<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1995
REGISTRATION NO. 33-87184
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
----------------
UNDER
THE SECURITIES ACT OF 1933
----------------
PROPERTY TRUST OF AMERICA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
MARYLAND 6798 74-6056896
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
7777 MARKET CENTER AVENUE
EL PASO, TEXAS 79912
(915) 877-3900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
PAUL E. SZUREK
SECRETARY
7777 MARKET CENTER AVENUE
EL PASO, TEXAS 79912
(915) 877-3900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
COPIES TO:
EDWARD J. SCHNEIDMAN RANDOLPH C. COLEY
MAYER, BROWN & PLATT KING & SPALDING
190 SOUTH LASALLE STREET 191 PEACHTREE CENTER
CHICAGO, ILLINOIS 60603 ATLANTA, GEORGIA 30303
(312) 782-0600 (404) 572-4600
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER/CAPTION HEADING IN JOINT PROXY/INFORMATION STATEMENT AND PROSPECTUS
------------------- -----------------------------------------------------------
<S> <C> <C>
A.Information About the Transaction
1.Forepart of the
Registration
Statement and
Outside Front Facing Page of the Registration Statement; Cross Reference
Cover Page of Sheet; Outside Front Cover Page of Joint Proxy/Information
Prospectus....... Statement and Prospectus.
2.Inside Front and
Outside Back
Cover Pages of Available Information; Incorporation by Reference;
Prospectus....... Table of Contents.
3.Risk Factors, Ratio
of Earnings to
Fixed Charges and
Other Summary; Certain Considerations; The Merger; PTR
Information...... Share Prices and Comparative Per Share Distributions.
4.Terms of the Summary; The Merger; Description of PTR Common
Transaction...... Shares; Comparison of Rights of Holders of PTR
Common Shares and PACIFIC Common Stock; Certain
Federal Income Tax Considerations.
5.Pro Forma Financial
Information...... Summary; Index to PTR Pro Forma Financial Statements.
6.Material Contracts
With the Company
Being Acquired... The Merger.
7.Additional
Information
Required for
Reoffering by
Persons and
Parties Deemed to
be Underwriters.. Not Applicable.
8.Interests of Named
Experts and
Counsel.......... The Merger; Experts; Legal Matters.
9.Disclosure of
Commission
Position on
Indemnification.. Not Applicable.
B.Information About the Registrant
10.Information With
Respect to Available Information; Incorporation by Reference;
S-3 Registrants.. Information Concerning PTR.
11.Incorporation of
Certain
Information by
Reference........ Available Information; Incorporation by Reference.
12.Information With
Respect to
S-2 or S-3
Registrants...... Not Applicable.
13.Incorporation of
Certain
Information by
Reference........ Not Applicable.
14.Information With
Respect to
Registrants Other
than S-2 or
S-3 Registrants.. Not Applicable.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HEADING IN JOINT PROXY/INFORMATION STATEMENT AND
ITEM NUMBER/CAPTION PROSPECTUS
------------------- ------------------------------------------------
<S> <C> <C> <C>
C.Information About the Company Being Acquired
15.Information With
Respect to S-3
Companies........ Not Applicable.
16.Information With
Respect to S-2 or
S-3 Companies.... Not Applicable.
17.Information With
Respect to
Companies Other
than S-2 or S-3 Information Concerning PACIFIC; Index to
Companies........ Financial Statements.
D.Voting and Management Information
18.Information if
Proxies, Consents Outside Front Cover Page of Joint
or Authorizations Proxy/Information Statement and Prospectus;
are to be Incorporation by Reference; Summary; The
Solicited........ Special Meetings; Certain Considerations; The
Merger; Information Concerning PTR; Information
Concerning PACIFIC; Shareholder Proposals;
Expenses of Solicitation.
19.Information if
Proxies, Consents
or Authorizations Outside Front Cover Page of Joint
are not to be Proxy/Information Statement and Prospectus;
Solicited, or in Summary; The Special Meetings; Certain
an Exchange Considerations; The Merger; Information
Offer............ Concerning PACIFIC; Information Concerning PTR;
Incorporation by Reference.
</TABLE>
<PAGE>
LOGO
To the Shareholders of Property Trust of America ("PTR"):
You are invited to attend a special meeting of PTR shareholders to be held at
the Old El Paso Room, Seventh Floor, State National Bank Plaza, El Paso, Texas,
on Thursday, March 23, 1995 at 10:00 a.m. local time.
At the special meeting you will be asked to consider and vote upon a proposed
Agreement and Plan of Merger which contemplates the merger of Security Capital
Pacific Incorporated ("PACIFIC") with and into PTR, with PTR surviving the
merger. If the merger is approved, PTR's name would be changed to "Security
Capital Pacific Trust" and each holder of PACIFIC common stock would receive,
in a tax-free exchange, 0.611 of a common share of PTR for each share of
PACIFIC common stock (indicating a value of $10 per PACIFIC share, based on
PTR's closing market price on December 6, 1994). The $10 per share amount
essentially represents PACIFIC's cost of its properties and is the same price
at which PACIFIC sold shares of its common stock in all of its prior private
offerings. The merger and certain related matters are described in detail in
the accompanying Joint Proxy/Information Statement and Prospectus. Please
review it carefully.
After careful consideration, the PTR Board of Trustees, by unanimous vote of
trustees who are not officers of PTR or directors, officers or employees of
PTR's largest shareholder, Security Capital Realty Incorporated, or its
affiliates, has approved the merger and recommends that all shareholders vote
for its approval. The affirmative vote of holders of two-thirds of the
outstanding common shares of PTR will be necessary for approval of the merger.
Please complete, sign and date your enclosed proxy card and return it to us
in the accompanying envelope as soon as possible. Failure to return your proxy
card or to vote in person at the special meeting will have the effect of a vote
against the merger. Returning your completed proxy card will not limit your
right to vote in person if you attend the special meeting.
If you have any questions regarding the proposed transaction, please call
Georgeson & Company Inc., our proxy solicitation and information agent, at
(800) 223-2064.
Very truly yours,
C. Ronald Blankenship
Chairman
February 23, 1995
YOUR PROXY IS IMPORTANT--PLEASE RESPOND PROMPTLY
<PAGE>
LOGO
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Property
Trust of America ("PTR") will be held on Thursday, March 23, 1995, commencing
at 10:00 a.m., local time, at the Old El Paso Room, Seventh Floor, State
National Bank Plaza, El Paso, Texas, for the following purposes:
1. To consider and vote upon the approval and adoption of an Agreement
and Plan of Merger dated as of December 6, 1994 (the "Merger
Agreement"), among PTR, Security Capital Pacific Incorporated, a
Maryland corporation ("PACIFIC"), and Security Capital Realty
Incorporated, a Maryland corporation, pursuant to which, among other
matters, PACIFIC would be merged with and into PTR, each share of
common stock of PACIFIC would be converted into 0.611 of a common
share of PTR and PTR's name would be changed to "Security Capital
Pacific Trust," all as more fully described in the accompanying
Joint Proxy/Information Statement and Prospectus; and
2. To transact any other business that may properly come before the
special meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is set forth as Annex I to the Joint
Proxy/Information Statement and Prospectus attached hereto and is incorporated
herein by reference.
The Board of Trustees of PTR has fixed February 21, 1995 as the record date
for the determination of shareholders entitled to notice of and to vote at the
special meeting. The affirmative vote of the holders of two-thirds of the
outstanding common shares of PTR entitled to vote at the special meeting is
necessary to approve and adopt the proposal. Holders of common shares of PTR
are not entitled to dissenters' rights under Maryland law in connection with
the Merger.
Whether or not you plan to attend the special meeting, please fill in, date
and sign the proxy card furnished herewith and mail it promptly in the enclosed
pre-addressed envelope, which requires no postage if mailed in the United
States.
By Order of the Board of Trustees,
Paul E. Szurek
Secretary
El Paso, Texas
February 23, 1995
<PAGE>
LOGO
To the Shareholders of Security Capital Pacific Incorporated ("PACIFIC"):
You are invited to attend a special meeting of PACIFIC shareholders to be
held at State National Bank Plaza, 20th Floor, El Paso, Texas, on Thursday,
March 23, 1995 at 9:00 a.m. local time.
At the special meeting you will be asked to consider and vote upon a proposed
Agreement and Plan of Merger which contemplates the merger of PACIFIC with and
into Property Trust of America ("PTR"), with PTR surviving the merger. If the
merger is approved, PTR's name would be changed to "Security Capital Pacific
Trust" and each holder of PACIFIC common stock would receive, in a tax-free
exchange, 0.611 of a common share of PTR for each share of PACIFIC common stock
(indicating a value of $10 per PACIFIC share, based on PTR's closing market
price on December 6, 1994). The merger and certain related matters are
described in detail in the accompanying Joint Proxy/Information Statement and
Prospectus. Please review it carefully.
After careful consideration, the Board of Directors of PACIFIC has
unanimously approved the merger and recommends that all shareholders vote for
its approval. The affirmative vote of holders of two-thirds of the outstanding
shares of common stock of PACIFIC will be necessary for approval of the merger.
Security Capital Realty Incorporated, the owner of approximately 97.6% of
PACIFIC's common stock, has agreed to vote its shares in favor of the merger.
Therefore, we are not asking you for a proxy; you are, however, entitled to
attend the special meeting and vote your shares for or against the merger.
If you have any questions regarding the proposed transaction, please call
Georgeson & Company Inc., our information agent, at (800) 223-2064.
Very truly yours,
William D. Sanders
February 23, 1995 Chairman
<PAGE>
LOGO
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Security
Capital Pacific Incorporated ("PACIFIC") will be held on Thursday, March 23,
1995, commencing at 9:00 a.m., local time, at State National Bank Plaza, 20th
Floor, El Paso, Texas, for the following purposes:
1. To consider and vote upon the approval and adoption of an Agreement
and Plan of Merger dated as of December 6, 1994 (the "Merger
Agreement"), among Property Trust of America, a Maryland real estate
investment trust ("PTR"), PACIFIC and Security Capital Realty
Incorporated, pursuant to which, among other matters, PACIFIC would
be merged with and into PTR, each share of common stock of PACIFIC
would be converted into 0.611 of a common share of PTR and PTR's
name would be changed to "Security Capital Pacific Trust," all as
more fully described in the accompanying Joint Proxy/Information
Statement and Prospectus; and
2. To transact any other business that may properly come before the
special meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is set forth as Annex I to the Joint
Proxy/Information Statement and Prospectus attached hereto and is incorporated
herein by reference.
The Board of Directors of PACIFIC has fixed February 21, 1995 as the record
date for the determination of shareholders entitled to notice of and to vote at
the special meeting. The affirmative vote of the holders of two-thirds of the
outstanding common stock of PACIFIC entitled to vote at the special meeting is
necessary to approve and adopt the proposal. Holders of common stock of PACIFIC
are entitled to dissenters' rights under Maryland law in connection with the
Merger as described in the accompanying Joint Proxy/Information Statement and
Prospectus under the caption "The Merger--Dissenters' Rights."
Security Capital Realty Incorporated, the owner of approximately 97.6% of
PACIFIC's common stock, has agreed to vote its shares in favor of the merger.
Therefore, we are not asking you for a proxy; you are, however, entitled to
attend the special meeting and vote your shares for or against the merger.
By Order of the Board of Directors,
Paul E. Szurek
Secretary
El Paso, Texas
February 23, 1995
<PAGE>
PROPERTY TRUST OF AMERICA
AND
SECURITY CAPITAL PACIFIC INCORPORATED
JOINT PROXY/INFORMATION STATEMENT
----------------
PROPERTY TRUST OF AMERICA
PROSPECTUS
----------------
This Joint Proxy/Information Statement and Prospectus relates to the proposed
merger (the "Merger") of Security Capital Pacific Incorporated, a Maryland
corporation ("PACIFIC"), with and into Property Trust of America, a Maryland
real estate investment trust ("PTR"), pursuant to an Agreement and Plan of
Merger dated as of December 6, 1994 (the "Merger Agreement"). At such time as
the Merger becomes effective (the "Effective Time"), each outstanding share of
PACIFIC common stock, $0.01 par value per share (the "PACIFIC Common Stock"),
will be converted into the right to receive 0.611 of a common share of
beneficial interest, $1.00 par value per share (the "PTR Common Shares"), of
PTR (the "Exchange Ratio").
The Exchange Ratio was determined by dividing $10.00 (the value of a share of
PACIFIC Common Stock as agreed upon between PTR and PACIFIC) by $16.375 (the
closing sale price per PTR Common Share on the New York Stock Exchange ("NYSE")
on December 6, 1994). The $10.00 per share amount essentially represents
PACIFIC's cost of its properties and is the same price at which PACIFIC sold
shares of PACIFIC Common Stock in all of its prior private offerings.
PTR is soliciting proxies from its shareholders for use at the Special
Meeting of Shareholders of PTR (the "PTR Special Meeting") scheduled to be held
on March 23, 1995 to consider the approval and adoption of the Merger
Agreement. A Special Meeting of Shareholders of PACIFIC (the "PACIFIC Special
Meeting") is also scheduled to be held on March 23, 1995, to consider the
approval and adoption of the Merger Agreement and the transactions contemplated
thereby. Security Capital Realty Incorporated (which management intends to name
Security Capital Group Incorporated, herein referred to as "Security Capital
Group"), owns approximately 97.6% and 31.9% of PACIFIC and PTR, respectively.
Security Capital Group has agreed to vote all of its shares of PACIFIC Common
Stock and all of its PTR Common Shares in favor of the Merger Agreement. If the
Merger is consummated, Security Capital Group will own approximately 41.3% of
the PTR Common Shares outstanding after giving effect to the Merger. See
"Certain Considerations--Conflicts of Interest in the Merger." A copy of the
Merger Agreement is attached to this Joint Proxy/Information Statement and
Prospectus as Annex I and is incorporated herein by reference.
This Joint Proxy/Information Statement and Prospectus constitutes the proxy
statement of PTR relating to the solicitation of proxies by the PTR Board of
Trustees (the "PTR Board") for use at the PTR Special Meeting, the information
statement of PACIFIC providing information to the holders of PACIFIC Common
Stock with respect to the PACIFIC Special Meeting and the prospectus of PTR
with respect to up to 8,468,460 PTR Common Shares to be issued in the Merger in
exchange for all of the outstanding shares of PACIFIC Common Stock. This Joint
Proxy/Information Statement and Prospectus and the enclosed form of PTR proxy
are first being sent to shareholders of PTR and PACIFIC on or about February
23, 1995. A PTR shareholder who returns a signed proxy may revoke it at any
time prior to its exercise.
Concurrently with the consummation of the Merger, PTR expects to close a
subscription offering of up to 17.8 million PTR Common Shares. The offering
will be made pro rata to PTR shareholders other than Security Capital Group at
$16.375 per share, the price on which the Exchange Ratio was based.
SEE "CERTAIN CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED IN EVALUATING THE MERGER.
PACIFIC IS NOT ASKING ITS SHAREHOLDERS FOR A PROXY AND PACIFIC SHAREHOLDERS ARE
REQUESTED NOT TO SEND A PROXY.
----------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY/INFORMATION STATEMENT
AND PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY/INFORMATION
STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
----------------
The date of this Joint Proxy/Information Statement and Prospectus is February
10, 1995.
<PAGE>
AVAILABLE INFORMATION
PTR is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The PTR Common Shares and PTR's Cumulative Convertible
Series A Preferred Shares of Beneficial Interest, $1.00 par value per share
("Series A Preferred Shares"), are listed and traded on the New York Stock
Exchange under the symbols "PTR" and "PTR-PRA," respectively, and all such
reports, proxy statements and other information filed by PTR with the NYSE may
be inspected at the NYSE's offices at 20 Broad Street, New York, New York
10005.
PTR has filed with the Commission a registration statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the PTR Common Shares to be issued pursuant to the Merger Agreement. This Joint
Proxy/Information Statement and Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement.
INCORPORATION BY REFERENCE
THIS JOINT PROXY/INFORMATION STATEMENT AND PROSPECTUS INCORPORATES DOCUMENTS
BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE
DOCUMENTS (OTHER THAN THE EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE
WITHOUT CHARGE UPON ORAL OR WRITTEN REQUEST FROM PAUL E. SZUREK, SECRETARY, AT
PTR'S PRINCIPAL EXECUTIVE OFFICES AT 7777 MARKET CENTER AVENUE, EL PASO, TEXAS
79912, TELEPHONE (915) 877-3900. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH 16, 1995. COPIES OF DOCUMENTS SO
REQUESTED WILL BE SENT BY FIRST CLASS MAIL, POSTAGE PAID, WITHIN ONE BUSINESS
DAY OF THE RECEIPT OF SUCH REQUEST.
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are hereby incorporated herein by reference:
(a) PTR's Annual Report on Form 10-K for the year ended December 31, 1993
(as amended by Form 10-K/A No. 1 dated February 1, 1995);
(b) PTR's Quarterly Reports on Form 10-Q for the periods ended March 31,
June 30, and September 30, 1994 (each as amended by Forms 10-Q/A No. 1
dated February 1, 1995);
(c) PTR's Current Reports on Form 8-K dated January 22 and Form 8-K/A No. 2
dated August 11, Forms 8-K dated November 4, November 22, and December
17, 1993, and February 2, April 29, May 3, July 11, July 19, July 27,
and November 30, 1994 (as amended by Form 8-K/A No. 1 dated November
30, 1994); and
(d) The description of PTR's Preferred Share Purchase Rights contained in
PTR's Registration Statement on Form 8-A filed with the Commission on
July 12, 1994 (as amended by Form 8-A/A No. 1 dated July 20, 1994).
All documents filed by PTR pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date hereof and prior to the date of the Special
Meetings of shareholders shall be deemed to be incorporated herein by reference
and to be a part hereof from the date of filing of such documents. All
information appearing in this Joint Proxy/Information Statement and Prospectus
or in any document incorporated herein by reference is not necessarily complete
and is qualified in its entirety by the information and financial statements
(including notes thereto) appearing in this Joint Proxy/Information Statement
and Prospectus or the documents incorporated by reference herein and should be
read together with such information and documents.
i
<PAGE>
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Joint Proxy/Information Statement and Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that is deemed to be incorporated herein by reference modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Joint Proxy/Information Statement and Prospectus.
