereby accepts for itself and in respect of its
property generally and unconditionally, the jurisdiction of the aforesaid
courts. The Borrower hereby irrevocably waives any objection, including, without
limitation, any objection to the laying of venue or based on the grounds of
forum non conveniens, which it may now or hereafter have to the bringing of any
such action or proceeding in such respective jurisdictions. The Borrower agrees
that any process in any proceeding in any such court may be served on the
Borrower through the United States mails in accordance with Section 8.1.
(c) WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR THE PROMISSORY NOTE OR ANY OTHER LOAN DOCUMENTS AND FROM
ANY COUNTERCLAIM THEREIN.
(d) Nothing herein shall affect the right of the Lenders to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Borrower in any other jurisdiction.
Section 8.8 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
Section 8.9 Headings Descriptive . The headings contained in this Agreement
are for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.
<PAGE>
Section 8.10 Entire Agreement. This Agreement and the other Loan Documents
constitute the entire agreement of the parties with respect to the subject
matter hereof and thereof, and all prior discussions, negotiations, term sheets,
commitment letters, waiver letters, agreements, letter agreements,
correspondence and document drafts with respect to such matters are merged
herein and therein. Neither the Lenders nor any employee of the Lenders has been
authorized to make any representation or agreement upon which the Borrower or
its Affiliates may rely unless such matter is set forth in this Agreement or the
other Loan Documents.
Section 8.11 Release of Mortgaged Properties. The Administrative Agent
agrees that, upon the Borrower's request (a ARelease Request ) to the
Administrative Agent, the Administrative Agent will deliver to Borrower a form
of release, duly executed and acknowledged by the Administrative Agent,
releasing from the lien of the applicable Mortgage (a ARelease ) a Mortgaged
Property (a ARelease Parcel ) but only if and on the condition that:
(i) each Release Request shall be in writing,
shall contain all information necessary for the Administrative Agent to cause a
Release in recordable form to be prepared and shall be given at least ten (10)
Business Days prior to the requested date of such Release;
(ii) as of the date of such Release Request,
and as of the Closing Date of such Release (before as well as after giving
effect to such Release), no Default or Event of Default shall have occurred and
be continuing, and each Release Request shall constitute Borrower's
representation and warranty that the foregoing is true, complete and accurate;
(iii) before as well as after giving effect to such
Release, subject to the provisions of Section 5.5 hereof, all representations
and warranties contained herein (except representations and warranties expressly
provided herein as being made only as of the Closing Date) shall be true and
correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Release;
(iv) the Borrower executes, acknowledges and
delivers to the Administrative Agent, at Borrower's expense, any and all
documents and instruments reasonably required by the Administrative Agent to
preserve and maintain the Administrative Agent's and Lenders rights, upon and
following any such Release, under and with respect to the Loan Documents; and
(v) the Borrower pays to the Administrative
Agent for the account of the Lenders and for application to the Term Portion of
the Loan an amount equal to the Release Price for the Mortgaged Property, less
any previous prepayment of the Term Portion of the Loan not made in connection
with a Release or otherwise applied to a Release Price.
<PAGE>
In the event that all of the foregoing conditions to a Release have been
satisfied, then, at Borrower's request, the Administrative Agent shall furnish
such Release for execution by the Administrative Agent and for recordation by
the title company which had insured the Lenders interest in the Mortgaged
Property subject to the Release or as otherwise designated by Borrower. Receipt
of a Release Request for each Release shall constitute Borrower's agreement and
covenant to pay to the Administrative Agent, promptly upon demand (together with
a reasonably detailed invoice(s) in respect thereof), all reasonable legal fees
and expenses arising in connection with the preparation, execution, delivery and
review of each Release, the documents and instruments described in this Section,
and all other documents relating to, and rendering at the request of the
Administrative Agent all advice respecting, each Release.
Section 8.12 Confidentiality. The Administrative Agent and the other
Lenders agree that, unless otherwise agreed to in writing by us, except as
required by law or regulation or by legal process, to keep all Non-public
Information delivered by the Borrower to the Administrative Agent or the Lenders
confidential and not to disclose or reveal any Non-public Information to any
person, other than those employed or retained by the Administrative Agent or the
Lenders (including, without limitation, employees, counsel, accountants,
engineers, advisers, experts and consultants to the Administrative Agent or the
Lenders). Except as provided for in the next sentence, in the event that the
Administrative Agent or any Lender is requested pursuant to, or required by,
applicable law or regulation or by legal process to disclose any Non-public
Information, the Administrative Agent or such Lender agrees that it shall
provide the Borrower with prompt notice of such request(s) and, unless required
by law or regulation to disclose sooner, shall wait at least forty eight (48)
hours before disclosing such Non-public information. Notwithstanding the
foregoing or anything else to the contrary herein contained or contained in any
of the other Loan Documents, the provisions of this Section 8.12 shall not apply
to (a) the disclosure or sharing of any Non-public information among the
Administrative Agent and the Lenders, (b) the disclosure by the Administrative
Agent or any Lender of any Non-public information to federal, state and local
bank regulators or other governmental agencies to the extent required or
requested to do so (such disclosure shall not, however, in and of itself be
deemed to render such information public), and (c) the Administrative Agent or
any Lender may, in connection with any assignment or participation or proposed
assignment or participation, disclose to the assignee or participant or proposed
assignee or participant under a requirement of confidentiality, any Non-public
information relating to the Borrower, the Collateral, the Borrower's assets,
properties or financial condition or information otherwise furnished to the
Administrative Agent or the Lenders by the Borrower.