No person is authorized to give any information or to make any representation
other than those contained or incorporated by reference in this Joint
Proxy/Information Statement and Prospectus, and if given or made, such
information or representations should not be relied upon as having been
authorized. This Joint Proxy/Information Statement and Prospectus does not
constitute an offer to sell, or a solicitation of an offer to purchase, the
securities offered by this Joint Proxy/Information Statement and Prospectus, or
the solicitation of a proxy, in any jurisdiction to or from any person to whom
or from whom it is unlawful to make such offer, solicitation of an offer or
proxy solicitation in such jurisdiction. Neither the delivery of this Joint
Proxy/Information Statement and Prospectus nor any distribution of securities
pursuant to this Joint Proxy/Information Statement and Prospectus shall, under
any circumstances, create any implication that there has been no change in the
information set forth or incorporated herein by reference or in the affairs of
PTR or PACIFIC since the date of this Joint Proxy/Information Statement and
Prospectus. However, if any material change occurs during the period that this
Joint Proxy/Information Statement and Prospectus is required to be delivered,
this Joint Proxy/Information Statement and Prospectus will be amended and
supplemented accordingly. All information regarding PTR in this Joint
Proxy/Information Statement and Prospectus has been supplied by PTR, and all
information regarding PACIFIC in this Joint Proxy/Information Statement and
Prospectus has been supplied by PACIFIC.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................ i
INCORPORATION BY REFERENCE........... i
SUMMARY.............................. 2
CERTAIN CONSIDERATIONS............... 18
Conflicts of Interest in the Merger. 18
Consequence of Fixed Exchange Ratio. 18
Absence of PACIFIC Fairness Opinion. 19
Merger Consideration Not Negotiated
at Arms' Length.................... 19
Significant Influence of Officers,
Trustees and Principal Shareholder. 19
Conflicts of Interest............... 19
Ability to Change Policies Without
Shareholder Approval............... 20
No Limitation on Debt............... 21
Limitations on Acquisitions and
Change in Control.................. 21
Possible Adverse Consequence of
Limits on Ownership of Shares...... 22
THE MERGER........................... 22
General............................. 22
Advantages and Disadvantages of the
Merger to PTR...................... 22
Advantages and Disadvantages of the
Merger to PACIFIC.................. 23
REIT Management..................... 24
Distributions....................... 24
Closing; Effective Time............. 24
Exchange of Certificates............ 24
No Fractional Shares................ 25
Background.......................... 25
Recommendations of the PTR Board and
the PACIFIC Board and Reasons for
the Merger......................... 27
Fairness Opinion.................... 28
Interests of Certain Persons in the
Merger............................. 32
The Merger Agreement................ 32
Regulatory Filings and Approvals.... 35
Restrictions on Sales by Affiliates. 36
Accounting Treatment................ 36
Listing on NYSE..................... 36
Expenses............................ 36
Dissenters' Rights.................. 36
Management and Operations After the
Merger............................. 37
THE SPECIAL MEETINGS................. 38
Purpose of the Meetings............. 38
Date, Time and Place; Record Date... 38
Voting Rights....................... 38
INFORMATION CONCERNING PACIFIC....... 39
Business............................ 39
Properties.......................... 40
Leases.............................. 41
REIT Management..................... 41
Competition......................... 43
Regulation and Insurance............ 43
Legal Proceedings................... 43
Selected Financial Data............. 44
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 44
Principal Shareholders.............. 47
Certain Relationships and
Transactions....................... 48
Policies With Respect to Certain
Activities......................... 48
INFORMATION CONCERNING PTR........... 49
Policies With Respect to Certain
Activities......................... 49
Principal Shareholders.............. 52
Certain Relationships and
Transactions....................... 53
PTR SHARE PRICES AND COMPARATIVE PER
SHARE DISTRIBUTIONS................. 55
Dividend Reinvestment and Share
Purchase Plan...................... 57
DESCRIPTION OF PTR COMMON SHARES..... 57
General............................. 57
Common Shares....................... 57
Shelf Registration.................. 57
Transfer Agent...................... 58
COMPARISON OF RIGHTS OF HOLDERS OF
PTR COMMON SHARES AND PACIFIC COMMON
STOCK............................... 58
Preferred Shares.................... 58
Restrictions on Transfer and
Redemption of Shares............... 58
Business Combinations............... 59
Control Share Acquisitions.......... 60
Dissenters' Rights.................. 60
Amendments to Articles of
Incorporation or Declaration of
Trust.............................. 60
Amendments to the Bylaws............ 61
Termination......................... 61
Directors and Trustees.............. 61
Removal of Directors and Trustees... 62
Newly Created Directorships and
Vacancies.......................... 62
Limitation on Director and Trustee
Liability.......................... 62
Shareholder Liability............... 63
Indemnification..................... 63
Shareholders' Meetings.............. 63
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS...................... 64
Federal Income Tax Consequences of
the Merger......................... 64
Taxation of PTR After the Merger.... 65
Taxation of PTR Shareholders........ 67
Other Tax Considerations............ 69
Taxation of PACIFIC................. 70
EXPERTS.............................. 70
LEGAL MATTERS........................ 71
SHAREHOLDER PROPOSALS................ 71
EXPENSES OF SOLICITATION............. 71
INDEX TO FINANCIAL STATEMENTS........ F-1
Annex I--Agreement and Plan of Merger
Annex II--Opinion of Robertson,
Stephens & Company, L.P.
Annex III--Title 3, Subtitle 2 of the
Maryland General Corporation Law
</TABLE>
iii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Joint Proxy/Information Statement and
Prospectus or incorporated herein by reference. Shareholders are urged to
review the entire Joint Proxy/Information Statement and Prospectus, the Annexes
hereto and the documents incorporated herein by reference.
PROPERTY TRUST OF AMERICA
PTR's objective is to be the preeminent real estate operating company
focusing on multifamily property in its target market. PTR's REIT manager is
Security Capital (Southwest) Incorporated ("PTR's REIT Manager" or "PTR REIT
Management"), a wholly owned subsidiary of Security Capital Group. Through
PTR's REIT Manager, PTR is a fully integrated operating company which engages
in development, acquisition, operation and long term ownership of multifamily
properties. PTR currently owns and operates or is developing 41,271 multifamily
units. The aggregate pro forma investment cost, including planned renovations,
of all of PTR's multifamily properties is $1.59 billion. This amount is
comprised of the historical recorded investment in real estate at September 30,
1994 of $1.23 billion plus subsequent real estate acquisitions of $60 million,
planned renovation costs of $10 million and budgeted cost to complete
development properties of $320 million, less investment in non-multifamily
properties of $30 million. PTR has elected to be taxed as a real estate
investment trust (a "REIT") for federal income tax purposes. PTR seeks to
achieve long term sustainable growth in cash flow and distributions through a
commitment to fundamental real estate research, actively reviewing and
reallocating assets to product types and submarkets with strong growth
prospects, developing industry-leading multifamily product designed for the
largest renter groups and making opportunistic acquisitions. See "Information
Concerning PTR."
PTR has traditionally focused on multifamily assets in the Southwest. At its
meeting on November 4, 1994, the PTR Board expanded its target market to
include a six-state region of the western United States comprised of
California, Idaho, Nevada, Oregon, Utah and Washington. The assets being
acquired in the Merger are located in these markets, which PTR's REIT Manager
believes have significant growth prospects. The $10.00 value of a share of
PACIFIC Common Stock agreed upon between PTR and PACIFIC essentially represents
PACIFIC's cost of its properties and is the same price at which PACIFIC sold
shares of PACIFIC Common Stock in all of its prior private offerings.
PTR's REIT Manager believes that PTR's expanded target market presents
attractive opportunities for long term increases in per share operating results
because of its growing job market and population. After completion of the
Merger, PTR's REIT Manager will change its name to "Security Capital Pacific
Incorporated."
PTR was formed in 1963 and is a real estate investment trust organized under
the laws of Maryland. Its principal executive offices are located at 7777
Market Center Avenue, El Paso, Texas 79912, and its telephone number is (915)
877-3900.
SECURITY CAPITAL PACIFIC INCORPORATED
As a fully integrated operating company, through its experienced REIT
manager, Security Capital (Pacific) Incorporated ("PACIFIC's REIT Manager" or
"PACIFIC REIT Management"), a wholly owned subsidiary of Security Capital
Group, PACIFIC focuses exclusively on the development, acquisition, operation
and long term ownership of multifamily properties in a six-state region of the
western United States comprised of California, Idaho, Nevada, Oregon, Utah and
Washington. PACIFIC currently owns and operates or is developing 21 multifamily
properties containing 6,543 units (including three properties to be acquired
within 40 days of the date of this Joint Proxy/Information Statement and
Prospectus). The aggregate pro forma investment cost, including planned
renovations, of all of PACIFIC's properties is $295.9 million as of September
30, 1994 (including four properties subsequently acquired and three properties
to be acquired within 40 days of the date of this Joint Proxy/Information
Statement and Prospectus). PACIFIC's current multifamily properties are located
in Nevada, Oregon, Utah and Washington. See "Information Concerning PACIFIC."
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PACIFIC's executive offices are located at 7777 Market Center Avenue, El
Paso, Texas 79912. PACIFIC is a Maryland corporation. Its predecessor was
formed in October 1993 as a Delaware corporation, and PACIFIC was re-formed in
Maryland in July 1994.
INTRODUCTION
The $10.00 value of a share of PACIFIC Common Stock agreed upon between PTR
and PACIFIC essentially represents PACIFIC's cost of its properties and is the
same price at which PACIFIC sold shares of PACIFIC Common Stock in all of its
prior private offerings. The price of $16.375 of a PTR Common Share on which
the Exchange Ratio was based exceeded the 30-day trailing average of the
closing price for the PTR Common Shares on the NYSE (the PTR Common Share price
increased following the announcement of the proposed Merger but such increase
cannot be attributed solely to the Merger). Other shareholders of PTR have an
opportunity to purchase PTR Common Shares at the same price PACIFIC
shareholders will acquire PTR Common Shares in the Merger pursuant to a
concurrent subscription offering. The Merger Agreement was approved by a
special committee of the PTR Board (the "PTR Special Committee") comprised of
all of PTR's Independent Trustees and, separately, by the two Independent
Trustees with no ownership interest in either PACIFIC or Security Capital
Group; however, the terms of the Merger were not negotiated at arms' length.
The PTR Special Committee and the PTR Board received the written opinion of
Robertson, Stephens & Company, L.P. ("Robertson, Stephens") to the effect that
as of January 4, 1995, and based upon and subject to the assumptions made, the
Exchange Ratio was fair, from a financial point of view, to PTR's shareholders.
Approval of the Merger requires the affirmative vote of at least two-thirds of
the outstanding PTR Common Shares and the affirmative vote of two-thirds of the
outstanding shares of PACIFIC Common Stock (of which Security Capital Group
owns 31.9% and 97.6%, respectively). See "The Merger."
CERTAIN CONSIDERATIONS
In considering whether to approve the Merger Agreement and the transactions
contemplated thereby, shareholders should consider the following matters more
fully described herein under "Certain Considerations":
. Conflicts of interest in the Merger, including the absence of arms'-
length negotiations and an increase in the ownership of PTR Common
Shares by Security Capital Group.
. The price of PTR Common Shares and the value of PACIFIC Common Stock
may vary from the price and value as of the date the Exchange Ratio
was established, including variances which result from the
announcement of the Merger.
. The absence of a fairness opinion to the holders of PACIFIC Common
Stock in connection with the Merger.
. The price being paid by PTR for the shares of PACIFIC Common Stock was
not negotiated in an arms'-length transaction; therefore, the value of
the PTR Common Shares to be received by PACIFIC shareholders may not
reflect the value of PTR's portfolio and the price to be paid by PTR
for shares of PACIFIC Common Stock may not reflect the value of
PACIFIC's portfolio.
. The ability of Security Capital Group to exercise significant
influence over the business and policies of the combined entity due to
its existing ownership of 31.9% of the outstanding PTR Common Shares
(44.2% on a pro forma basis after giving effect to the Merger and the
concurrent subscription offering, assuming in the case of the
subscription offering that no other shareholders subscribe, see
"Information Concerning PTR--Certain Relationships and Transactions--
Concurrent Subscription Offering"), its existing right to nominate up
to three trustees and its existing right of prior approval over
certain matters, including PTR's operating budget and substantial
deviations therefrom.
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. Conflicts of interest between PTR and PTR's REIT Manager and
affiliates as to management agreements and fees (which must be
reviewed and approved annually by PTR's Independent Trustees), which
could result in decisions that do not fully represent the interests of
all shareholders.
. Ability of the PTR Board, which is required to have a majority of
Independent Trustees, to change certain policies of PTR, including
investment, financing and distribution policies, without a vote of the
shareholders, which could result in policies that do not fully reflect
the interests of all shareholders.
. No legal limitation on the amount of debt PTR may incur. If PTR were
to become highly leveraged, which would be a departure from its
current policy and its tradition of modest leverage since 1963, such
leverage could adversely affect PTR's ability to make expected
distributions to shareholders and increase the risk of default under
its indebtedness.
. Limitations on the shareholders' ability to change control of PTR due
to (i) restrictions on ownership of more than 9.8% of the PTR Common
Shares and possible redemption of PTR Common Shares acquired or
voidance of the transfer of PTR Common Shares acquired in excess of
such 9.8% limit, (ii) the adoption by PTR of a shareholder rights plan
and (iii) the ownership by Security Capital Group of approximately
31.9% of the outstanding PTR Common Shares (44.2% on a pro forma basis
after giving effect to the Merger and the concurrent subscription
offering, assuming in the case of the subscription offering that no
other shareholders subscribe).
THE MERGER
SPECIAL MEETINGS
PTR. The PTR Special Meeting is scheduled to be held at 10:00 a.m., local
time, on Thursday, March 23, 1995, at the Old El Paso Room, Seventh Floor,
State National Bank Plaza, El Paso, Texas. The PTR Board has fixed the close of
business on February 21, 1995 as the record date for the determination of
holders of PTR Common Shares entitled to notice of and to vote at the PTR
Special Meeting. See "The Special Meetings."
PACIFIC. The PACIFIC Special Meeting is scheduled to be held at 9:00 a.m.,
local time, on Thursday, March 23, 1995, at State National Bank Plaza, 20th
Floor, El Paso, Texas. Security Capital Group has agreed to vote its 97.6%
ownership of PACIFIC in favor of the Merger, thereby assuring approval of the
Merger. PACIFIC is therefore not soliciting proxies from its shareholders and
PACIFIC shareholders are requested not to send a proxy. Shareholders are,
however, entitled to attend the PACIFIC Special Meeting and vote their shares
for or against the Merger. See "The Special Meetings."
REQUIRED VOTES
The affirmative vote of the holders of at least two-thirds of the outstanding
PTR Common Shares and two-thirds of the outstanding PACIFIC Common Stock is
required to approve and adopt the Merger Agreement. As of February 9, 1995,
Security Capital Group beneficially owned PTR Common Shares representing
approximately 31.9% of the votes entitled to be cast by holders of PTR Common
Shares and shares of PACIFIC Common Stock representing approximately 97.6% of
the votes entitled to be cast by holders of PACIFIC Common Stock. See "The
Special Meetings--Voting Rights."
THE MERGER
At the Effective Time of the Merger, PACIFIC will be merged with and into
PTR, and PACIFIC will cease to exist as a corporation. PTR will be the
surviving entity in the Merger and its name will be changed to "Security
Capital Pacific Trust." See "The Merger--General."
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At the Effective Time, each then outstanding share of PACIFIC Common Stock
will be converted into the right to receive 0.611 of a PTR Common Share. See
"The Merger--General" and "Comparison of Rights of Holders of PTR Common Shares
and PACIFIC Common Stock." No fractional PTR Common Shares will be issued in
the Merger. Holders of PACIFIC Common Stock converted in the Merger will be
entitled to a cash payment in lieu of any fractional PTR Common Share at a pro
rata price based on the closing sale price of PTR Common Shares on December 6,
1994 ($16.375). See "The Merger--No Fractional Shares." Each PTR Common Share
outstanding at the Effective Time will remain outstanding and will not be
converted or otherwise modified in the Merger.
ADVANTAGES AND DISADVANTAGES OF THE MERGER TO PTR
The PTR Board has supervised $1.23 billion of multifamily acquisitions and
developments from 1991 through 1994, while increasing annual distributions from
$0.64 per share to $1.00 per share. It has successfully completed two portfolio
acquisitions exceeding $100 million each. Based on its experience, the PTR
Board believes that the Merger will provide the following advantages to PTR:
. PTR's entry into attractive, growing target markets in the western
United States. Based on forecasts published by Woods & Poole
Economics, Inc., the projected job growth in PACIFIC's primary target
market is 28.09% for the years 1994 through 2015, whereas the
projected growth in jobs for the United States as a whole for such
period is 22.40%. For the same time period, population growth is
projected to be 33.88% in PACIFIC's primary target market and 19.23%
in the United States as a whole.
. The addition to PTR's portfolio of 18 operating properties (including
two properties to be acquired by PACIFIC within 40 days of the date of
this Joint Proxy/Information Statement and Prospectus) comprising
5,703 multifamily units with a total investment cost, including
planned renovations, of $251.8 million. The PTR Board considers such
cost to be attractive in comparison to the cost of acquiring other
properties which the PTR Board has evaluated in the last six months of
1994 as possible candidates for acquisition, based on the type and
location of the properties considered and the expected economic
contribution of such properties to PTR.
. The addition to PTR's portfolio of three developments, including one
development property to be acquired by PACIFIC within 40 days of the
date of this Joint Proxy/Information Statement and Prospectus,
comprising 840 multifamily units. PACIFIC also has four additional
development sites in negotiation or due diligence.
. Increased flexibility for PTR in pursuing its asset optimization
strategy of intelligently deploying and redeploying capital in its
target markets.
. The addition of development, operating and acquisition expertise in
PACIFIC's target market through the integration of PACIFIC's REIT
Manager with PTR's REIT management team.
. An increase in PTR's pro forma per share operating results for 1994.
. Increased PTR equity and market capitalization which should improve
the terms on which PTR can access the debt markets.
The following are certain potential disadvantages of the Merger to PTR:
. As a result of an expanded target market, PTR will not be able to
concentrate its operating focus totally on the Southwest, which could
affect PTR's oversight of all of its market.
. Because the Exchange Ratio is fixed, the PTR Common Shares PTR will be
required to exchange for the shares of PACIFIC Common Stock may have a
greater aggregate value than the value contemplated at the time the
Merger Agreement was executed due to fluctuations in the market price
of the PTR Common Shares, although some increase in the market price
of PTR Common Shares may be related to the announcement of the
proposed Merger.
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. The ownership of Security Capital Group in PTR could increase from
approximately 31.9% to 41.3% as a result of the Merger and could
increase to as much as 44.2% as a result of the concurrent
subscription offering (depending on the amount of subscriptions
received from other shareholders), resulting in increased control of
PTR by Security Capital Group.
. Job and population growth in PACIFIC's primary target market is not
projected to be as great as that in PTR's primary target market, but
such growth is expected to be greater than that for the United States
as a whole.
ADVANTAGES AND DISADVANTAGES OF THE MERGER TO PACIFIC
The PACIFIC Board of Directors (the "PACIFIC Board") believes that the Merger
will provide the following advantages to PACIFIC shareholders:
. PACIFIC shareholders will receive shares in a company with an
extensive management team and greater resources for pursuing
acquisition and development opportunities, including better access to
capital markets.
. Greater liquidity for shareholders since PTR Common Shares are
publicly traded.
The following are certain potential disadvantages of the Merger to PACIFIC
shareholders:
. Because the Exchange Ratio is fixed, PACIFIC shareholders could
receive PTR Common Shares having a lesser aggregate value than the
value contemplated at the time the Merger Agreement was executed due
to fluctuations in the market price of PTR Common Shares.
. PACIFIC shareholders will receive shares in a company which, following
the Merger, will not have as much geographic focus as PACIFIC
currently has.
DISTRIBUTIONS
PACIFIC will pay a special distribution immediately prior to the Merger in an
amount not to exceed 100% of PACIFIC's undistributed net earnings in order to
reflect the economic agreement of the Merger: PTR will get the PACIFIC
properties and all of the future earnings thereon and PACIFIC shareholders will
get PTR Common Shares and all past earnings from the PACIFIC properties. PTR
expects to continue to pay its regular quarterly distributions. See "The
Merger--Distributions."
EFFECTIVE TIME
After all the conditions set forth in the Merger Agreement have been
satisfied or waived, the Merger will become effective at such time as the
Articles of Merger required under Maryland law are accepted for filing by the
Department of Assessments and Taxation of the State of Maryland (the "Maryland
Department"). See "The Merger--Closing; Effective Time."
EXCHANGE OF CERTIFICATES
From and after the Effective Time, except as to payment of dividends and
other distributions, PTR will be entitled to treat certificates for shares of
PACIFIC Common Stock (the "PACIFIC Certificates") that have not been
surrendered for exchange as evidencing ownership of the number of full PTR
Common Shares into which they are convertible pursuant to the Merger Agreement.
HOLDERS OF PACIFIC COMMON STOCK AS OF IMMEDIATELY PRIOR TO THE EFFECTIVE TIME
WILL NOT BE ENTITLED TO RECEIVE ANY PAYMENT OF DIVIDENDS ON, OR OTHER
DISTRIBUTIONS WITH RESPECT TO, THEIR PTR COMMON SHARES FOR RECORD DATES
OCCURRING AFTER THE EFFECTIVE TIME UNTIL SUCH PACIFIC CERTIFICATES HAVE BEEN
SURRENDERED AND EXCHANGED FOR CERTIFICATES REPRESENTING
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PTR COMMON SHARES ("PTR CERTIFICATES"); SUCH DIVIDENDS AND DISTRIBUTIONS WILL
BE HELD BY CHEMICAL BANK, AS EXCHANGE AGENT (THE "EXCHANGE AGENT"), PENDING
SURRENDER OF PACIFIC CERTIFICATES AND WILL BE PAID TO SUCH HOLDERS ONCE
SURRENDERED. As soon as practicable after the Effective Time, the Exchange
Agent will send transmittal instructions to each PACIFIC shareholder describing
the procedures for surrendering PACIFIC Certificates for PTR Certificates. See
"The Merger--Exchange of Certificates."
PACIFIC SHAREHOLDERS SHOULD NOT SEND THEIR PACIFIC CERTIFICATES TO THE
EXCHANGE AGENT UNLESS AND UNTIL THEY HAVE RECEIVED TRANSMITTAL INSTRUCTIONS AND
A FORM OF LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
BACKGROUND
Security Capital Group has invested approximately $135.3 million in cash in
PACIFIC at the effective Merger price of $10 per share. All the proceeds were
used for PACIFIC's property acquisitions and related capital improvements.
PACIFIC was a wholly owned subsidiary of Security Capital Group from October
22, 1993 (the date of its inception) through August 1994 when PACIFIC completed
a $10 million private offering of PACIFIC Common Stock.
Since PACIFIC's inception, PACIFIC's REIT Manager has been actively
identifying growth markets in the western United States based upon research
conducted by Security Capital (U.S.) Investment Research Incorporated, an
affiliate of Security Capital Group. During that time, PACIFIC has acquired a
portfolio of 5,703 multifamily units at a total investment cost, including
planned renovations, of $251.8 million (including two properties to be acquired
within 40 days of the date of this Joint Proxy/Information Statement and
Prospectus). PACIFIC has $44.1 million of developments in planning, including
one development property to be acquired within 40 days of the date of this
Joint Proxy/Information Statement and Prospectus. PACIFIC also has four
additional development sites in negotiation or due diligence, two of which are
under contract.
In October 1994, PTR's REIT Manager began considering expansion of PTR's
target market beyond the Southwest to other areas which it believes offer
significant growth prospects. Because of its knowledge of the assets and
markets represented by PACIFIC's portfolio, PTR's REIT Manager focused on
PACIFIC as a potential merger candidate and analyzed the impact of such a
merger on the shareholders of PTR. PTR's REIT Manager concluded that a business
combination with PACIFIC will expand PTR's target market to submarkets in the
western United States that present attractive opportunities for significant
growth, add to PTR's portfolio multifamily properties with strong cash flow
growth prospects, provide PTR with greater flexibility to implement its asset
optimization strategy and enable PTR to gain access to significant development
opportunities. PTR's REIT Manager also concluded that an acquisition of PACIFIC
would improve PTR's operating results for 1995 and strengthen PTR's balance
sheet.
In late October 1994, PTR's REIT Manager initiated discussions with two
affiliates--PACIFIC's REIT Manager and PACIFIC's largest shareholder, Security
Capital Group--relating to a possible business combination between PTR and
PACIFIC.
On November 4, 1994, the PTR Board and PTR's REIT Manager discussed a
possible business combination between PTR and PACIFIC. At such meeting, the PTR
Board appointed the PTR Special Committee to review and consider a proposed
business combination with PACIFIC and retained King & Spalding as legal
advisor. The PTR Special Committee consists of Messrs. James A. Cardwell,
Calvin K. Kessler, William G. Myers and John C. Schweitzer, who are all of
PTR's Independent Trustees. Two of the Independent Trustees, Messrs. Myers and
Schweitzer, beneficially own shares of Security Capital Group and shares of
PACIFIC Common Stock. Hence, the PTR Board required the separate approval of
the Merger by Messrs. Cardwell and Kessler. See "Certain Considerations--
Conflicts of Interest in the Merger."
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On December 6, 1994, the PTR Special Committee met to discuss the proposed
business combination with PACIFIC and recommended the proposed combination to
the PTR Board. The PTR Special Committee also recommended the retention of
Robertson, Stephens to evaluate the fairness of the Exchange Ratio from a
financial point of view. On December 6, 1994, the PTR Board met with its
management and legal advisor to review and consider the proposed business
combination. At such meeting, the PTR Board met with and retained Robertson,
Stephens to evaluate the fairness of the Exchange Ratio, from a financial point
of view, to PTR's shareholders.
On December 6, 1994, each of the PTR Board and the PACIFIC Board approved the
Merger Agreement and the transactions contemplated thereby and PTR, PACIFIC and
Security Capital Group entered into the Merger Agreement. See "The Merger--
Background." The representations and warranties of PACIFIC and the indemnities
of Security Capital Group in the Merger Agreement were similar to those
obtained by PTR in prior portfolio acquisitions with unrelated third parties.
Security Capital Group will indemnify PTR for material loss resulting from any
breach of PACIFIC's representations and warranties. No special fees or
commissions were or will be paid to PTR's REIT Manager or PACIFIC's REIT
Manager, or their respective affiliates, in connection with the Merger.
On January 4, 1995, Robertson, Stephens delivered its written opinion to the
PTR Special Committee and the PTR Board, to the effect that, as of such date
and based upon the assumptions made, matters considered and limits of the
review, as set forth in such opinion, the Exchange Ratio was fair to the
holders of PTR Common Shares, and the PTR Special Committee and the PTR Board
reviewed, discussed and accepted such opinion.
RECOMMENDATIONS OF THE PTR BOARD AND THE PACIFIC BOARD AND REASONS FOR THE
MERGER
PTR. The PTR Special Committee unanimously approved the Merger Agreement as
being fair and reasonable to PTR and on terms and conditions not less favorable
to PTR than those available from unaffiliated third parties. In reaching its
conclusion that the Merger Agreement is fair and reasonable to PTR, the members
of the PTR Special Committee considered certain information regarding PACIFIC,
including target market data prepared by Security Capital (U.S.) Investment
Research Incorporated (including population, major industries, major employers,
job growth, median household income and housing related data), a description of
PACIFIC's portfolio of properties (including development transactions and land
under negotiation), including numbers of units and occupancy information,
related mortgages and a summary balance sheet and funds from operations per
share for 1994. In addition, the impact of the Merger on PTR's summary balance
sheet and funds from operations was also considered. Finally, the PTR Special
Committee considered the condition to the Merger that the PTR Special Committee
receive a written opinion from an investment banking firm satisfactory to the
PTR Special Committee that the Exchange Ratio is fair from a financial point of
view to PTR's shareholders. Following a review of the information considered by
the PTR Special Committee and a consideration of the recommendation of the PTR
Special Committee, the PTR Board approved the Merger Agreement and recommends
that PTR shareholders vote "FOR" approval and adoption of the Merger Agreement.
Trustees of PTR who are officers of PTR or directors, officers or employees of
Security Capital Group or its affiliates abstained from the vote on the
approval of the Merger Agreement because of their interests in the Merger.
However, all such trustees have indicated that they intend to vote all PTR
Common Shares owned by them in favor of the Merger Agreement. Because of
Messrs. Myers' and Schweitzer's ownership of shares of Security Capital Group
and shares of PACIFIC Common Stock, the PTR Board required the separate
approval of the Merger by Messrs. Cardwell and Kessler. For a discussion of
PTR's reasons for the Merger and the factors considered by the PTR Board in
making its recommendation, see "The Merger--Recommendations of the PTR Board
and the PACIFIC Board and Reasons for the Merger."
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PACIFIC. The PACIFIC Board has unanimously approved the Merger Agreement and
unanimously recommends that PACIFIC shareholders vote "FOR" approval and
adoption of the Merger Agreement. For a discussion of PACIFIC's reasons for the
Merger and the factors considered by the PACIFIC Board in making its
recommendation, see "The Merger--Recommendations of the PTR Board and the
PACIFIC Board and Reasons for the Merger."
FAIRNESS OPINION
PTR. On January 4, 1995, Robertson, Stephens delivered its written opinion to
the PTR Special Committee and the PTR Board to the effect that, as of such date
and based upon and subject to the assumptions made, the Exchange Ratio was
fair, from a financial point of view, to the shareholders of PTR. A copy of
such opinion is attached hereto as Annex II and is incorporated herein by
reference. SHAREHOLDERS OF PTR ARE URGED TO READ THE OPINION OF ROBERTSON,
STEPHENS IN ITS ENTIRETY. For additional information concerning the assumptions
made, matters considered and limits of the review by Robertson, Stephens in
reaching its opinion and the fees received by it, see "The Merger--Fairness
Opinion."
PACIFIC. No independent investment banking firm was retained by PACIFIC to
evaluate whether the Exchange Ratio is fair, from a financial point of view, to
the shareholders of PACIFIC since Security Capital Group owns approximately
97.6% of the outstanding PACIFIC Common Stock. See "Certain Considerations--
Absence of PACIFIC Fairness Opinion."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
The current trustees and executive officers of PTR will continue in office
following the Effective Time. PTR does not currently anticipate any changes in
its investment strategies or policies or its distribution policy in connection
with the Merger other than the resulting expansion of its existing target
market. The management of PACIFIC's REIT Manager will be integrated with PTR's
REIT Manager, thereby allowing PTR to benefit from the development, operating
and acquisition expertise of PACIFIC's REIT Manager as well as its knowledge of
western markets. See "The Merger--Management and Operations After the Merger."
CONDITIONS TO THE MERGER
The obligations of PTR and PACIFIC to consummate the Merger are subject to
the satisfaction or waiver of certain conditions, including, among others, (i)
obtaining the requisite shareholders approvals, (ii) the absence of any
injunction prohibiting the consummation of the Merger, (iii) the receipt of all
third party consents and all governmental consents, orders and approvals
legally required for consummation of the Merger, (iv) the receipt of certain
legal opinions with respect to the tax consequences of the Merger and certain
other legal matters, (v) the continuing accuracy of the representations and
warranties of each party and (vi) the performance of certain other specified
obligations by each party. See "The Merger--The Merger Agreement--Conditions to
the Merger."
TERMINATION
The Merger Agreement may be terminated at any time prior to the closing of
the transactions contemplated thereby in certain circumstances, including,
among others, (i) by the mutual consent of PTR and PACIFIC, (ii) unilaterally
by either PTR or PACIFIC if the Merger has not been consummated by April 30,
1995, (iii) unilaterally by either PTR or PACIFIC in certain other situations,
including (a) the failure by the other to cure within 15 business days, after
receipt of prior written notice, a material breach of its covenants or
agreements under the Merger Agreement, (b) the failure by the other party to
satisfy a condition to its obligations under the Merger Agreement by reason of
a breach of its obligation or (c) any condition to the obligations of the other
party is not satisfied (other than by a breach by that party of its obligations
under
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the Merger Agreement), and it reasonably appears that the condition cannot be
satisfied prior to April 30, 1995, (iv) unilaterally by PTR in the event (y)
PACIFIC notifies PTR that it has determined to provide confidential information
to a potential acquiror or has received an offer relating to a potential
acquisition of all or any substantial part of the business and properties or
capital stock of PACIFIC from any entity or group other than PTR or (z) the
PACIFIC Board fails to recommend approval of the Merger to its shareholders or
withdraws such recommendation or (v) unilaterally by PACIFIC in the event the
PTR Board fails to recommend approval of the Merger to its shareholders or
withdraws such recommendation. See "The Merger--The Merger Agreement--
Termination."
AMENDMENT AND WAIVER
Subject to compliance with applicable law, the Merger Agreement may be
amended at any time prior to or, subject to certain conditions, after its
approval by the shareholders of PTR and PACIFIC by a written agreement executed
by PTR, PACIFIC and Security Capital Group. See "The Merger--The Merger
Agreement--Amendment and Waiver."
COMPARISON OF RIGHTS UNDER APPLICABLE LAW
The rights of shareholders of PACIFIC are currently governed by applicable
Maryland corporate law and PACIFIC's Articles of Incorporation (the "PACIFIC
Articles of Incorporation") and Bylaws. Holders of PACIFIC Common Stock
immediately prior to the Effective Time will become shareholders of PTR, a
Maryland real estate investment trust, and from and after the Effective Time,
their rights as shareholders of PTR will be governed by Maryland law applicable
to real estate investment trusts and PTR's Restated Declaration of Trust, as
amended and supplemented (the "PTR Declaration of Trust"), and Bylaws. There
are certain differences between the rights of shareholders of a Maryland
corporation and those of a Maryland real estate investment trust. There are
also certain differences between the rights of shareholders under the PTR
Declaration of Trust and Bylaws and under the PACIFIC Articles of Incorporation
and Bylaws. See "Comparison of Rights of Holders of PTR Common Shares and
PACIFIC Common Stock."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a "tax-free reorganization" for federal
income tax purposes. King & Spalding, special counsel to PTR, will render an
opinion at the Effective Time to the effect that no gain or loss would be
recognized by PTR or PTR shareholders on the exchange of PACIFIC Common Stock
for PTR Common Shares and that the Merger will not affect PTR's REIT status.
Mayer, Brown & Platt, special counsel to PACIFIC, will render an opinion at the
Effective Time to the effect that no gain or loss would be recognized by
PACIFIC or PACIFIC shareholders on the exchange of PACIFIC Common Stock for PTR
Common Shares (except with respect to cash received in lieu of fractional
shares). See "Certain Federal Income Tax Considerations." EACH SHAREHOLDER OF
PTR AND PACIFIC IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER.
DISSENTERS' RIGHTS
Under Maryland law, holders of PACIFIC Common Stock have the right to dissent
from the Merger and receive the fair value of their shares by complying with
the relevant provisions of Maryland law which require such holders, among other
things, to file a written objection to the Merger at or prior to the PACIFIC
Special Meeting. The holders of the PACIFIC Common Stock are not required to
vote against the Merger in order to exercise their dissenters' rights; they may
not, however, vote in favor of the Merger. Holders of PTR Common Shares are not
entitled to dissenters' rights under Maryland law in connection with the
Merger. See "The Merger--Dissenters' Rights."
10
<PAGE>
CONCURRENT SUBSCRIPTION OFFERING
Concurrently with the consummation of the Merger, PTR expects to close a
subscription offering of up to 17.8 million PTR Common Shares, which offering
will be made pro rata to PTR shareholders other than Security Capital Group.
The subscription offering is designed to allow other shareholders of PTR to
purchase PTR Common Shares at the same price PACIFIC shareholders are acquiring
PTR Common Shares in the Merger and to maintain PTR's current balance sheet
ratios. To the extent that there are any unsubscribed shares, PTR will allocate
shares to oversubscribing shareholders (including Security Capital Group as if
it had fully subscribed for PTR Common Shares based on the number of shares it
received in the Merger) and, at its discretion, to third parties. To assure
maintenance of PTR's current balance sheet ratios, Security Capital Group has
agreed to purchase $50 million of PTR Common Shares in the subscription
offering, which amount will be reduced to the extent that subscriptions are
received by PTR from parties other than Security Capital Group. The price at
which PTR Common Shares are being offered to investors in the subscription
offering will be the same price on which the Exchange Ratio was based
($16.375). The closing of the Merger is a condition to the closing of the
subscription offering. See "Information Concerning PTR--Certain Relationships
and Transactions--Concurrent Subscription Offering."
PTR SHARE PRICE
The PACIFIC Common Stock is not traded on any established public trading
market. For purposes of determining the Exchange Ratio, shares of PACIFIC
Common Stock were valued at $10.00 per share, which essentially represents
PACIFIC's cost of its properties and is the same price at which PACIFIC sold
shares in all its prior private offerings, including its previous sales to
Security Capital Group. The PTR Common Shares are listed and traded on the NYSE
under the symbol "PTR." On December 6, 1994 (the last trading day prior to the
public announcement that PTR and PACIFIC had entered into the Merger
Agreement), the high and low sales prices of the PTR Common Shares, as reported
on the NYSE Composite Tape, were $16.375 and $16.125 per share, respectively.
On an equivalent per share basis calculated by multiplying the closing sale
price of PTR Common Shares on the NYSE on December 6, 1994 ($16.375 per share)
by 0.611, the Exchange Ratio, the value of PTR Common Shares to be received by
holders of PACIFIC Common Stock was $10.00 per share of PACIFIC Common Stock.
The price on which the Exchange Ratio was based exceeded the 30-day trailing
average market price of PTR Common Shares on the NYSE. Since December 6, 1994,
the market price of PTR Common Shares has increased, some of which increase may
be related to the announcement of the proposed Merger. On February 9, 1995, the
closing sale price of PTR Common Shares was $17.00 per share. On an equivalent
per share basis, the value of PTR Common Shares to be received by holders of
PACIFIC Common Stock was $10.39 per share of PACIFIC Common Stock as of such
date. Because the Exchange Ratio is fixed and since the market price of PTR
Common Shares is subject to fluctuation, the market value of the PTR Common
Shares which PACIFIC's shareholders will receive in the Merger may increase or
decrease prior to the Effective Time of the Merger. SHAREHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR THE PTR COMMON SHARES. See "PTR Share
Prices and Comparative Per Share Distributions."
11
<PAGE>
PTR HISTORICAL SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
--------- --------- --------- --------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS SUMMARY:
Rental Income.......... $ 131,103 $ 50,852 $ 76,186 $ 31,010 $ 14,721 $ 12,207 $ 10,101
Total Revenues......... 133,196 52,354 78,418 32,779 15,817 13,314 10,856
General and
Administrative
Expenses.............. 522 433 660 436 697 1,241 984
REIT Management Fee.... 9,443 4,619 7,073 2,711 793 -- --
Earnings from
Operations(1)......... 33,004 14,289 23,191 9,037 2,078 1,969 989
Gain (loss) on Sale of
Investments........... -- 2,302 2,302 (51) (611) 101 --
Preferred Share
Distributions Paid.... 12,075 -- 1,341 -- -- -- --
Net Earnings
Attributable to Common
Shares................ 20,929 16,591 24,152 8,986 1,467 2,070 989
Common Share
Distributions Paid(2). $ 33,970 $ 20,019 $ 29,162 $ 13,059 $ 4,179 $ 4,259 $ 4,204
PER SHARE DATA:
Net Earnings
Attributable to Common
Shares................ $ 0.46 $ 0.49 $ 0.66 $ 0.46 $ 0.21 $ 0.41 $ 0.20
Book Value per Common
Share................. 12.45 12.28 11.76 9.18 7.77 7.38 7.81
Common Share
Distributions Paid(2). 0.75 0.615 0.82 0.70 0.64 0.84 0.83
Preferred Share
Distributions Paid.... $ 1.3125 $ -- $ 0.1458 $ -- $ -- $ -- $ --
Weighted Average Common
Shares Outstanding.... 45,490 33,950 36,549 19,435 7,123 5,071 5,065
OTHER DATA:
Funds from Operations
Attributable to Common
Shares(3)............. $ 41,315 $ 24,579 $ 36,422 $ 15,268 $ 5,404 $ 4,335 $ 3,626
Net Cash Provided by
Operating Activities.. 66,747 27,636 49,275 20,252 6,092 1,647 4,533
Net Cash Used by
Investing Activities.. (307,156) (198,405) (529,093) (229,489) (33,553) (12,905) (11,797)
Net Cash Provided by
Financing Activities.. $ 247,359 $ 220,808 $ 478,345 $ 185,130 $ 57,259 $ 9,941 $ 7,327
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- -----------------------------------------------
1994 1993 1992 1991 1990 1989
------------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Real Estate Owned, at
cost.................. $1,233,021 $ 872,610 $ 337,274 $ 117,572 $ 84,892 $ 70,117
Total Assets........... 1,244,537 890,301 342,235 141,020 81,544 69,278
Line of Credit......... 53,500 51,500 54,802 101 8,522 10,416
Long Term Debt......... 200,000 -- -- -- -- --
Mortgages Payable...... 96,200 48,872 30,824 35,772 32,599 15,634
Total Liabilities...... 386,913 135,284 94,186 38,707 44,138 29,682
Shareholders' Equity... $ 857,624 $ 755,017 $ 248,049 $ 102,313 $ 37,406 $ 39,596
Common Shares
Outstanding........... 50,397 44,645 27,034 13,161 5,071 5,071
</TABLE>
- --------
(1) Earnings from operations for the nine months ended September 30, 1994 and
for both the nine months ended September 30, 1993 and the year ended
December 31, 1993 reflect a $1.6 million and a $2.3 million provision,
respectively, for possible losses relating to investments in non-
multifamily properties.
(2) A distribution of $0.25 per PTR Common Share was declared by the PTR Board
on December 28, 1993 and was paid on February 18, 1994 to shareholders of
record as of February 4, 1994.
(3) Funds from Operations means net income computed in accordance with
generally accepted accounting principles ("GAAP"), excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. PTR believes that Funds from Operations is helpful in
understanding a property portfolio in that such calculation reflects cash
flow from operating activities and the properties' ability to support
interest payments and general operating expenses before the impact of
certain activities, such as gains or losses from property sales and changes
in accounts receivable and accounts payable. Funds from Operations should
not be considered as an alternative to net earnings or any other GAAP
measurement of performance as an indicator of PTR's operating performance
or as an alternative to cash flows from operating, investing or financing
activities as a measure of liquidity.
12
<PAGE>
PACIFIC HISTORICAL SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS
ENDED PERIOD ENDED
SEPTEMBER 30, DECEMBER 31,
1994 1993(1)
------------- ------------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
OPERATIONS SUMMARY:
Rental Income..................................... $ 12,635 $ 797
Total Revenues.................................... 12,656 797
General and Administrative Expenses............... 57 1
REIT Management Fee............................... 1,073 75
Earnings from Operations.......................... 3,854 267
Net Earnings...................................... 3,854 267
Common Stock Distributions........................ $ 3,604 $ --
PER SHARE DATA:
Net Earnings...................................... $ 0.44 $ 0.14
Book Value per Share of Common Stock.............. 10.04 10.06
Common Stock Distributions........................ $ 0.42 $ --
Weighted Average Number of Shares of Common Stock
Outstanding...................................... 8,702 1,949
OTHER DATA:
Funds from Operations(2).......................... $ 5,736 $ 397
Net Cash Provided by Operating Activities......... 4,523 473
Net Cash Used by Investing Activities............. (92,370) (47,777)
Net Cash Provided by Financing Activities......... $ 88,584 $ 47,791
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
<S> <C> <C>
FINANCIAL POSITION:
Real Estate Owned, at cost........................ $163,787 $ 55,666
Total Assets...................................... 166,058 56,576
Mortgages Payable................................. 23,428 7,879
Total Liabilities................................. 26,941 8,508
Stockholders' Equity.............................. $139,117 $ 48,068
Number of Shares of Common Stock Outstanding...... 13,860 4,780
</TABLE>
- --------
(1) Reflects operations of PACIFIC from October 22, 1993 (the date of its
inception).