Section 8.13 No Discharge. The execution and delivery of this Agreement
shall not extinguish the indebtedness or the obligations secured by the
Mortgages, and no part thereof shall be discharged, disturbed, cancelled or
impaired by the execution and delivery of this Agreement.
<PAGE>
[Signatures Continued on Next Page]
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
written above.
HOMESTEAD VILLAGE INCORPORATED
By
Laura L. Hamilton
Senior Vice President
COMMERZBANK AG, New York Branch,
as Administrative Agent
By
Name:
Title:
By
Name:
Title:
COMMERZBANK AG, New York Branch,
as Lender
By
Name:
Title:
By
Name:
Title:
<PAGE>
K-2
WELLS FARGO BANK
By
Name:
Title:
BANKBOSTON, N.A.
By
Name:
Title:
CHASE BANK OF TEXAS, N.A.
By
Name:
Title:
HOMESTEAD VILLAGE INCORPORATED
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 (1) 1998 (1) 1997 (1) 1996 (1) 1995
-------- -------- -------- -------- ----
<S> <C> <C> <C> <C> <C>
(Loss) earnings from continuing operations......... $ (63,208) $ (3,889) $ 5,771 $ 3,082 $ 2,851
Add: Interest expense, net........................ 51,264 23,190 2,190 5,971 2,958
----------- ---------- --------- --------- --------
(Loss) earnings as adjusted........................ (11,944) 19,301 7,961 9,053 5,809
----------- ---------- --------- --------- --------
Fixed charges:
Interest expense.............................. 51,264 23,190 2,190 5,971 2,958
Capitalized interest.......................... 6,443 25,315 69,747 4,365 2,143
----------- ---------- --------- --------- ---------
Total fixed charges $ 57,707 $ 48,505 $ 71,937 $ 10,336 $ 5,101
----------- ---------- --------- --------- ---------
Ratio of earnings to fixed charges................. (0.21) 0.40 0.11 0.88 1.14
=========== ========== ========= ========= =========
<FN>
- --------------
(1) (Loss) earnings for years ended December 31, 1999, 1998, 1997, and 1996
were inadequate to cover fixed charges by $69,651,000, $29,204,000,
$63,976,000 and $1,283,000, respectively.
For purpose of computing these ratios, "earnings" consist of earnings from
operations plus fixed charges other than capitalized interest. "Fixed charges"
consist of interest on borrowed funds (including capitalized interest) and
amortization of debt discount and expense.
</FN>
</TABLE>
HOMESTEAD VILLAGE INCORPORATED
LIST OF SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<S> <C>
Homestead Village Management Incorporated.............................................. Delaware
Atlantic Homestead Village (1) Incorporated............................................ Maryland
Atlantic Homestead Village (2) Incorporated............................................ Maryland
Atlantic Homestead Village Limited Partnership (a partnership owned by Atlantic
Village (1) Incorporated and by Atlantic Homestead Village (2) Incorporated)........ Delaware
PTR Homestead Village (1) Incorporated................................................. Maryland
PTR Homestead Village (2) Incorporated................................................. Maryland
PTR Homestead Village Limited Partnership (a partnership owned by PTR Homestead
Village (1) Incorporated and by PTR Homestead Village (2) Incorporated)............. Delaware
Homestead Alabama Incorporated......................................................... Alabama
Missouri Homestead Village Incorporated................................................ Maryland
K.C. Homestead Village Redevelopment Corporation....................................... Missouri
BTW Incorporated....................................................................... Delaware
BTW II Incorporated.................................................................... Delaware
BTW Limited Partnership................................................................ Delaware
HVI (2) Incorporated................................................................... Delaware
</TABLE>
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously filed
Registration Statements (File Nos. 333-37803, 333-67039, 333-17243, 333-17245,
333-48163 and 333-92279).
Arthur Andersen LLP
January 28, 2000
Atlanta, Georgia
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER>1
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 20,747,000 12,144,000 2,974,000
<SECURITIES> 0 0 0
<RECEIVABLES> 6,371,000 6,179,000 2,051,000
<ALLOWANCES> 604,000 269,000 81,000
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 28,335,000 20,887,000 5,676,000
<PP&E> 1,111,999,000 1,186,652,000 733,321,000
<DEPRECIATION> 72,008,000 48,783,000 17,824,000
<TOTAL-ASSETS> 1,133,440,000 1,218,391,000 783,949,000
<CURRENT-LIABILITIES> 166,752,000 530,968,000 145,342,000
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 1,200,000 383,000 278,000
<OTHER-SE> 694,930,000 457,642,000 328,653,000
<TOTAL-LIABILITY-AND-EQUITY> 1,133,440,000 1,218,391,000 783,949,000
<SALES> 0 0 0
<TOTAL-REVENUES> 225,637,000 141,319,000 59,116,000
<CGS> 0 0 0
<TOTAL-COSTS> 238,565,000 122,970,000 51,707,000
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 51,264,000 23,190,000 2,190,000
<INCOME-PRETAX> (63,208,000) (3,889,000) 5,771,000
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (63,208,000) (3,889,000) 5,771,000
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> (5,849,000) (25,344,000) 0
<CHANGES> (14,230,000) 0 0
<NET-INCOME> (71,589,000) (29,233,000) 5,771,000
<EPS-BASIC> (.82) (.78) .24
<EPS-DILUTED> (.82) (.78) .18
<FN>
Certain amounts for the years ended December 31, 1998 and 1997 have been
reclassified to conform to the 1999 presentation.
</FN>
</TABLE>