(2) Funds from Operations means net income (computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation, and after adjustments for unconsolidated partnerships
and joint ventures. PACIFIC believes that Funds from Operations is helpful
in understanding a property portfolio in that such calculation reflects
cash flow from operating activities and the properties' ability to support
interest payments and general operating expenses before the impact of
certain activities, such as gains or losses from property sales and changes
in accounts receivable and accounts payable. Funds from Operations should
not be considered as an alternative to net earnings or any other GAAP
measurement of performance as an indicator of PACIFIC's operating
performance or as an alternative to cash flows from operating, investing or
financing activities as a measure of liquidity.
13
<PAGE>
RECENT OPERATING RESULTS
The following tables set forth preliminary unaudited Total Revenues, Funds
From Operations Attributable to Common Shares, Net Earnings Attributable to
Common Shares, Net Earnings Per Common Share, Weighted Average Common Shares
Outstanding and Common Share Distributions Paid for the twelve months ended
December 31, 1994 and 1993 for PTR and PACIFIC.
<TABLE>
<CAPTION>
PTR PACIFIC
---------------- ---------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
---------------- ---------------
1994 1993 1994 1993(1)
-------- ------- ------- -------
(IN THOUSANDS (IN THOUSANDS
EXCEPT PER SHARE EXCEPT PER
DATA) SHARE DATA)
<S> <C> <C> <C> <C>
Total Revenues ............................... $186,105 $78,418 $20,923 $ 797
Funds from Operations Attributable to Common
Shares....................................... $ 58,208 $36,422 $ 9,017 $ 397
Net Earnings Attributable to Common Shares.... $ 30,619 $24,152 $ 5,893 $ 267
Net Earnings Attributable to Common Shares per
Share........................................ $ 0.66 $ 0.66 $ 0.59 $ 0.14
Weighted Average Common Shares Outstanding.... 46,734 36,549 10,002 1,949
Common Share Distributions Paid............... $ 1.00 $ 0.82 $ 0.55 --
</TABLE>
- --------
(1) Reflects operations from October 22, 1993 (the date of PACIFIC's
inception).
14
<PAGE>
PRO FORMA COMBINED SUMMARY FINANCIAL DATA
The following tables set forth certain unaudited pro forma condensed combined
financial information for PTR after giving effect to (i) the Merger, (ii)
certain properties acquired or to be acquired within 40 days of the date of
this Joint Proxy/Information Statement and Prospectus by PTR and PACIFIC and
(iii) the concurrent subscription offering (to the extent of $50 million for
which a standby purchase commitment exists), as if these transactions had been
consummated, with respect to statements of earnings data, at January 1, 1993,
or, with respect to balance sheet data, as of September 30, 1994. The following
tables present such information as if the Merger had been accounted for under
the purchase method. The information presented is derived from, should be read
in conjunction with, and is qualified in its entirety by reference to, the
unaudited pro forma condensed combined financial data and the notes thereto
appearing elsewhere in this Joint Proxy/Information Statement and Prospectus
and the separate historical financial statements and the notes thereto included
or incorporated by reference in this Joint Proxy/Information Statement and
Prospectus. The unaudited pro forma condensed combined financial data have been
included for comparative purposes only and do not purport to be indicative of
the results of operations or financial position which actually would have been
obtained if these transactions had been effected at the dates indicated or of
the financial position or results of operations which may be obtained in the
future. See "Incorporation by Reference," "--PTR Historical Summary Financial
Data," "--PACIFIC Historical Summary Financial Data."
<TABLE>
<CAPTION>
NINE MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1994(1) 1993(1)(2)
------------- ------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
OPERATIONS SUMMARY:
Rental Income..................................... $ 172,987 $202,972
Total Revenues.................................... 174,885 204,943
General and Administrative Expense................ 579 585
REIT Management Fee............................... 12,319 13,559
Net Earnings from Operations(3)................... 43,249 44,038
Net Earnings Attributable to Common Shares........ 31,174 46,340
PER SHARE DATA:
Net Earnings Attributable to Common Shares........ $ 0.52 $ 0.63
Common Share Distributions(4)..................... 0.75 0.82
Weighted Average Common Shares Outstanding........ 60,350 57,221
OTHER DATA:
Funds from Operations Attributable to Common
Shares(5)........................................ $ 57,261 $ 64,285
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C> <C>
FINANCIAL POSITION:
Real Estate Owned, at cost........................ $1,494,520
Total Assets...................................... 1,499,120
Line of Credit.................................... 58,123
Long Term Debt.................................... 200,000
Mortgages Payable................................. 155,638
Total Liabilities................................. 452,896
Shareholders' Equity(6)........................... $1,046,224
Common Shares Outstanding(6)...................... 61,918
Book Value per Share.............................. $ 13.18
</TABLE>
- --------
(1) The periods presented have been restated to reflect the effects of
properties acquired during 1993, 1994 and 1995 by PTR and PACIFIC,
including two properties to be acquired within 40 days of the date of this
Joint Proxy/Information Statement and Prospectus.
15
<PAGE>
(2) Reflects operations of PACIFIC from October 22, 1993 (the date of its
inception).
(3) PTR's earnings from operations for the nine months ended September 30, 1994
and for the year ended December 31, 1993 reflect a $1.6 million and a $2.3
million provision, respectively, for possible losses relating to
investments in non-multifamily properties.
(4) A distribution of $0.25 per PTR Common Share was declared by the PTR Board
on December 28, 1993 and was paid on February 18, 1994 to shareholders of
record as of February 4, 1994.
(5) Funds from Operations means net income (computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring and sales of property,
plus depreciation and, in the case of PTR, amortization, and after
adjustments for unconsolidated partnerships and joint ventures. PTR and
PACIFIC believe that Funds from Operations is helpful in understanding a
property portfolio in that such calculation reflects cash flow from
operating activities and the properties' ability to support interest
payments and general operating expenses before the impact of certain
activities, such as gains or losses from property sales and changes in
accounts receivable and accounts payable. Funds from Operations should not
be considered as an alternative to net earnings or any other GAAP
measurement of performance as an indicator of PTR's or PACIFIC's operating
performance or as an alternative to cash flows from operating, investing or
financing activities as a measure of liquidity.
(6) This calculation assumes the issuance of approximately 8,468,460 PTR Common
Shares, based on an Exchange Ratio of 0.611 PTR Common Shares for each
share of PACIFIC Common Stock outstanding at the Effective Time. The actual
number of PTR Common Shares issuable in the Merger may vary in accordance
with the terms of the Merger Agreement. See "Certain Considerations."
16
<PAGE>
COMPARATIVE PER COMMON SHARE DATA
The following sets forth for PTR Common Shares and PACIFIC Common Stock
certain historical, pro forma, pro forma combined and pro forma combined
equivalent per share financial information for the nine months ended September
30, 1994 and for the year ended December 31, 1993. The pro forma combined
amounts included in the table below are based on the purchase method of
accounting. The following information should be read in conjunction with and is
qualified in its entirety by (i) the financial statements and accompanying
notes of PTR included in the documents described under "Incorporation by
Reference," (ii) the financial statements and accompanying notes of PACIFIC
contained elsewhere in this Joint Proxy/Information Statement and Prospectus
and (iii) the pro forma combined financial statements and accompanying
discussion and notes set forth above under "Pro Forma Financial Statements."
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ -----------------
<S> <C> <C>
PTR COMMON SHARES:
Net Earnings Attributable to Common
Shares:
Historical............................ $0.46 $ 0.66
Pro forma............................. 0.49 0.60
Pro forma combined.................... 0.52 0.63
Distributions per Common Share:
Historical............................ 0.75 0.82
Pro forma combined.................... 0.75 0.82
Book value per Common Share:
Historical............................ 12.45 11.76
Pro forma combined.................... 13.18 n/a
PACIFIC COMMON STOCK:
Net Earnings Attributable to Common
Shares:
Historical............................ $0.44 $ 0.14(1)
Pro forma............................. 0.37 0.39
Pro forma combined equivalent......... 0.32 0.38
Distributions per share:
Historical............................ 0.42 --
Pro forma combined equivalent......... 0.46 0.50
Book value per share:
Historical............................ 10.04 10.06
Pro forma combined equivalent......... 8.05 n/a
</TABLE>
- --------
(1) Reflects operations of PACIFIC for the period from October 22, 1993 (date
of inception) to December 31, 1993.
17
<PAGE>
CERTAIN CONSIDERATIONS
In addition to general investment risks and those factors set forth elsewhere
herein, shareholders should consider the following in determining whether to
approve the Merger Agreement and the transactions contemplated thereby. Except
as specifically noted, the considerations listed herein are applicable to the
combined entity that will result from the consummation of the Merger.
CONFLICTS OF INTEREST IN THE MERGER
No Arms'-Length Negotiation. The Merger has been initiated and structured by
individuals who are executive officers of PTR and PACIFIC and are affiliated
with Security Capital Group, and the Merger has not been negotiated at arms'
length. No independent representatives have been retained to negotiate the
terms of the Merger on behalf of either PTR or PACIFIC. If such representatives
had been retained, the terms of the Merger might have been more favorable to
the shareholders of either PTR or PACIFIC. Although independent representatives
were not retained by PTR or PACIFIC, PTR has created a special committee
comprised of Independent Trustees, and the PTR Board has engaged Robertson,
Stephens to evaluate the fairness of the Exchange Ratio. Two of the Independent
Trustees, William G. Myers and John C. Schweitzer, beneficially own
approximately 2,078 and 268 shares of Security Capital Group (3,504 and 462
shares on a fully diluted basis), respectively, and 15,000 and 12,500 shares of
PACIFIC Common Stock, respectively. Hence, the PTR Board required the unanimous
approval of the Merger by James A. Cardwell and Calvin K. Kessler, two long
time Independent Trustees of PTR with no ownership interest in Security Capital
Group or PACIFIC. Additionally, Messrs. John T. Kelley, III and C. Ronald
Blankenship, beneficially own 500 and 1,000 shares of PACIFIC Common Stock,
respectively. Four of PTR's executive officers beneficially own an aggregate of
9,500 shares of PACIFIC Common Stock.
Increase in Ownership in PTR Common Shares. Upon consummation of the Merger,
Security Capital Group's ownership of PTR Common Shares could increase from
approximately 31.9% to approximately 41.3%. In addition, in the subscription
offering scheduled to close concurrently with the Merger, Security Capital
Group has agreed to buy $50 million of PTR Common Shares to assure maintenance
of PTR's balance sheet ratios, subject to reduction to the extent subscriptions
are received by PTR from other parties. Such purchase may further increase
Security Capital Group's ownership of PTR Common Shares to 44.2% (assuming
Security Capital Group acquires $50 million of PTR Common Shares in the
concurrent subscription offering and no other person subscribes for shares). If
all shares are subscribed for in the subscription offering and Security Capital
Group does not purchase any shares, Security Capital Group's ownership would
decrease to approximately 31.8%. See "Information Concerning PTR--Certain
Relationships and Transactions--Concurrent Subscription Offering."
Additionally, the Merger Agreement does not restrict Security Capital Group
from making additional capital contributions to PACIFIC prior to the Merger,
although Security Capital Group does not anticipate making any such capital
contributions unless a favorable acquisition opportunity arises and PACIFIC
does not have sufficient availability under its revolving line of credit. If
such additional capital contributions were made, Security Capital Group would
be entitled to additional PTR Common Shares in connection with the Merger and
Security Capital Group's ownership of PTR Common Shares would therefore
increase. See "The Merger--The Merger Agreement--Certain Covenants and
Agreements."
CONSEQUENCE OF FIXED EXCHANGE RATIO
The price of PTR Common Shares and the value of PACIFIC Common Stock at the
Effective Time may vary from the price and value as of the date the Exchange
Ratio was determined, the date hereof or the date on which shareholders vote on
the Merger, due to changes in the business, operations and prospects of PTR or
PACIFIC, general market and economic conditions and other factors. PTR does not
intend to obtain an updated opinion of Robertson, Stephens prior to the time
the Merger becomes effective, although the fairness opinion is dated as of
January 4, 1995, and reflects a price of $18.00 for PTR Common Shares. See "The
Merger--Fairness Opinion." On an equivalent per share basis calculated by
multiplying the closing sale price of PTR Common Shares on the NYSE on February
9, 1995 ($17.00 per share) by the Exchange Ratio (0.611), the value of PTR
Common Shares to be received by holders of PACIFIC Common Stock was $10.39 per
share of PACIFIC Common Stock.
18
<PAGE>
ABSENCE OF PACIFIC FAIRNESS OPINION
While Robertson, Stephens has rendered an opinion that the Exchange Ratio was
fair to PTR shareholders from a financial point of view (see "The Merger--
Fairness Opinion"), no independent investment banking firm was retained to
evaluate the fairness of the Exchange Ratio to PACIFIC shareholders since
Security Capital Group owns approximately 97.6% of PACIFIC's Common Stock. If
obtained, a typical fairness opinion could provide an independent analysis of
the fairness, from a financial point of view, of the methodology used to
determine the consideration to be received by the PACIFIC shareholders in the
Merger. However, since no fairness opinion will be rendered, the PACIFIC
shareholders will not have the benefit of the analysis of an independent third
party in deciding whether to vote their shares of PACIFIC Common Stock for or
against the Merger at the PACIFIC Special Meeting.
MERGER CONSIDERATION NOT NEGOTIATED AT ARMS' LENGTH
The price being paid by PTR for the shares of PACIFIC Common Stock was not
negotiated in an arms'-length transaction. The $10.00 value of a share of
PACIFIC Common Stock agreed upon between PTR and PACIFIC (based on the market
price of PTR Common Shares on December 6, 1994) is the same price at which
PACIFIC sold shares of PACIFIC Common Stock in all of its prior private
offerings. The respective values of PTR and PACIFIC have not been determined on
a property-by-property basis and, accordingly, no appraisals or independent
valuations of the properties have been obtained in connection with the Merger.
This methodology is consistent with PTR's previous acquisitions negotiated at
arms' length and, management believes, consistent with standard methodologies
employed by other real estate entities in similar acquisitions. In connection
with the line of credit granted to PACIFIC in October 1994, PACIFIC's lenders
obtained appraisals of eight of PACIFIC's 18 operating properties. Although the
appraised value of four of the eight appraised operating properties was below
PACIFIC's cost, the aggregate value of all of the eight appraised properties
exceeded PACIFIC's cost by approximately $911,000. There can be no assurance
that the value of PTR Common Shares accurately reflects the fair market value
of PTR's portfolio. Similarly, there can be no assurance that the price to be
paid by PTR for shares of PACIFIC Common Stock accurately reflects the value of
PACIFIC's portfolio.
SIGNIFICANT INFLUENCE OF OFFICERS, TRUSTEES AND PRINCIPAL SHAREHOLDER
Security Capital Group beneficially owns approximately 31.9% of the issued
and outstanding PTR Common Shares and 97.6% of the issued and outstanding
PACIFIC Common Stock. Upon completion of the Merger, Security Capital Group
will own approximately 44.2% of the issued and outstanding shares of the
combined entity (assuming Security Capital Group acquires $50 million of PTR
Common Shares in the subscription offering and no other person subscribes for
shares). Through its ownership of shares, Security Capital Group currently
controls approximately 31.9% of the vote on matters submitted for PTR
shareholder action, including the Merger, and 97.6% of the vote on matters
submitted for PACIFIC shareholder action, including the Merger. No other
shareholder may hold more than 9.8% of the capital shares of PTR or PACIFIC.
See "Comparison of Rights of Holders of PTR Common Shares and PACIFIC Common
Stock--Restrictions on Transfer and Redemption of Shares." Security Capital
Group has a right to nominate up to three PTR trustees, depending on its level
of ownership of PTR Common Shares. The trustees so elected are in a position to
exercise significant influence over the affairs of PTR if they were to act
together in the future. Additionally, Security Capital Group has the right to
approve (i) PTR's annual operating budget and substantial deviations therefrom,
(ii) acquisitions or dispositions in a single transaction or group of related
transactions where the purchase price exceeds $5 million and (iii) certain
property and investment management arrangements and leasing services. Security
Capital Group is permitted to beneficially own up to 49% of the outstanding PTR
Common Shares (assuming the conversion or exchange of all convertible or
exchangeable PTR securities). Accordingly, due to the foregoing, for so long as
it continues to own at least 10% of PTR's outstanding securities, Security
Capital Group will retain significant influence over the affairs of PTR which
may result in decisions that do not fully represent the interests of all
shareholders of PTR. See "Information Concerning PTR--Certain Relationships and
Transactions--Investor Agreement."
CONFLICTS OF INTEREST
PTR does not have any employees and relies on its REIT Manager for all
strategic and management services. An affiliate of PTR's REIT Manager also
provides property management services for most of PTR's properties.
19
<PAGE>
Certain officers of PTR's REIT Manager and its affiliates may have conflicts
of interest in allocating their time and efforts between activities on behalf
of PTR and other activities of affiliates of PTR's REIT Manager. Certain
affiliates of PTR's REIT Manager provide centralized REIT management services
to other REITs affiliated with Security Capital Group. Affiliates of PTR's REIT
Manager also provide management services to PACIFIC, Security Capital Group,
Security Capital Industrial Trust, a NYSE listed REIT which focuses on
industrial real estate in the United States, and Security Capital Atlantic
Incorporated, a privately-held REIT which focuses on multifamily residential
properties in the southeastern United States. Security Capital Markets Group
Incorporated ("Capital Markets Group"), the capital markets affiliate of PTR's
REIT Manager, devotes a substantial portion of its time to these other REITs
and Security Capital Group. In addition, PTR's REIT Manager and its affiliates
share a common senior investment committee, which approves all acquisition and
development proposals before they are submitted to the respective REIT boards
for approval. PACIFIC and Security Capital Atlantic Incorporated acquire
multifamily properties but operate in different markets than PTR (and each
other). See "Information Concerning PTR--Policies with Respect to Certain
Activities--Conflict of Interest Policies" and "--Policies Applicable to PTR's
REIT Manager and Officers and Trustees of PTR."
The officers of PTR may also be subject to certain conflicts of interest
arising out of their positions with PTR and PTR's REIT Manager and its
affiliates. These relationships may create conflicts between the promotion of
PTR's goals and those of PTR's REIT Manager and its affiliates. For instance,
PTR's REIT Manager may have an incentive to increase the fees payable by PTR to
PTR's REIT Manager. Security Capital Group may have different interests than
other shareholders regarding the level of distributions to shareholders. See
"Information Concerning PTR--Policies with Respect to Certain Activities--
Conflict of Interest Policies."
Because the timing and amount of fees received by PTR's REIT Manager and its
affiliates may be affected by various determinations (including determinations
as to the issuance of any debentures or other long term indebtedness and the
terms thereof, the accounting treatment for non-cash items and adjustments for
non-recurring or unusual expenses, all of which affect the fee payable to PTR's
REIT Manager), PTR's REIT Manager may have a conflict of interest with respect
to making recommendations to the PTR Board regarding such matters. See
"Information Concerning PTR--Certain Relationships and Transactions--REIT
Management Agreement." In addition, PTR's REIT Manager's sole shareholder,
Security Capital Group, is PTR's principal shareholder and could influence
decisions regarding the REIT management agreement, property management
agreements between PTR and affiliates of PTR's REIT Manager and fees relating
to such agreements, which must be reviewed and approved at least annually by
PTR's Independent Trustees. PTR's REIT Manager and its affiliates are not
permitted to buy properties from, or sell properties to, PTR under the REIT
Management Agreement, except for sales of properties by PTR Development
Services Incorporated in which PTR owns a substantial majority of the economic
interest that are approved by the Independent Trustees. Although all agreements
with PTR's REIT Manager and its affiliates must be approved by PTR's
Independent Trustees, no assurance of arms' length negotiations can be given.
ABILITY TO CHANGE POLICIES WITHOUT SHAREHOLDER APPROVAL
The major policies of PTR, including its policies with respect to
acquisitions, financing, growth, debt capitalization, REIT qualification and
distributions, are determined by the PTR Board. Although it has no present
intention to do so, the PTR Board may amend or revise these and other policies
from time to time without a vote of the shareholders of PTR. See "Information
Concerning PTR--Policies with Respect to Certain Activities." Accordingly,
shareholders will have limited control over changes in policies of PTR.
The Merger is an exception to PTR's philosophy against engaging in related
party principal transactions. PTR is pursuing the Merger because of its belief
that the Merger presents significant opportunities for PTR and is in the best
interests of PTR and its shareholders. Although PTR does not anticipate
engaging in similar related party transactions in the future, it reserves the
right to make exceptions for significant transactions when it believes the
transaction is in the best long-term interests of PTR and its shareholders.
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NO LIMITATION ON DEBT
The PTR Declaration of Trust provides that the maximum amount of borrowing of
PTR (secured and unsecured) in relation to PTR's net assets may not exceed
300%, absent a showing that a higher level is appropriate. Any excess over such
300% level must be approved by a majority of PTR's Independent Trustees and
disclosed to shareholders in PTR's next quarterly report. PTR's strategy is to
keep long term debt below 50% of total financial statement capitalization. In
addition, PTR intends to limit the ratio of total debt to the sum of book
capitalization and revolving credit debt to 50%. See "Information Concerning
PTR--Policies With Respect to Certain Activities." Although PTR has no
intention of changing the foregoing policies, there is no legal limitation on
the amount of indebtedness that PTR may incur and the PTR Board (with the
consent of the Independent Trustees) could cause (subject to debt market
conditions) PTR to become more highly leveraged. If PTR were to become highly
leveraged, which would be a departure from its current policy and its tradition
of modest leverage since 1963, such leverage could adversely affect
distributions to shareholders and increase the risk of default under its
indebtedness. PTR does not intend to incur long term, floating rate debt other
than in connection with property acquisitions in which the debt assumed is
impracticable to prepay or is tax-exempt debt. See "Information Concerning
PTR--Policies With Respect to Certain Activities." To the extent that PTR
incurs floating rate indebtedness, increases in interest rates could reduce
cash flow of PTR and result in a lower current distribution to shareholders.
LIMITATIONS ON ACQUISITIONS AND CHANGE IN CONTROL
Ownership Limit. In order to maintain its qualification as a REIT, not more
than 50% in value of the outstanding PTR Common Shares may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code of 1986, as amended (the "Code"), to include certain entities). The
ownership limit may have the effect of precluding acquisition of control of PTR
by a third party without consent of the PTR Board even if a change in control
were in the interest of shareholders. The PTR Common Shares owned by Security
Capital Group are attributed to its shareholders for tax purposes. The 9.8%
ownership limit for shareholders (49% in the case of Security Capital Group),
as well as the ability of PTR to issue additional PTR Common Shares or other
shares (which may have rights and preferences senior to PTR Common Shares), may
discourage a change in control of PTR and may also (i) deter tender offers for
PTR Common Shares, which offers may be advantageous to shareholders and (ii)
limit the opportunity for shareholders to receive a premium for their PTR
Common Shares that might otherwise exist if an investor were attempting to
assemble a block of PTR Common Shares in excess of 9.8% of the outstanding PTR
Common Shares or otherwise effect a change in control of PTR. See "Comparison
of Rights of Holders of PTR Common Shares and PACIFIC Common Stock--
Restrictions on Transfer and Redemption of Shares."
Shareholder Purchase Rights. On July 11, 1994, the PTR Board declared a
dividend of one preferred share purchase right (a "Purchase Right") for each
PTR Common Share outstanding. Each Purchase Right entitles the holder under
certain circumstances to purchase from PTR one one-hundredth of a share of
Series B Junior Participating Preferred Shares of Beneficial Interest, par
value $1.00 per share (the "Participating Preferred Shares") at a price of
$60.00 per one one-hundredth of a Participating Preferred Share, subject to
adjustment. Purchase Rights are exercisable when a person or group of persons
acquires 20% or more of the outstanding PTR Common Shares (more than 49% in the
case of Security Capital Group and certain defined affiliates) or announces a
tender offer for 25% or more of the outstanding PTR Common Shares. Under
certain circumstances, each Purchase Right entitles the holder to purchase, at
the Purchase Right's then current exercise price, a number of PTR Common Shares
having a market value of twice the Purchase Right's exercise price. The
acquisition of PTR pursuant to certain mergers or other business transactions
would entitle each holder to purchase, at the Purchase Right's then current
exercise price, a number of the acquiring company's common shares having a
market value at that time equal to twice the Purchase Right's exercise price.
The Purchase Rights held by certain 20% shareholders (other than Security
Capital Group) would not be exercisable. The Purchase Rights will expire in
July 2004 and are subject to redemption in whole, but not in part, at a price
of $0.01 per Purchase Right payable in cash, shares of PTR or any other form of
consideration determined by the PTR Board.
The Purchase Rights may have certain anti-takeover effects, may have the
effect of delaying, deferring or preventing a change in control of PTR and may
adversely affect the voting and other rights of shareholders.
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Preferred Shares. The PTR Declaration of Trust authorizes the PTR Board to
issue preferred shares and to establish the preferences and rights of any
preferred shares issued. See "Comparison of Rights of Holders of PTR Common
Shares and PACIFIC Common Stock--Preferred Shares." The issuance of preferred
shares could have the effect of delaying or preventing a change in control of
PTR even if a change in control were in the shareholders' interests.
POSSIBLE ADVERSE CONSEQUENCE OF LIMITS ON OWNERSHIP OF SHARES
As noted above under "--Limitations on Acquisitions and Change in Control,"
under the REIT tax rules, not more than 50% in value of the outstanding PTR
Common Shares may be owned, directly or indirectly, by five or fewer
individuals. The PTR Board, in its sole discretion, may waive this restriction
if it is satisfied that ownership in excess of this limit will not jeopardize
PTR's status as a REIT. PTR Common Shares acquired in breach of the limitation
may be redeemed by PTR for the average daily per share closing sales price of
PTR Common Shares during the 30-day period ending on the business day prior to
the redemption date. A transfer of PTR Common Shares to a person who, as a
result of the transfer, violates the ownership limit may be void under some
circumstances. See "Comparison of Rights of Holders of PTR Common Shares and
PACIFIC Common Stock--Restrictions on Transfer and Redemption of Shares" for
additional information regarding the ownership limits. Security Capital Group
is entitled to own up to 49% of the outstanding PTR Common Shares (assuming
conversion or exchange of all PTR convertible or exchangeable securities). The
PTR Common Shares owned by Security Capital Group are attributed to its
shareholders for purposes of the REIT tax rules.
THE MERGER
GENERAL
The following is a summary of certain aspects of the Merger. This summary
does not purport to be complete and is qualified in its entirety by reference
to the Merger Agreement, which is attached to this Joint Proxy/Information
Statement and Prospectus as Annex I and is incorporated herein by reference.
At the Effective Time, PACIFIC will be merged with and into PTR, and PACIFIC
will cease to exist as a corporation. PTR will be the surviving entity in the
Merger and will change its name to "Security Capital Pacific Trust." At the
Effective Time, each then outstanding share of PACIFIC Common Stock will be
converted into the right to receive 0.611 of a PTR Common Share. No fractional
PTR Common Shares will be issued in the Merger, and holders of PACIFIC Common
Stock whose shares are converted in the Merger will be entitled to a cash
payment in lieu of fractional shares as described below under "--No Fractional
Shares." For a description of the treatment of rights to acquire PACIFIC Common
Stock in the Merger, see "--The Merger Agreement--Rights to Acquire PACIFIC
Common Stock."
None of the outstanding PTR Common Shares will be converted or otherwise
modified in the Merger. Each such share will continue to represent one
outstanding PTR Common Share after the Effective Time.
A description of certain differences between PTR Common Shares and PACIFIC
Common Stock is set forth under "Comparison of Rights of Holders of PTR Common
Shares and PACIFIC Common Stock."
ADVANTAGES AND DISADVANTAGES OF THE MERGER TO PTR
The PTR Board has supervised $1.23 billion of multifamily acquisitions and
developments from 1991 through 1994, while increasing annual distributions from
$0.64 per share to $1.00 per share. It has successfully completed two portfolio
acquisitions exceeding $100 million each. Based on its experience, the PTR
Board believes that the Merger will provide the following advantages to PTR:
. PTR's entry into attractive, growing target markets in the western
United States. Based on forecasts published by Woods & Poole
Economics, Inc., the projected job growth in PACIFIC's primary target
market is 28.09% for the years 1994 through 2015, whereas the
projected growth
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in jobs for the United States as a whole for such period is 22.40%. For
the same time period, population growth is projected to be 33.88% in
PACIFIC's primary target market and 19.23% in the United States as a
whole.
. The addition to PTR's portfolio of 18 operating properties (including
two properties to be acquired by PACIFIC within 40 days of the date of
this Joint Proxy/Information Statement and Prospectus) comprising
5,703 multifamily units with a total investment cost, including
planned renovations, of $251.8 million. The PTR Board considers such
cost to be attractive in comparison to the cost of acquiring other
properties which the PTR Board has evaluated in the last six months of
1994 as possible candidates for acquisition, based on the type and
location of the properties considered and the expected economic
contribution of such properties to PTR.
. The addition to PTR's portfolio of three developments, including one
development property to be acquired by PACIFIC within 40 days of the
date of this Joint Proxy/Information Statement and Prospectus
comprising 840 multifamily units. PACIFIC also has four additional
development sites in negotiation or due diligence.
. Increased flexibility for PTR in pursuing its asset optimization
strategy of intelligently deploying and redeploying capital in its
target markets.
. The addition of development, operating and acquisition expertise in
PACIFIC's target market through the integration of PACIFIC's REIT
Manager with PTR's REIT Management team.
. An increase in PTR's pro forma per share operating results for 1994.
. Increased PTR equity and market capitalization which should improve
the terms on which PTR can access the debt markets.
The following are certain potential disadvantages of the Merger to PTR:
. As a result of an expanded target market, PTR will not be able to
concentrate its operating focus totally on the Southwest, which could
affect PTR's oversight of all of its market.
. Because the Exchange Ratio is fixed, the PTR Common Shares PTR will be
required to exchange for the shares of PACIFIC Common Stock may have a
greater aggregate value than the value contemplated at the time the
Merger Agreement was executed due to fluctuations in the market price
of the PTR Common Shares, although some increase in the market price
of PTR Common Shares may be related to the announcement of the
proposed Merger.
. The ownership of Security Capital Group in PTR could increase from
approximately 31.9% to 41.3% as a result of the Merger and could
increase to as much as 44.2% as a result of the subscription offering
(depending on the amount of subscriptions received from other
shareholders), resulting in increased control of PTR by Security
Capital Group.
. Job and population growth in PACIFIC's primary target market is not
projected to be as great as that in PTR's primary target market, but
such growth is expected to be greater than that for the United States
as a whole.
ADVANTAGES AND DISADVANTAGES OF THE MERGER TO PACIFIC
The PACIFIC Board believes that the Merger will provide the following
advantages to PACIFIC shareholders:
. PACIFIC shareholders will receive shares in a company with an
extensive management team and greater resources for pursuing
acquisition and development opportunities, including better access to
capital markets.
. Greater liquidity for shareholders since PTR Common Shares are
publicly traded.
The following are certain potential disadvantages of the Merger to PACIFIC
shareholders:
. Because the Exchange Ratio is fixed, PACIFIC shareholders could
receive PTR Common Shares having a lesser aggregate value than the
value contemplated at the time the Merger Agreement was executed due
to fluctuations in the market price of PTR Common Shares.
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. PACIFIC shareholders will receive shares in a company which,
following the Merger, will not have as much geographic focus as
PACIFIC currently has.
REIT MANAGEMENT
PTR's REIT Manager and PACIFIC's REIT Manager are responsible for the day-to-
day operations of PTR and PACIFIC, respectively. Each of the REIT Managers
receive fees for their services, which fees are calculated based upon the cash
flow of the respective entity. The calculation of fees paid to PTR's REIT
Manager and PACIFIC's REIT Manager are substantially the same. See "Information
Concerning PACIFIC--Certain Relationships and Transactions--REIT Management
Agreement" and "Information Concerning PTR--Certain Relationships and
Transactions--REIT Management Agreement." The fee payable to PTR's REIT Manager
by the combined entity after the Merger will be calculated on the same basis as
the fees paid to the REIT Managers by PTR and PACIFIC prior to the Merger.
DISTRIBUTIONS
Pursuant to the Merger Agreement, PACIFIC is entitled to (and has indicated
its intention to) distribute 100% of its undistributed net earnings to PACIFIC
shareholders prior to the Effective Time of the Merger in order to reflect the
economic agreement of the Merger: PTR will get the PACIFIC properties and all
of the future earnings thereon and PACIFIC shareholders will get PTR Common
Shares and all past earnings from the PACIFIC properties. The amount of the
special distribution will vary depending upon the date of consummation of the
Merger but is estimated to range from $0.10 to $0.19 per share. PTR is entitled
to (and has indicated its intention to) pay to PTR shareholders its regular
quarterly distributions.
CLOSING; EFFECTIVE TIME
The closing of the transactions contemplated by the Merger Agreement (the
"Closing") will take place as soon as practicable following the date on which
the last of the conditions set forth in the Merger Agreement is satisfied or
waived, or at such other time as PTR and PACIFIC agree. The Merger will become
effective on the date specified in the Articles of Merger required under
Maryland law to be filed with the Maryland Department. It is anticipated that
the Effective Time will occur as soon as practicable after the Closing.
EXCHANGE OF CERTIFICATES
From and after the Effective Time, holders of PACIFIC Common Stock
immediately prior to the Effective Time will be entitled to receive 0.611 of a
PTR Common Share in exchange for each share of PACIFIC Common Stock held.
Notwithstanding the Exchange Ratio, no fractional PTR Common Shares will be
issued. See "--No Fractional Shares." As soon as practicable after the
Effective Time, the Exchange Agent will mail transmittal instructions and a
form of letter of transmittal to each PACIFIC shareholder. The transmittal
instructions will describe the procedures for surrendering PACIFIC Certificates
in exchange for PTR Certificates. PACIFIC SHAREHOLDERS SHOULD NOT SUBMIT THEIR
PACIFIC CERTIFICATES FOR EXCHANGE UNLESS AND UNTIL THEY HAVE RECEIVED THE
TRANSMITTAL INSTRUCTIONS AND A FORM OF LETTER OF TRANSMITTAL FROM THE EXCHANGE
AGENT.
PACIFIC SHAREHOLDERS WILL NOT BE ENTITLED TO RECEIVE ANY DIVIDENDS OR OTHER
DISTRIBUTIONS ON PTR COMMON SHARES UNTIL THE MERGER HAS BEEN CONSUMMATED AND
THEY HAVE EXCHANGED THEIR PACIFIC CERTIFICATES FOR PTR CERTIFICATES. Subject to
applicable laws, any such dividends and distributions after the Effective Time
will be accumulated and, at the time a PACIFIC shareholder surrenders his or
her PACIFIC Certificates to the Exchange Agent, all such accrued and unpaid
dividends and distributions, together with any cash payments in lieu of
fractional PTR Common Shares, will be paid without interest.
When a PACIFIC shareholder delivers his or her PACIFIC Certificates to the
Exchange Agent along with a properly executed letter of transmittal and any
other required documents, such PACIFIC Certificates will be cancelled and the
PACIFIC shareholder will receive a PTR Certificate representing the number of
full PTR Common Shares to which the PACIFIC shareholder is entitled under the
Merger Agreement and payment in cash in lieu of any fractional PTR Common
Share. If any PTR Certificate is to be issued in a
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name other than that in which the corresponding PACIFIC Certificate is
registered, it is a condition to the exchange of the PACIFIC Certificate that
the PACIFIC shareholder comply with applicable transfer requirements and pay
any applicable transfer or other taxes.
Neither the Exchange Agent nor any party to the Merger Agreement will be
liable to any PACIFIC shareholder for any PTR Common Shares, dividends or
distributions thereon or cash payable in lieu of fractional shares delivered to
state authorities pursuant to applicable escheat or other similar laws. At any
time following 180 days after the Effective Time, PTR may, subject to any REIT
requirements and any applicable escheat law, require the Exchange Agent to
return all PTR Common Shares and cash deposited with the Exchange Agent which
has not been disbursed to PACIFIC shareholders and thereafter any such holders
which have not remitted their PACIFIC Certificates to the Exchange Agent may
look to PTR only as a general creditor with respect thereto.
HOLDERS OF PTR COMMON SHARES ARE NOT REQUIRED TO EXCHANGE THEIR PTR
CERTIFICATES IN CONNECTION WITH THE MERGER.
NO FRACTIONAL SHARES
No certificates or scrip for fractional PTR Common Shares will be issued upon
the surrender for exchange of PACIFIC Certificates in the Merger. No PTR Common
Share dividend, stock split or interest will be paid with respect to any
fractional PTR Common Share, and such fractional shares will not entitle the
owner thereof to vote or to any of the other rights of a holder of PTR Common
Shares. Instead, each PACIFIC shareholder who would otherwise have been
entitled to a fraction of a PTR Common Share upon surrender of PACIFIC
Certificates for exchange will be entitled to receive from the Exchange Agent
an amount in cash (without interest) at a pro rata price based on the closing
sale price of PTR Common Shares on December 6, 1994 ($16.375).
BACKGROUND
Security Capital Group has invested approximately $135.3 million in cash in
PACIFIC at the effective Merger price of $10 per share. No commissions were
paid in these offerings. All the proceeds were used for PACIFIC's property
acquisitions and related capital improvements. PACIFIC was a wholly owned
subsidiary of Security Capital Group from its inception in October 1993 through
August 1994 when PACIFIC completed a $10 million private offering of PACIFIC
Common Stock. Security Capital Group currently owns approximately 97.6% of the
outstanding shares of PACIFIC Common Stock. Security Capital Group has been
PTR's largest shareholder since February 1990 and currently owns approximately
31.9% of the outstanding PTR Common Shares.
Since PACIFIC's inception, PACIFIC's REIT Manager has been actively
identifying growth markets in the western United States based upon research
conducted by Security Capital (U.S.) Investment Research Incorporated, an
affiliate of Security Capital Group. During that time, PACIFIC has acquired a
portfolio of 5,703 multifamily units at a total investment cost, including
planned renovations, of $251.8 million (including two properties to be acquired
within 40 days of the date of this Joint Proxy/Information Statement and
Prospectus). PACIFIC has $44.1 million of developments in planning, including
one development property to be acquired within 40 days of the date of this
Joint Proxy/Information Statement and Prospectus. PACIFIC has four additional
sites in negotiation or due diligence.
In October 1994, PTR's REIT Manager began considering expansion of PTR's
target market beyond the Southwest to other areas which it believes offer
significant growth prospects. Because of its knowledge of the assets and
markets represented by PACIFIC's portfolio, PTR's REIT Manager focused on
PACIFIC as a potential merger candidate and analyzed the impact of such a
merger on the shareholders of PTR. PTR's REIT Manager concluded that a business
combination with PACIFIC will expand PTR's target market to submarkets in the
western United States that present attractive opportunities for significant
growth, add to PTR's portfolio multifamily properties with strong cash flow
growth prospects, provide PTR with greater
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flexibility to implement its asset optimization strategy and enable PTR to gain
access to significant development opportunities. PTR's REIT Manager also
concluded that an acquisition of PACIFIC would improve PTR's operating results
for 1995 and strengthen PTR's balance sheet.
In late October 1994, PTR's REIT Manager initiated discussions with two
affiliates--PACIFIC's REIT Manager and PACIFIC's largest shareholder, Security
Capital Group--relating to a possible business combination between PTR and
PACIFIC.
On November 4, 1994, the PTR Board and PTR's REIT Manager discussed a
possible business combination between PTR and PACIFIC. PTR's REIT Manager
presented to the PTR Board information prepared by PTR's REIT Manager regarding
PACIFIC and PTR after giving effect to the Merger and the reasons for the
Merger. The information regarding PACIFIC included target market data prepared
by Security Capital (U.S.) Investment Research Incorporated (including
population, major industries, major employers, job growth, median household
income and housing related data), a description of PACIFIC's portfolio of
properties (including development transactions and land under negotiation),
including numbers of units and occupancy information. The PTR Board also
received information regarding related mortgages and a summary balance sheet
and Funds from Operations per share for 1994. PTR's REIT Manager also presented
information on the impact of the Merger on PTR's summary balance sheet and
Funds from Operations and other expected benefits to PTR of the Merger,
including expansion of its target market and access to development
opportunities that exist in PACIFIC's market. Following the discussion, the PTR
Board authorized management to pursue a business combination between PTR and
PACIFIC at the price paid by Security Capital Group for its shares of PACIFIC
Common Stock. At such meeting, the PTR Board also approved the retention of
King & Spalding as outside legal counsel and authorized interviews of
investment banking firms to render a fairness opinion with respect to a
possible combination with PACIFIC.
Because of Security Capital Group's significant ownership of PTR Common
Shares and PACIFIC Common Stock, the PTR Board also appointed the PTR Special
Committee consisting of PTR's Independent Trustees to review and approve any
proposed combination between PTR and PACIFIC and to recommend action with
respect to any such proposal to the PTR Board. The Independent Trustees are
Messrs. Cardwell, Kessler, Myers and Schweitzer. Because of Messrs. Myers' and
Schweitzer's ownership of shares of Security Capital Group and PACIFIC, the PTR
Board determined that approval of any business combination with PACIFIC would
require both the affirmative vote of a majority of the PTR Special Committee
and the separate approval of Messrs. Cardwell and Kessler, two long time
Independent Trustees of PTR with no ownership interest in Security Capital
Group or PACIFIC. See "--Interests of Certain Persons in the Merger" and
"Certain Considerations--Conflicts of Interest in the Merger."
At the meeting, the PTR Board also authorized a subscription offering of PTR
Common Shares which will be made to PTR shareholders and third parties at the
same per share price on which the Exchange Ratio was based ($16.375). The
closing of the Merger is a condition to the closing of the subscription
offering. The subscription offering is designed to allow other shareholders of
PTR to purchase PTR Common Shares at the same price as PACIFIC shareholders are
acquiring PTR Common Shares in the Merger and to maintain PTR's balance sheet
ratios. See "Information Concerning PTR--Certain Relationships and
Transactions--Concurrent Subscription Offering."
On December 6, 1994, the PTR Special Committee met with Robertson, Stephens
and recommended that the PTR Board retain Robertson, Stephens to evaluate the
fairness of the Exchange Ratio from a financial point of view. The PTR Board
then met with and retained Robertson, Stephens to evaluate the fairness of the
Exchange Ratio from a financial point of view.
On December 6, 1994 the members of the PTR Special Committee discussed the
Merger with representatives of PTR's REIT Manager and King & Spalding. After
considering, among other things, the proposed terms of the Merger Agreement,
including the Exchange Ratio, the information regarding PACIFIC and the impact
of the Merger on PTR considered by the PTR Board at its November 4 meeting, the
PTR Special Committee unanimously recommended that PTR's REIT Manager and the
PTR Board
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proceed with the Merger on the basis of such Exchange Ratio, subject to the
receipt, subsequent to such meeting, of a written opinion from Robertson,
Stephens that the Exchange Ratio was fair to the holders of PTR Common Shares
from a financial point of view.
On December 6, 1994, the PTR Board unanimously (with Messrs. Blankenship,
Kelley and Polk abstaining) approved the Merger and the Merger Agreement for
submission to PTR shareholders, subject to the condition that a written
fairness opinion from Robertson, Stephens be delivered to the PTR Special
Committee and the PTR Board subsequent to such meeting.
On December 6, 1994, the PACIFIC Board unanimously approved the Merger and
the Merger Agreement for submission to PACIFIC shareholders.
On December 6, 1994, PTR, PACIFIC and Security Capital Group entered into the
Merger Agreement. See Annex I and "The Merger--The Merger Agreement."
On January 4, 1995, Robertson, Stephens delivered its written opinion to the
PTR Special Committee and the PTR Board, to the effect that, as of such date
and based upon the assumptions made, matters considered and limits of the
review, as set forth in such opinion, the Exchange Ratio was fair to the
holders of PTR Common Shares, and the PTR Special Committee and the PTR Board
reviewed, discussed and accepted such opinion. A COPY OF THE OPINION OF
ROBERTSON, STEPHENS IS ATTACHED HERETO AS ANNEX II AND IS INCORPORATED HEREIN
BY REFERENCE. PTR SHAREHOLDERS ARE URGED TO READ THIS OPINION IN ITS ENTIRETY
FOR A DESCRIPTION OF THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE
REVIEW OF ROBERTSON, STEPHENS. The opinion of Robertson, Stephens is directed
to the PTR Special Committee and the PTR Board and does not constitute a
recommendation to any PTR shareholder as to how such shareholder should vote on
the Merger. For a description of the compensation paid to Robertson, Stephens
in connection with the rendering of the opinion, see "--Fairness Opinion."
RECOMMENDATIONS OF THE PTR BOARD AND THE PACIFIC BOARD AND REASONS FOR THE
MERGER
PTR. The PTR Board believes that the terms of the Merger Agreement are fair
to and in the best interests of PTR and its shareholders. The PTR Board has
extensive experience in evaluating available multifamily acquisition and
development opportunities. The PTR Board has overseen the acquisition and
development of $1.23 billion of properties since the beginning of 1991, while
increasing annual distributions to PTR shareholders from $0.64 per share in
1991 to $1.00 per share in 1994. Based on its successful experience and the
market information it has reviewed throughout 1994, the PTR Board believes that
the purchase price of the PACIFIC assets, as well as the potential of the
PACIFIC target markets, are attractive as compared to other opportunities
available in the market today. Accordingly, the PTR Board, by unanimous vote of
trustees who are not officers of PTR or directors, officers or employees of
Security Capital Group or its affiliates, approved the Merger Agreement and the
transactions contemplated thereby and recommends approval thereof by the
shareholders of PTR. In reaching its determination, the PTR Board consulted
with PTR's REIT Manager, as well as its legal advisor, and considered a number
of factors, including, without limitation, the following:
. PTR's entry into attractive growing target markets in the western
United States;
. The addition to PTR's portfolio of 18 operating properties comprising
5,703 multifamily units with strong cash flow growth prospects at
PACIFIC's cost, including planned renovations, of $251.8 million. The
PTR Board considers such cost to be attractive in comparison to the
cost of acquiring other properties which the PTR Board has evaluated
in the last six months of 1994 as possible candidates for
acquisition, based on the type and location of the properties
considered and the expected economic contribution of such properties
to PTR;
. The addition to PTR's portfolio of three developments in progress
comprising 840 multifamily units at a total budgeted development cost
of $44.1 million. PACIFIC also has four additional development sites
in negotiation or due diligence;
. PTR will gain access to significant multifamily development
opportunities that exist in PACIFIC's target market;
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. The market in which PACIFIC operates is a logical and demographically
consistent expansion of PTR's target market;
. Increased flexibility for PTR in pursuing its asset optimization
strategy of intelligently deploying and redeploying capital in its
target markets;
. The addition of development, operating and acquisition expertise in
PACIFIC's target market through the integration of PACIFIC's REIT
Manager with PTR's REIT Manager;
. An increase in PTR's pro forma per share operating results for 1994;
. Increased PTR equity and market capitalization which should improve
the terms on which PTR can access the debt markets;
. The terms of the Merger Agreement, including the purchase of PACIFIC
Common Stock at the same price paid by shareholders of PACIFIC for
their shares and that the price on which the Exchange Ratio was based
exceeded the 30-day trailing average of closing prices for the PTR
Common Shares.
While PTR and PTR's REIT Manager are philosophically opposed to engaging in
related party principal transactions, PTR is pursuing the Merger because of its
belief that the Merger presents significant opportunities for PTR and is in the
best interests of PTR and its shareholders as described herein.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the PTR Board did not find it practicable to, and did
not, quantify or otherwise attempt to assign relative weights to the specific
factors considered in reaching its determination.
PACIFIC. The PACIFIC Board believes that the terms of the Merger Agreement
are fair to and in the best interests of the shareholders of PACIFIC.
Accordingly, the PACIFIC Board has unanimously approved the Merger Agreement
and the transactions contemplated thereby and unanimously recommends approval
thereof by the shareholders of PACIFIC. In reaching its determination, the
PACIFIC Board consulted with PACIFIC's REIT Manager, and considered a number of
factors, including, without limitation, the following:
. The prospects for growth in per share operating results from being
part of PTR which has greater resources to pursue development
opportunities, maximize returns through its asset optimization
strategy and access the capital markets on favorable terms; and
. The larger market capitalization of the combined entity as providing
potentially greater market liquidity for PACIFIC's shareholders than
they presently have in PACIFIC as a stand-alone entity.
In connection with its evaluation of the Merger, the PACIFIC Board assigned
substantially all the weight to the growth prospects resulting from the Merger
in reaching its determination.
FAIRNESS OPINION
Upon recommendation of the PTR Special Committee, the PTR Board retained
Robertson, Stephens to evaluate the fairness of the Exchange Ratio from a
financial point of view in connection with the Merger. Robertson, Stephens was
retained based on Robertson, Stephens' experience as financial advisor in
connection with mergers and acquisitions as well as Robertson, Stephens'
familiarity with relevant markets and familiarity with PTR.
Robertson, Stephens delivered to the PTR Board its written opinion dated
January 4, 1995 to the effect that, as of such date and based on the matters
described therein, the Exchange Ratio was fair to the shareholders of PTR from
a financial point of view. Robertson, Stephens did not recommend to PTR that
any specific ratio constituted the appropriate exchange ratio for the Merger.
Robertson, Stephens' opinion to the PTR Board addresses only the fairness from
a financial point of view of the Exchange Ratio, and does
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not constitute a recommendation to any shareholder as to how such shareholder
should vote at the PTR Special Meeting. Robertson, Stephens was not asked to
render, and did not render, any opinion on or relating to the concurrent
subscription offering of PTR Common Shares. The complete text of the opinion
dated January 4, 1995 is attached hereto as Annex II and the summary of the
opinion set forth below is qualified in its entirety by reference to such
opinion. Shareholders of PTR are urged to read such opinion carefully and in
its entirety for a description of the procedures followed, the factors
considered and the assumptions made by Robertson, Stephens.
In connection with the preparation of its opinion dated January 4, 1995,
Robertson, Stephens, among other things: (i) reviewed financial information
relating to PACIFIC and PTR furnished to it by both companies, including
management's financial forecasts; (ii) reviewed publicly available information;
(iii) held discussions with PACIFIC's REIT Manager and PTR's REIT Manager
concerning the businesses, operations and prospects of both companies,
independently and combined; (iv) reviewed the Merger Agreement and a draft of
this Joint Proxy/Information Statement and Prospectus as initially filed with
the Commission; (v) physically inspected the general appearance of
substantially all of the properties comprising PACIFIC's portfolio; (vi)
compared the relative economic and demographic conditions of the markets in
which PACIFIC owns properties; (vii) reviewed the terms of sale of properties
comparable to those owned by PACIFIC; (viii) reviewed the share price and
trading history of PTR; (ix) reviewed the contribution by each company to pro
forma combined number of apartment units, gross revenue, net operating income,
net income and funds from operations; (x) reviewed the valuations of publicly
traded companies which it deemed comparable to PACIFIC and PTR; (xi) compared
the financial terms of the Merger with other transactions which it deemed
relevant; (xii) prepared discounted cash flow analyses of both companies;
(xiii) analyzed the combined funds from operations per share of the combined
company; and (xiv) made such other studies and inquiries, and reviewed such
other data, as it deemed relevant.
The following paragraphs summarize the significant quantitative analyses
performed by Robertson, Stephens in arriving at its opinion presented to the
PTR Special Committee and the PTR Board. The information presented below is
based on the financial condition of PTR and PACIFIC on December 6, 1994 and
share price information through the close of the market on December 30, 1994.
Share Price and Trading Analysis. Robertson, Stephens reviewed and analyzed
the history of the trading prices and volume for the PTR Common Shares and the
price at which shares of PACIFIC Common Stock had been issued in private
financings, and compared the PTR Common Share price to the share prices of
certain publicly traded companies deemed comparable by Robertson, Stephens and
the Standard & Poor's 500 Index. With respect to PTR, Robertson, Stephens noted
that since January 3, 1994, closing prices of the PTR Common Shares ranged from
a high of $21.50 on March 8, 1994 to a low of $15.875 on October 11, 1994. With
respect to PACIFIC, Robertson, Stephens noted that it had issued shares of
PACIFIC Common Stock to third parties at a price of $10.00 per share in recent
transactions.
Relative Contribution Analysis. Robertson, Stephens compared the contribution
of PTR and PACIFIC to pro forma combined apartment units, gross revenues, net
operating income, net earnings and funds from operations for the nine months
ended September 30, 1994. Robertson, Stephens noted that PACIFIC contributed
approximately 16.3% of apartment units, approximately 17.0% of gross revenues,
approximately 18.2% of net operating income, approximately 17.6% of net income
and approximately 17.7% of funds from operations. Robertson, Stephens compared
these projected contribution percentages with the approximately 14.4% ownership
position that PACIFIC shareholders would have in the pro forma company.
Comparable Company Analysis. Robertson, Stephens compared certain financial
data and multiples of financial parameters accorded other publicly traded
companies deemed by Robertson, Stephens to be comparable to PTR and PACIFIC.
Financial data compared included total capitalization, revenues, operating
income, operating margin, funds from operations, historical funds from
operations growth rate and projected funds from operations growth rate based on
analysts' estimates. Multiples compared included capitalization to revenues,
capitalization to funds from operations, capitalization to book value, revenue
per
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unit, operating income per unit and funds from operations per unit. Companies
deemed by Robertson, Stephens to be comparable to PACIFIC included Irvine
Apartment Communities, Inc., Oasis Residential Inc., Bay Apartment Communities,
Inc. and Holly Residential Properties Inc., and companies deemed by Robertson,
Stephens to be comparable to PTR included Avalon Properties, Inc., Equity
Residential Properties Trust, Merry Land and Investment Co., Inc., Post
Properties, Inc. and United Dominion Realty Trust Inc.
For PACIFIC, based on total capitalization to estimated 1994 revenue
multiples averaging 8.5 for the comparable group of companies, PACIFIC's
implied equity value per share would average $15.15. Based on total
capitalization to projected 1995 revenue multiples averaging 6.9 for the
comparable group of companies, PACIFIC's implied equity value per share would
average $11.77. Based on equity market capitalization to estimated 1994 funds
from operations multiples averaging 11.5 for the comparable group of companies,
PACIFIC's implied equity value per share would average $10.32. Based on equity
market capitalization to projected 1995 funds from operations multiples
averaging 10.5 for the comparable group of companies, PACIFIC's implied equity
value per share would average $9.62. Based on equity market capitalization to
book value (defined as balance sheet stockholders' equity) multiples averaging
1.1 for the comparable group of companies, PACIFIC's implied equity value per
share would average $11.46.
For PTR, based on total capitalization to estimated 1994 revenue multiples
averaging 8.5 for the comparable group of companies, PTR's implied equity value
per share would average $19.45. Based on total capitalization to latest twelve
months' reported revenue multiples averaging 9.5 for the comparable group of
companies, PTR's implied equity value per share would average $17.99. Based on
total capitalization to projected 1995 revenue multiples averaging 7.2 for the
comparable group of companies, PTR's implied equity value per share would
average $22.46. Based on equity market capitalization to estimated 1994 funds
from operations multiples averaging 13.4 for the comparable group of companies,
PTR's implied equity value per share would average $15.93. Based on equity
market capitalization to latest twelve months' reported funds from operations
multiples averaging 15.0 for the comparable group of companies, PTR's implied
equity value per share would average $15.86. Based on total capitalization to
projected 1995 funds from operations multiples averaging 12.2 for the
comparable group of companies, PTR's implied equity value per share would
average $17.55. Based on equity market capitalization to book value multiples
averaging 1.8 for the comparable group of companies, PTR's implied equity value
per share would average $22.25.
None of the companies utilized in the above analysis for comparative purposes
is, of course, identical to PTR or PACIFIC. Accordingly, a complete analysis of
the results of the foregoing calculations cannot be limited to a quantitative
review of such results and involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the value of the
comparable companies as well as that of PTR or PACIFIC. In addition, the
multiples of capitalization to estimated and projected revenues and funds from
operations are based on projections prepared, in the case of the comparable
companies, by research analysts using only publicly available information and,
in the case of PTR and PACIFIC, by management. Accordingly, such estimated
projections may or may not prove to be accurate.
Comparable Transaction Analysis. Robertson, Stephens also analyzed publicly
available financial information for eight selected acquisition and merger
transactions involving real estate investment trusts. In examining these
transactions, Robertson, Stephens analyzed certain financial parameters of the
acquired company relative to the consideration offered. Multiples analyzed
included consideration offered plus net debt assumed to latest twelve months
("LTM") revenue, consideration offered to LTM funds from operations and
consideration offered to book value. Based on consideration offered plus net
debt assumed to LTM revenues multiples in these transactions averaging 8.1,
PACIFIC's implied equity value per share would average $14.14. Based on
consideration offered to LTM funds from operations multiples in these
transactions averaging 10.8, PACIFIC's implied equity value per share would
average $9.66.
Robertson, Stephens also reviewed certain recent sales of portfolios of
apartment properties that it deemed comparable. Based on a capitalization rate
(ratio of LTM net operating income to total consideration
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offered plus debt assumed) in these transactions averaging 8.6%, PACIFIC's
implied equity value per share would average $10.87. Based on a purchase price
per unit in these transactions averaging $45,000, PACIFIC's implied equity
value per share would average $10.16.
Finally, Robertson, Stephens reviewed certain recent sales of single
apartment properties that it deemed comparable. Based on a purchase price per
unit in these transactions averaging $45,000, PACIFIC's implied equity value
per share would average $10.25. Based on a capitalization rate in these
transactions averaging 9.6%, PACIFIC's implied equity value per share would
average $8.81.
Discounted Cash Flow Analysis. Robertson, Stephens also performed discounted
cash flow analyses (i.e., an analysis of the present value of the projected
cash flows for the periods and at the discount rates indicated) for both PTR
and PACIFIC based upon projections of PTR's and PACIFIC's respective net
operating incomes, defined as total revenues minus property operating and
maintenance expenses, property management expenses and real estate taxes
("NOI") for the years 1995 through 2000, inclusive, using discount rates
ranging from 10.0% to 15.0%, and terminal value capitalization rates applied to
2000 estimated NOI ranging from 8.3% to 9.3%. These calculations indicated an
implied equity value per share for PACIFIC averaging $16.56. For PTR, these
calculations indicated an implied equity value per share averaging $19.78.
Merger Analysis. Robertson, Stephens also analyzed the funds from operations
per share of the combined company based on the Exchange Ratio. Such analysis
indicated that, in the absence of synergies, the funds from operations per
share of PTR would have increased by 2.7% in 1994 as a result of the Merger.
The preparation of fairness opinions involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such opinions are not readily susceptible to
summary description. Accordingly, Robertson, Stephens believes its analyses
must be considered as a whole and that considering any portion of such analyses
and of the factors considered, without considering all analyses and current
factors, could create a misleading or incomplete view of the process underlying
opinions. In its analyses, Robertson, Stephens made numerous assumptions with
respect to industry performance, general business and other conditions and
matters, many of which are beyond the control of PTR and PACIFIC. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results of values, which may be significantly more or less
favorable than as set forth therein. In addition, analyses relating to the
value of businesses do not purport to be appraisals or to reflect the prices at
which businesses actually may be sold.
In arriving at its opinion, Robertson, Stephens did not independently verify
any of the foregoing information and relied on all such information being
complete and accurate in all material respects. Furthermore, Robertson,
Stephens did not obtain any independent appraisal of the properties or assets
of PTR or PACIFIC. With respect to the financial forecasts of PTR and PACIFIC
which Robertson, Stephens reviewed, Robertson, Stephens assumed that such
forecasts were reasonably prepared in good faith and represent the best
currently available estimates and judgments of management of PTR and PACIFIC,
and relied on such estimates and judgments of PACIFIC and PTR management as to
the future financial performance of both companies. Robertson, Stephens noted,
among other things, that its opinion is necessarily based upon market, economic
and other conditions existing as of the date of the opinion, and information
available to Robertson, Stephens as of the date thereof.
The PTR Board formally engaged Robertson, Stephens at its December 6, 1994
meeting by means of an engagement letter. Such letter provides that for its
services, Robertson, Stephens is to be paid a fee of $150,000 by PTR, $75,000
of which was paid upon execution of the letter. The remainder of the fee was
paid at the time Robertson, Stephens delivered its opinion. PTR also agreed to
reimburse Robertson, Stephens for certain expenses and to indemnify Robertson,
Stephens against certain losses in connection with the performance of its
services.
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John E. Robson, a senior advisor to Robertson, Stephens, is also an
independent trustee of Security Capital Industrial Trust, one of the REITs
affiliated with Security Capital Group.
Robertson, Stephens is a nationally recognized investment banking firm. As
part of its investment banking business, Robertson, Stephens is frequently
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Significant Shareholders. Security Capital Group owns 13,528,825 shares of
PACIFIC Common Stock (approximately 97.6% of the outstanding PACIFIC Common
Stock) and 16,070,289 PTR Common Shares (approximately 31.9% of the outstanding
PTR Common Shares). If the Merger is consummated, Security Capital Group will
be entitled to receive approximately 8,266,112 PTR Common Shares (approximately
14.0% of the outstanding PTR Common Shares after the Merger, without giving
effect to the concurrent subscription offering). Additionally, certain
executive officers of PTR and PACIFIC own an aggregate of 9,500 shares of
PACIFIC Common Stock (less than 1% of the outstanding PACIFIC Common Stock). If
the Merger is consummated, such persons will be entitled to receive an
aggregate of 5,804 PTR Common Shares. Security Capital Group has agreed to vote
all of its PTR Common Shares and PACIFIC Common Stock in favor of the Merger.
Four trustees of PTR, Messrs. Blankenship, Kelley, Myers and Schweitzer, will
be entitled to receive 611, 306, 9,165 and 7,638 PTR Common Shares,
respectively, in exchange for their shares of PACIFIC Common Stock if the
Merger is consummated.
The directors of PACIFIC will be entitled to receive an aggregate of 10,998
PTR Common Shares in connection with the Merger.
THE MERGER AGREEMENT
The Merger Agreement provides that, at the Effective Time, each outstanding
share of PACIFIC Common Stock will be converted into the right to receive 0.611
of a PTR Common Share.
None of the outstanding PTR Common Shares will be converted or otherwise
modified in the Merger and each such share will continue to represent one
outstanding PTR Common Share after the Effective Time.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties of PTR, PACIFIC and Security Capital Group,
including, with respect to PTR, documents filed with the Commission and the
accuracy of the information contained or incorporated therein, and with respect
to PTR and PACIFIC, (i) the preparation of financial statements in accordance
with GAAP applied on a consistent basis, (ii) absence of undisclosed
liabilities, (iii) absence of any material adverse change, or any event (other
than general economic or market conditions) which would reasonably be expected
to result in a material adverse change in the business, operations, properties,
assets, liabilities, condition (financial or other), results of operations or
prospects of PTR or PACIFIC, as applicable, and (iv) accuracy of the
information provided by PTR and PACIFIC with respect to the Registration
Statement of which this Joint Proxy/Information Statement and Prospectus is a
part. The representations and warranties of PACIFIC and the indemnities of
Security Capital Group in the Merger Agreement were similar to those obtained
by PTR in prior portfolio acquisitions with unrelated third parties.
Indemnification. Security Capital Group has agreed to indemnify and hold
harmless PTR from and against losses incurred by PTR as a result of any breach
of, or inaccuracy in, any of PACIFIC's representations and warranties or other
agreements contained in the Merger Agreement which causes material loss to PTR.
Security Capital Group's indemnification obligation is subject to a maximum
amount
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equal to the aggregate value of all PTR Common Shares received by it in
connection with the Merger (based on a price of $16.375 per PTR Common Share).
The obligation of Security Capital Group to indemnify PTR will terminate one
year after the Effective Time.
Certain Covenants and Agreements. Pursuant to the Merger Agreement, each of
PTR and PACIFIC has agreed that, during the period from the date of the Merger
Agreement until the Closing or the earlier termination of the Merger Agreement,
it will, among other things (except as permitted by the Merger Agreement or as
consented to in writing by the other party): (i) conduct its business in the
ordinary and usual course and consistent with past practice; (ii) not amend or
propose to amend its charter or bylaws (other than as provided in the Merger
Agreement or as required by Maryland law); (iii) not split, combine or
reclassify its outstanding capital stock; (iv) not take any action which would
jeopardize its status as a REIT; (v) use reasonable efforts to preserve its
business organization and goodwill, keep available the services of its present
officers, preserve the goodwill and business relationships with its lessees,
operators, suppliers, distributors, customers and others, and not engage in any
action, directly or indirectly, with the intent to affect adversely the
transactions contemplated by the Merger Agreement; (vi) confer with one or more
representatives of the other when requested to report on material operational
matters and the general status of ongoing operations of its business and
provide full access to all of its properties, books, contracts, commitments and
records, as appropriate; (vii) maintain, in full force and effect, with all
premiums due thereon paid, policies of insurance covering all of its insurable
tangible assets and businesses in amounts and as to foreseeable risks usually
insured against by persons operating similar businesses under valid and
enforceable policies of insurance issued by nationally recognized insurers;
(viii) furnish promptly to the other a copy of each report, schedule and other
document filed or received pursuant to the requirements of federal or state
securities laws or filed with the Commission in connection with the
transactions contemplated by the Merger Agreement or which may have a material
effect on its business, properties or personnel; (ix) promptly advise the other
in writing of any change or the occurrence of any event having, or which,
insofar as can reasonably be foreseen, in the future may have, any material
adverse effect on its business, operations, properties, assets, condition
(financial or other), results of operations or prospects; (x) promptly take
such action as is necessary to obtain shareholder approval of the Merger
Agreement and the transactions contemplated thereby; and (xi) cooperate and use
its best efforts to take all actions, make all filings, registrations and
submissions, and do all things necessary and advisable to consummate the
Merger, including, but not limited to, obtaining all required consents, waivers
and approvals from the Commission, the Department of Justice and any other
applicable government entity.
In addition, pursuant to the Merger Agreement, PACIFIC has agreed that,
during the period from the date of the Merger Agreement until the closing of
the transactions contemplated by the Merger Agreement or the earlier
termination of the Merger Agreement, PACIFIC will, among other things (except
as permitted by the Merger Agreement or as consented to in writing by PTR): (i)
not issue, sell, pledge, or dispose of any shares of its capital stock (or
related rights) or agree to do so, or amend or modify the terms and conditions
of any of the foregoing, except upon the exercise of certain warrants and other
contractual rights in the ordinary course of business and except that PACIFIC
may issue shares of PACIFIC Common Stock to Security Capital Group in exchange
for a capital contribution by Security Capital Group of not less than $10.00
per share in connection with the acquisition or development of additional
properties or repayments of borrowings under PACIFIC's revolving line of credit
used for acquisition and developments (although Security Capital Group does not
anticipate making any such capital contributions unless a favorable acquisition
opportunity arises and PACIFIC does not have sufficient availability under its
revolving line of credit); (ii) not incur or become contingently liable with
respect to any indebtedness for borrowed money, except for borrowings by
PACIFIC under its revolving line of credit and except for indebtedness assumed
by PACIFIC in connection with the acquisition or development of certain
properties (expected to be approximately $4.8 million); (iii) not redeem,
purchase, acquire or offer to purchase or acquire any shares of its capital
stock, other than as required by the governing terms of such securities; (iv)
not make certain acquisitions or any sale of assets or businesses; (v) not
enter into any special pay arrangement with any directors, officers or other
representatives, or agree to do so; (vi) not, other than in accordance with
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established compensation adjustment policies and as contemplated by the Merger
Agreement, increase the rate of remuneration payable to its directors, officers
or other representatives, or agree to do so; and (vii) use its best efforts to
obtain and deliver to PTR certain letters from its principal executive
officers, directors and "affiliates" as defined under Rule 145 under the
Securities Act agreeing to certain restrictions on resale of PTR Common Shares
received in the Merger in exchange for PACIFIC Common Stock.
No Solicitation of Other Transactions. The Merger Agreement provides that,
prior to the Effective Time or earlier termination of the Merger Agreement,
PACIFIC will not, unless PTR consents in writing, initiate, solicit, negotiate
or encourage, or provide any confidential information to facilitate any
proposal or offer to acquire all or any substantial part of the business and
properties or capital stock of PACIFIC, whether by merger, purchase of assets,
tender offer or otherwise. PACIFIC also has agreed to cause its officers and
directors and any attorney, accountant, investment banker or other agent
retained by it to refrain from such activities.
Conditions to the Merger. The respective obligations of PTR and PACIFIC to
effect the Merger are subject to a number of conditions, including among
others: (i) each other party shall have performed in all material respects its
agreements contained in the Merger Agreement required to be performed on or
prior to the Closing and all representations and warranties of such party shall
be true and correct in all material respects on and as of the date made and the
date of the Closing (the "Closing Date"); (ii) the Merger Agreement and the
transactions contemplated thereby shall have been approved and adopted by the
shareholders of each of PTR and PACIFIC; (iii) the Registration Statement shall
have become effective and no stop order suspending such effectiveness shall
have been issued and remain in effect and no proceeding shall have been
initiated or threatened by the Commission; (iv) no preliminary or permanent
injunction or other order or decree by any federal or state court which
prevents the consummation of the Merger shall have been issued or taken and
remain in effect (each party agreeing to use its best efforts to have any such
injunction, order or decree lifted); (v) all governmental consents, orders and
approvals legally required for the consummation of the Merger and the
transactions contemplated thereby, shall have been obtained and be in effect at
the Effective Time, and such consents, orders and approvals shall have become
final; (vi) each party shall have received an opinion from its respective
counsel to the effect that the Merger will qualify as a reorganization under
Section 368 of the Code and that no income or gain will be recognized by PTR or
PACIFIC or their respective shareholders as a result thereof; and (vii) each
party shall have received all third-party consents necessary to consummate the
Merger.
In addition to the conditions set forth above, the obligations of PACIFIC to
effect the Merger are subject to the following conditions: (i) the receipt of
written legal opinions from King & Spalding, special counsel to PTR, as to
certain legal matters, (ii) the PTR Common Shares to be issued in connection
with the Merger shall have been authorized for listing on the NYSE upon
official notice of issuance; (iii) no governmental consent, order or approval
legally required to consummate the Merger and the transactions contemplated
thereby shall have any terms which, in the reasonable judgment of PACIFIC, when
taken together with the terms of all such consents, orders or approvals, would
materially impair the value of the PTR Common Shares to be received in the
Merger; (iv) no governmental authority shall have promulgated any statute, rule
or regulation which, when taken together with all such promulgations, would
materially impair the value of the PTR Common Shares to be received in the
Merger; and (v) PACIFIC shall have received an opinion of King & Spalding,
special counsel to PTR, to the effect that the performance of the Merger
Agreement shall not jeopardize the status of PTR as a REIT.
In addition to the conditions set forth above, the obligations of PTR to
effect the Merger are subject to the following conditions: (i) the receipt of
written legal opinions from Mayer, Brown & Platt, special counsel to PACIFIC,
as to certain legal matters; (ii) the receipt by PTR of letters from affiliates
of PACIFIC relating to the restrictions on the transferability of the PTR
Common Shares to be received in the Merger pursuant to Rule 145 promulgated
under the Securities Act; (iii) no governmental consent, order or approval
legally required to consummate the Merger and the transactions contemplated
thereby shall have any terms which, in the reasonable judgment of PTR, when
taken together with the terms of all such consents, orders or
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approvals, would materially impair the value of PACIFIC to PTR; (iv) no
governmental authority shall have promulgated any statute, rule or regulation
which, when taken together with all such promulgations, would materially impair
the value of PACIFIC to PTR; and (v) PTR shall have received an opinion of
Mayer, Brown and Platt, special counsel to PACIFIC, to the effect that the
performance of the Merger Agreement shall not jeopardize the status of PTR as a
REIT.
Rights to Acquire PACIFIC Common Stock. Unaffiliated third parties own
warrants to acquire 200,000 shares of PACIFIC Common Stock at an exercise price
of $10.00 per share, subject to adjustment to prevent dilution. In connection
with the Merger, the holders of the warrants will automatically, and without
any action on the part of such holders, obtain the right to exercise such
warrants (subject to the provisions thereof and at the same aggregate exercise
price), for the same number of PTR Common Shares as such holders could have
received pursuant to the Merger had such warrants been exercised immediately
prior to the Effective Time. In addition, in connection with the acquisition of
a property, PACIFIC has agreed to issue a warrant to acquire 30,000 shares of
PACIFIC Common Stock at $10 per share, subject to adjustments to prevent
dilution. Additionally, the seller has the option to receive a portion of the
purchase price in cash or shares of PACIFIC Common Stock at a price of $10 per
share (representing approximately 175,800 shares).
Termination. The Merger Agreement may be terminated at any time prior to the
Closing Date (i) by mutual consent of PTR and PACIFIC; (ii) by either PTR or
PACIFIC after April 30, 1995, if the Merger has not been consummated on or
before such date (so long as the party terminating has not breached its
obligations under the Merger Agreement except for such breaches that are
immaterial); (iii) unilaterally by either PTR or PACIFIC if (a) the other party
fails to perform any covenant or agreement in the Merger Agreement in any
material respect and does not cure such failure in all material respects within
15 business days after receipt of written notice of the alleged failure from
the other party, (b) the other party fails to fulfill or complete a condition
to the obligations of that party (which condition is not waived) by reason of a
breach by that party of its obligations in the Merger Agreement or (c) any
condition to the obligations of the other party is not satisfied (other than by
reason of a breach by that party of its obligations under the Merger
Agreement), and it reasonably appears that the condition cannot be satisfied
prior to April 30, 1995; (iv) unilaterally by PTR if the PACIFIC Board fails to
recommend that its shareholders approve the Merger Agreement and the
transactions contemplated thereby or withdraws such recommendation or PACIFIC
takes any action described above under "--No Solicitation of Other
Transactions;" or (v) unilaterally by PACIFIC if the PTR Board fails to
recommend that its shareholders approve the Merger Agreement and the
transactions contemplated thereby or withdraws such recommendation.
In the event of termination of the Merger Agreement by either PTR or PACIFIC
as provided above, the Merger Agreement will become void and there will be no
further obligation on the part of either PTR or PACIFIC or their respective
officers and trustees or directors (except as set forth in certain provisions
of the Merger Agreement, including the expense reimbursement fees described
under "--Expenses").
Amendment and Waiver. Subject to applicable law, the Merger Agreement may be
amended by the written agreement of PTR, PACIFIC and Security Capital Group.
Under applicable law, neither PTR nor PACIFIC may amend the Merger Agreement
subsequent to obtaining approval of their respective shareholders if such
amendments would (i) alter or change the amount or kind of shares, securities,
cash, property and/or rights to be received in exchange for shares of PACIFIC
Common Stock, (ii) alter or change any term of the PTR Declaration of Trust as
the surviving entity following the Merger (other than as contemplated by the
Merger Agreement) or (iii) alter or change any of the terms or conditions of
the Merger Agreement if such alteration or change would adversely affect the
shareholders of PTR or PACIFIC.
REGULATORY FILINGS AND APPROVALS
The Merger is not subject to the pre-merger notification and filing
requirements of Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, as a result of the status of PTR as a REIT and of PACIFIC's
undertaking to elect to be taxed as a REIT.
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<PAGE>
RESTRICTIONS ON SALES BY AFFILIATES
The PTR Common Shares to be issued in the Merger will have been registered
under the Securities Act. Such shares will be freely transferable under the
Securities Act, except for shares issued to any person who may be deemed to be
an affiliate (as such term is defined for purposes of Rule 145 under the
Securities Act, an "Affiliate") of PACIFIC or PTR. Affiliates may not sell
their PTR Common Shares acquired in connection with the Merger except pursuant
to (i) an effective registration statement under the Securities Act covering
such shares, (ii) paragraph (d) of Rule 145 or (iii) any other applicable
exemption under the Securities Act. PACIFIC has agreed to use its best efforts
to procure written agreements ("Affiliate Agreements") from executive officers,
directors and other Affiliates of PACIFIC containing appropriate
representations and commitments intended to ensure compliance with the
Securities Act. It is a condition of PTR's obligations to consummate the Merger
that PTR shall have received such Affiliate Agreements from each Affiliate of
PACIFIC.
ACCOUNTING TREATMENT
The transactions to be accomplished as a result of the Merger will be
accounted for under the purchase method of accounting in accordance with GAAP.
LISTING ON NYSE
PTR has agreed to use its best efforts to list the PTR Common Shares to be
issued in the Merger on the NYSE. The obligations of the parties to the Merger
Agreement to consummate the Merger are subject to authorization for listing by
the NYSE upon notice of issuance of such shares. See "--The Merger Agreement--
Conditions to the Merger."
EXPENSES
The Merger Agreement provides that, whether or not the Merger is consummated,
all expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses, except that expenses incurred in connection with filing, printing and
distributing this Joint Proxy/Information Statement and Prospectus will be paid
by PTR. See "Expenses of Solicitation." No special fees or commissions were or
will be paid to PTR's REIT Manager or PACIFIC's REIT Manager, or their
respective affiliates, in connection with the Merger.
DISSENTERS' RIGHTS
Under Maryland law, certain relevant sections of which are attached to this
Joint Proxy/Information Statement and Prospectus as Annex III and are
incorporated herein by reference, each holder of PACIFIC Common Stock will be
entitled to demand and receive payment of the "fair value" of his or her shares
in cash, if he or she (i) prior to or at the PACIFIC Special Meeting, files
with PACIFIC a written objection to the Merger, (ii) does not vote in favor of
the Merger by person or by proxy and (iii) within 20 days after Articles of
Merger have been accepted for record by the Maryland Department, makes written
demand on PTR for payment of his or her shares, stating the number and class of
shares for which payment is demanded. A written objection to the Merger or
demand for payment should be sent to PACIFIC at 7777 Market Center Avenue, El
Paso, Texas 79912, Attn: Paul E. Szurek, Secretary. Any shareholder who fails
to comply with the requirements described above will be bound by the terms of
the Merger.
PTR will promptly deliver or mail to each PACIFIC shareholder complying with
the procedures described above written notice of the date of acceptance of the
Articles of Merger for record by the Maryland Department. Within 50 days after
acceptance of the Articles of Merger for record by the Maryland Department, any
such shareholder who has not received payment for his or her shares may
petition a court of equity in Baltimore City, Maryland, for an appraisal to
determine the "fair value" of such shares. If the
36
<PAGE>
court finds that a shareholder is entitled to appraisal of his or her stock,
the court will appoint three disinterested appraisers to determine the "fair
value" of such shares on terms and conditions the court considers proper, and
the appraisers will, within 60 days after appointment (or such longer period as
the court may direct), file with the court and mail to each party to the
proceeding their report stating their conclusion as to the "fair value" of the
shares. Within 15 days after the filing of the report, any party may object to
the report and request a hearing thereon. The court will, upon motion of any
party, enter an order either confirming, modifying or rejecting the report and,
if confirmed or modified, enter judgment directing the time within which
payment must be made. If the appraisers' report is rejected, the court may
determine the "fair value" of the shares of the shareholders requesting
appraisal or may remit the proceeding to the same or other appraisers. Any
judgment entered pursuant to a court proceeding will include interest from the
date of the shareholders' vote related to the transaction giving rise to the
rights of appraisal, unless the court finds that the shareholder's refusal to
accept a written offer to purchase the stock which may previously have been
made by PTR in accordance with Section 3-207 of the Maryland General
Corporation Law (the "MGCL"), was arbitrary and vexatious or not in good faith.
Costs of the proceeding (not including attorney's fees) will be determined by
the court and will be assessed against PTR or, under certain circumstances, the
shareholder requesting appraisal, or both.
At any time after the filing of a petition for appraisal, the court may
require any shareholder requesting appraisal to submit his or her PACIFIC
Certificates to the clerk of the court for notation of the pendency of the
appraisal proceedings. In order to receive payment, whether by agreement with
PTR or pursuant to a judgment, the shareholder must surrender the PACIFIC
Certificates endorsed in blank and in proper form for transfer. A shareholder
demanding payment for shares will not have the right to receive any dividends
or distributions payable to holders of record after the close of business on
the date of the shareholders' vote and shall cease to have any rights as a
shareholder with respect to the shares except the right to receive payment of
the "fair value" thereof. The shareholder's rights may be restored only upon
the withdrawal, with the consent of PTR, of the demand for payment, failure of
either party to file a petition for appraisal within the time required, a
determination of the court that the shareholder is not entitled to an appraisal
or the abandonment or rescission of the Merger.
The foregoing summary of the rights of shareholders requesting appraisal
contains all material information relating to the exercise of appraisal rights
but does not purport to be a complete statement of the procedures to be
followed by shareholders desiring to exercise their rights requesting
appraisal. The preservation and exercise of appraisal rights are conditioned on
strict adherence to the applicable provisions of the MGCL. Each shareholder
desiring to exercise appraisal rights should refer to Title 3, Subtitle 2,
entitled "Rights of Objecting Shareholders," of the MGCL (a copy of which is
attached hereto as Annex III and incorporated herein by reference) for a
complete statement of the shareholder's rights and the steps which must be
followed in connection with the exercise of those rights.
Holders of PTR Common Shares are not entitled to dissenters' or appraisal
rights in connection with the Merger.
For further information relating to the exercise of appraisal rights, see
Annex III to this Joint Proxy/ Information Statement and Prospectus.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Following the Effective Time, the business and operations of PTR will
continue to be managed under the direction of the PTR Board, consisting of
Messrs. C. Ronald Blankenship, Calvin K. Kessler, James H. Polk, III, John C.
Schweitzer, William G. Myers, John T. Kelley, III and James A. Cardwell. Each
of PTR's executive officers will continue in office following the Merger.
Through the integration of PACIFIC's REIT Manager with PTR's REIT Manager, PTR
will add development, operating and acquisition expertise in PACIFIC's target
market. Certain trustees of PTR will continue to serve in various capacities
with affiliates of Security Capital Group. Mr. Myers was recently elected a
trustee of Security Capital Industrial Trust, a NYSE listed REIT affiliated
with Security Capital Group.
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<PAGE>
PTR does not currently anticipate any material changes in its investment
strategies or policies or distribution policy in connection with the Merger,
other than the resulting expansion of its existing target market. Neither PTR
nor PACIFIC has any present plans for disposition of material assets; however,
based on PTR's market research and in an effort to optimize its portfolio
allocation, PTR may from time to time seek to dispose of assets that in
management's view do not meet PTR's long term investment criteria and redeploy
the proceeds therefrom, preferably through like-kind exchanges, into assets
that it believes provide better long term growth opportunities.
THE SPECIAL MEETINGS
PURPOSE OF THE MEETINGS
At the Special Meetings, the holders of PTR Common Shares and PACIFIC Common
Stock will be asked to consider and vote upon a proposal to approve and adopt
the Merger Agreement and the transactions contemplated thereby pursuant to
which, among other things, (i) PACIFIC will be merged with and into PTR, (ii)
each share of PACIFIC Common Stock outstanding immediately prior to
consummation of the Merger will be converted into the right to receive 0.611 of
a PTR Common Share, except that cash will be paid in lieu of any fractional PTR
Common Share which a shareholder of PACIFIC may otherwise be entitled to
receive and (iii) PTR's name will be changed to "Security Capital Pacific
Trust." A copy of the Merger Agreement is attached as Annex I to this Joint
Proxy/Information Statement and Prospectus and is incorporated herein by
reference.
DATE, TIME AND PLACE; RECORD DATE
The PTR Special Meeting is scheduled to be held at 10:00 a.m., local time, on
Thursday, March 23, 1995, at the Old El Paso Room, Seventh Floor, State
National Bank Plaza, El Paso, Texas. The PTR Board has fixed the close of
business on February 21, 1995 as the record date (the "PTR Record Date") for
the determination of holders of PTR Common Shares entitled to notice of and to
vote at the PTR Special Meeting. On February 9, 1995, there were 50,456,038 PTR
Common Shares outstanding held of record by approximately 3,500 shareholders.
As of February 9, 1995, Security Capital Group and PTR's trustees and executive
officers beneficially owned an aggregate of 16,219,161 shares or approximately
32.2% of the outstanding PTR Common Shares. Security Capital Group has agreed,
and each of such other persons has indicated its intent, to vote its shares in
favor of the Merger Agreement and the transactions contemplated thereby.
The PACIFIC Special Meeting is scheduled to be held at 9:00 a.m., local time,
on Thursday, March 23, 1995, at State National Bank Plaza, 20th Floor, El Paso,
Texas. The PACIFIC Board has fixed the close of business on February 21, 1995
as the record date (the "PACIFIC Record Date"; the PTR Record Date and the
PACIFIC Record Date are referred to as the "Record Dates") for the
determination of holders of PACIFIC Common Stock entitled to notice of and to
vote at the PACIFIC Special Meeting. On February 9, 1995, there were 13,860,000
shares of PACIFIC Common Stock outstanding held of record by 129 shareholders.
As of February 9, 1995, Security Capital Group and directors and executive
officers of PACIFIC beneficially owned an aggregate of 13,552,825 shares or
approximately 97.8% of the outstanding PACIFIC Common Stock. Security Capital
Group has agreed, and each of such other persons has indicated its intent, to
vote its shares in favor of the Merger Agreement and the transactions
contemplated thereby. PACIFIC is not soliciting proxies from its shareholders
for use at the PACIFIC Special Meeting and PACIFIC shareholders are requested
not to send a proxy.
VOTING RIGHTS
The affirmative vote of the holders of at least two-thirds of the outstanding
PTR Common Shares and at least two-thirds of the outstanding shares of PACIFIC
Common Stock is required to approve and adopt the Merger Agreement and the
transactions contemplated thereby. Holders of record of PTR Common Shares and
PACIFIC Common Stock on the Record Dates are entitled to one vote per share at
the Special Meetings.
38
<PAGE>
The presence, either in person or by proxy, of the holders of a majority of the
outstanding PTR Common Shares and the outstanding shares of PACIFIC Common
Stock is necessary to constitute a quorum at the Special Meetings.
If a shareholder attends the Special Meetings, he or she may vote by ballot.
However, since many PTR shareholders may be unable to attend the PTR Special
Meeting, the PTR Board is soliciting proxies so that each holder of PTR Common
Shares on the PTR Record Date has the opportunity to vote on the proposals to
be considered at the PTR Special Meeting. When a proxy card is returned
properly signed and dated, the PTR Common Shares represented thereby will be
voted in accordance with the instructions on the proxy card. If a PTR
shareholder does not return a signed proxy card, his or her PTR Common Shares
will not be voted and thus will have the effect of a vote against the Merger
Agreement and the transactions contemplated thereby. Similarly, an abstention
will also have the effect of a vote against the Merger Agreement and the
transactions contemplated thereby. Broker non-votes are not entitled to vote
because they indicate the withholding of power to vote on a specific matter and
therefore have the effect of a vote against the Merger Agreement and the
transactions contemplated thereby. PTR shareholders are urged to mark the box
on the proxy card to indicate how their PTR Common Shares are to be voted. If a
PTR shareholder returns a signed proxy card, but does not indicate how his or
her PTR Common Shares are to be voted, the shares represented by the proxy card
will be voted "FOR" approval and adoption of the Merger Agreement and the
transactions contemplated thereby. The proxy card also confers discretionary
authority on the individuals appointed by the PTR Board and named on the proxy
card to vote the shares represented thereby on any other matter that is
properly presented for action at the PTR Special Meeting.
Any PTR shareholder who executes and returns a proxy card may revoke such
proxy at any time before it is voted by (i) notifying in writing the Secretary
of PTR at 7777 Market Center Avenue, El Paso, Texas 79912, (ii) granting a
subsequent proxy or (iii) appearing in person and voting at the PTR Special
Meeting. Attendance at the PTR Special Meeting will not in and of itself
constitute revocation of a proxy. PACIFIC shareholders desiring to vote on the
Merger Agreement and the transactions contemplated thereby must appear at the
PACIFIC Special Meeting or grant a proxy to a person who will attend. PACIFIC
is not asking its shareholders for a proxy and PACIFIC shareholders are
requested not to send a proxy.
INFORMATION CONCERNING PACIFIC
BUSINESS
Through PACIFIC's REIT Manager, PACIFIC engages in development, acquisition,
operation and long term ownership of multifamily properties in a six-state
region of the western United States. PACIFIC currently owns and operates or is
developing 6,543 multifamily units, including three properties to be acquired
within 40 days of the date of this Joint Proxy/Information Statement and
Prospectus. The aggregate pro forma investment cost, including planned
renovations and budgeted development costs, of all of these properties is
$295.9 million as of September 30, 1994. PACIFIC seeks to achieve long term
sustainable growth in cash flow and distributions through a commitment to
fundamental real estate research, actively reviewing and reallocating assets to
product types and submarkets with strong growth prospects, developing
multifamily product designed for the largest renter groups and making
opportunistic acquisitions.
The projected job growth of PACIFIC's primary target market is 28.09% for the
years 1994 through 2015, whereas the projected job growth for the United States
as a whole is 22.40%. For the same time period, population growth is projected
to be 33.88% in PACIFIC's primary target market and 19.23% in the United States
as a whole. The foregoing information is based upon information published by
Woods & Poole Economics, Inc.
A review of market information in PACIFIC's primary target market indicates
that the number of multifamily units for which building permits have been
issued has declined significantly from mid-1980 levels. In 1985, 17,735 units
were permitted as compared to 6,599 units permitted through September 30, 1994.
39
<PAGE>
PROPERTIES
The following table sets forth certain information about PACIFIC's properties
owned at September 30, 1994, including four properties subsequently acquired
and three properties to be acquired within 40 days of the date of this Joint
Proxy/Information Statement and Prospectus.
<TABLE>
<CAPTION>
DATE ACQUIRED PERCENTAGE RENTAL PACIFIC LONG-TERM
METROPOLITAN AREA OR COMPLETED LEASED UNITS PER UNIT INVESTMENT(1) MORTGAGE DEBT
----------------- ------------- ---------- ----- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING PROPERTIES:
Las Vegas, Nevada:
King's Crossing(2)... 2/03/94 95.0% 440 $616 $ 19,639,670 $ --
Sunterra............. 3/18/94 95.5 444 532 14,421,605 8,428,369(3)
Horizons at Peccole
Ranch(2)............ 6/28/94 95.6 408 632 21,734,646 --
The Hamptons(2)...... 7/27/94 91.0 492 562 20,133,834 --
Anchor Village....... 10/26/94 92.8 896 626 40,420,407 26,899,361(4)
Portland, Oregon:
Double Tree(2)....... 11/16/93 92.7 245 547 10,695,197 --
Knight's Castle...... 11/16/93 95.0 296 579 13,518,037 7,781,842(5)
Squire's Court(2).... 11/16/93 97.5 235 586 11,203,680 --
Club at the Green(2). 12/16/93 94.1 254 625 11,358,973 --
Riverwood Heights(2). 12/16/93 99.6 240 615 10,166,734 --
Meridian at
Murrayhill(2)....... 9/23/94 95.5 312 692 16,995,087 --
Double Tree Phase II. * 95.0 124 610 6,750,000 4,817,000(9)
Salt Lake City, Utah:
Greenpointe.......... 3/18/94 94.3 192 483 6,183,091 3,762,949(6)
Mountain Shadow...... 3/18/94 96.6 174 512 5,761,388 3,454,768(7)
Cherry Creek......... 1/17/95 95.2 225 500 8,835,000 4,310,000(8)
Seattle, Washington:
Walden Pond.......... 10/21/94 92.7 316 623 13,739,441 --
Logan's Ridge........ 12/30/94 95.0 258 645 13,385,000 --
Matanza Creek........ * 96.5 152 628 6,849,000 --
---- ----- ---- ------------ -----------
Total Operating
Properties........ 94.8% 5,703 $596 251,790,790 59,454,289
==== ===== ==== ============ ===========
DEVELOPMENTS IN
PLANNING:
Reno, Nevada:
Reno Vista Ridge..... 5/13/94 n/a 324 n/a 17,857,146 --
Salt Lake City, Utah:
Remington............ 7/26/94 n/a 288 n/a 15,049,022 --
Portland, Oregon:
Scholls Ferry........ * n/a 228 n/a 11,170,682 --
----- ------------ -----------
Total Developments
in Planning....... 840 n/a 44,076,850 --
----- ------------ -----------
TOTALS............. 6,543 $295,867,640 $59,454,289
===== ============ ===========
</TABLE>
- --------
*To be acquired within 40 days of the date of this Joint Proxy/Information
Statement and Prospectus.
n/a Not applicable.
(1) Represents cost, including planned renovations, for properties owned at
September 30, 1994. Represents acquisition cost, including planned
renovations, for 2,199 multifamily units acquired after such date or to be
acquired within 40 days of the date of this Joint Proxy/Information
Statement and Prospectus. Represents budgeted development cost which
includes the cost of land, fees, permits, payments to contractors,
architectural and engineering fees and interest and property taxes to be
capitalized during the construction period for properties under
development.
(2) Pledged to secure PACIFIC's $75 million revolving line of credit.
(3) This mortgage bears interest at 8.25% per annum and matures on March 1,
2000. A payment of approximately $7.6 million is due upon maturity.
(4) This mortgage bears interest at 7.875% per annum and matures on December 1,
1998. A payment of approximately $25.1 million is due upon maturity.
(5) This mortgage bears interest at 6.56% per annum and matures on October 1,
1996. A payment of approximately $7.5 million is due upon maturity.
(6) This mortgage bears interest at 8.5% per annum and matures on March 1,
2000. A payment of approximately $3.4 million is due upon maturity.
(7) This mortgage bears interest at 8.5% per annum and matures on March 1,
2000. A payment of approximately $3.1 million is due upon maturity.
(8) These bonds have an all-in interest rate of 8.04% per annum and mature on
November 1, 2001. A payment of approximately $2.6 million is due upon
maturity.
(9) This mortgage bears interest at 8.25% per annum and matures on June 1,
2034.
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<PAGE>
PACIFIC's multifamily properties are primarily garden style, two-story
multifamily dwellings which range in size from 124 units to 896 units. PACIFIC
believes that its multifamily communities generally occupy strategic locations
in growing submarkets. The average unit size for properties operating, under
development and in planning is 870 square feet, with 68.6% of the units having
two or more bedrooms. A majority of units have washer/dryer connections and
walk-in closets, which PACIFIC REIT Management believes substantially enhance
marketability. PACIFIC improves attractiveness by investing in extensive
landscaping when developing or repositioning multifamily units. Other features
frequently included in PACIFIC's multifamily communities are swimming pools,
playgrounds, volleyball courts, fitness centers and community rooms.
Geographic Distribution
PACIFIC's multifamily properties are located in five metropolitan areas in
four states. The table below demonstrates the geographic distribution of
PACIFIC's equity real estate investments at September 30, 1994 including four
properties subsequently acquired and three properties to be acquired within 40
days of this Joint Proxy/Information Statement and Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
PERCENTAGE
NUMBER OF OF ASSETS
PROPERTIES BASED ON COST(1)
---------- ----------------
<S> <C> <C>
Las Vegas, Nevada............................. 5 39%
Portland, Oregon.............................. 8 31
Reno, Nevada.................................. 1 6
Salt Lake City, Utah.......................... 4 12
Seattle, Washington........................... 3 12
--- ---
Total..................................... 21 100%
=== ===
</TABLE>
- --------
(1) Represents cost, including planned renovations, for properties owned at
September 30, 1994. Represents acquisition cost, including planned
renovations, for 2,199 multifamily units acquired after such date or to be
acquired within 40 days of this Joint Proxy/Information Statement and
Prospectus. Represents budgeted development cost for properties under
development.
LEASES
PACIFIC uses a variety of lease forms to comply with applicable state and
local laws and custom. At some properties, PACIFIC uses leases provided or
recommended by state or local apartment associations. At other properties,
PACIFIC uses a standard company lease modified if necessary to comply with
local law or custom. The term of a lease varies with local market conditions;
however, one-year leases are most common. Generally, the leases provide that
unless the parties agree in writing to a renewal, the tenancy will convert at
the end of the lease term to a month-to-month tenancy, subject to the terms and
conditions of the lease, unless either party gives the other at least 30 days'
prior notice of termination. All leases are terminable by PACIFIC for
nonpayment of rent, violation of property rules and regulations or other
specified defaults.
REIT MANAGEMENT
PACIFIC has no employees. PACIFIC's REIT Manager, whose sole activity is
managing PACIFIC, manages the day-to-day operations of PACIFIC. All officers of
PACIFIC are employees of PACIFIC's REIT Manager. Hence, PACIFIC depends upon
the quality of the management provided by PACIFIC's REIT Manager. For a
description of the fees payable to PACIFIC's REIT Manager, see "--Management's
Discussion and Analysis of Financial Condition and Results of Operations--REIT
Management Agreement." PACIFIC and PACIFIC's REIT Manager have agreed to
terminate the PACIFIC REIT Management Agreement subject to the consummation of
the Merger.
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<PAGE>
Officers of PACIFIC's REIT Manager. Each of the following persons is expected
to become an officer of PTR's REIT Manager upon consummation of the Merger:
MARK J. CHAPMAN--37--Vice President of PACIFIC since November 1994, where he
is a member of the asset management group; from July 1989 to November 1994,
Vice President at Copley Real Estate Advisors, Inc. where he directed asset
management for Copley assets located from Connecticut to Virginia, valued in
excess of $1.5 billion; prior thereto, Director of Asset Management for Liberty
Real Estate with responsibility for assets east of the Mississippi River,
including multifamily, office and retail properties.
RICHARD W. DICKASON--38--Vice President of PACIFIC since December 1993, where
he is a member of the development group; from July 1992 to September 1993,
President at J.M. Peters Company/Capital Pacific Homes, where he acquired
property for the development of single family homes and apartments; from May
1980 to January 1992, Partner and Vice President of Lincoln Property Company
N.C. Inc. where he was responsible for the acquisition, development,
construction and management of a sizable multifamily residential portfolio in
the California marketplace; prior thereto, Mr. Dickason represented private
investors in the development of condominiums, townhouses, shopping centers and
single-family homes throughout California.
JOSEPH G. DICRISTINA--35--Vice President of PACIFIC since August 1994, where
he is a member of the development group; prior thereto, Vice President of
Forward Planning at Robertson Homes.
W. GEOFFREY JEWETT--46--Vice President of PACIFIC since November 1994, where
he is a member of the asset management group; from May 1994 to November 1994,
Vice President of Security Capital (Atlantic) Incorporated where he had overall
responsibility for the acquisitions group; from September 1993 to April 1994,
Mr. Jewett was involved with and then had overall responsibility for
acquisitions for PACIFIC; prior thereto, Vice President of LaSalle Partners
Limited in its acquisitions and property finance group where he provided
investment property sale, financing and acquisition services on behalf of
corporate and institutional clients throughout the western United States.
JOHN JORDANO III--38--Vice President of PACIFIC since August 1994, where he
is a member of the development group; from January 1992 to July 1994, Senior
Vice President of Prospect Partners where he was responsible for identifying
and advising individual and corporate clients on financial institution and
Resolution Trust Corporation REO apartment acquisition and investment
opportunities in the western United States; prior thereto, Partner with
Trammell Crow Residential Company where he established the Sacramento office
and was responsible for the development of multifamily projects.
GREGG A. PLOUFF--39--Vice President of PACIFIC since July 1994, and a member
of the acquisitions group since November 1993; prior to November 1993, Mr.
Plouff served in an acquisitions consulting capacity for PTR; prior thereto,
Mr. Plouff was with Trammell Crow Residential, most recently as a partner,
where he was involved with residential development in the Dallas, Chicago and
southern California markets.
K. BRUCE WEBSTER--38--Senior Vice President of PACIFIC since October 1994,
where he has responsibility for PACIFIC's portfolio performance and asset
management; from June 1993 to November 1994, Vice President of Asset Management
at Irvine Apartment Communities with responsibility for property operations,
portfolio performance and long-term positioning; prior thereto, President and
Chief Operating Officer of Trammell Crow Residential Services North where he
had responsibility and accountability for management company operations and
property performance in the midwestern and northeastern United States.
DAVID B. WOODWARD--28--Vice President of PACIFIC since November 1993, where
he has overall responsibility for asset management services; from June 1993 to
October 1993, Mr. Woodward was with PTR where he was a member of the asset
management group; prior thereto, asset manager with USF&G's Real Estate
Division.
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<PAGE>
COMPETITION
In general, there are numerous other multifamily properties located in close
proximity to each of PACIFIC's properties. The number of multifamily units
available in any target market city could have a material effect on PACIFIC's
capacity to rent space and on the rents charged. In addition, in many of
PACIFIC's submarkets, institutional investors and owners and developers of
multifamily properties compete for the acquisition, development and leasing of
multifamily properties. Many of these persons have substantial resources and
experience.
REGULATION AND INSURANCE
Environmental Assessments. Under various federal, state and local laws,
ordinances and regulations, a current or previous owner, developer or operator
of real estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances at, on, under or in its property. The costs of
such removal or remediation of such substances could be substantial.
PACIFIC has not been notified by any governmental authority of any non-
compliance, liability, or other claim in connection with any of the properties
currently owned or being acquired, and PACIFIC is not aware of any
environmental condition with respect to any of the properties, which is likely
to be material. PACIFIC has subjected each of its properties to a Phase I
environmental assessment (which does not involve invasive procedures such as
soil sampling or ground water analysis) by independent consultants. While some
of these assessments have led to further investigation and sampling, none of
the environmental assessments has revealed, nor is PACIFIC aware of, any
environmental liability (including asbestos related liability) that PACIFIC's
REIT Manager believes would have a material adverse effect on PACIFIC's
business, financial condition or results of operations. No assurance can be
given, however, that these assessments and investigations reveal all potential
environmental liabilities, that no prior owner or operator created any material
environmental condition not known to PACIFIC or the independent consultants or
that future uses and conditions (including, without limitation, tenant actions
or changes in applicable environmental laws and regulations) will not result in
the imposition of environmental liabilities.
Other Regulations. The Fair Housing Amendments Act of 1988 ("FHA") and the
Americans with Disabilities Act ("ADA") require apartment communities to be
accessible to or to accommodate the handicapped or persons with disabilities.
Noncompliance with the FHA or the ADA could result in the imposition of fines,
injunctive relief or an award of damages to private litigants. PACIFIC believes
that its properties that are subject to the FHA or the ADA are in compliance
with such laws.
Insurance Coverage. PACIFIC REIT Management believes that all of PACIFIC's
properties are adequately insured; however, an uninsured loss could result in
loss of capital investment and anticipated profits.
LEGAL PROCEEDINGS
Except as described under "Information Concerning PTR--Certain Relationships
and Transactions--Recent Developments," PACIFIC is not currently, but from time
to time may be, a party to a variety of legal proceedings arising in the
ordinary course of its business. Such matters generally are not expected to
have a material adverse impact on PACIFIC.
43
<PAGE>
SELECTED FINANCIAL DATA
The following table contains selected financial data for PACIFIC for the
period ended December 31, 1993 and for the nine months ended September 30,
1994. The data was derived from the financial statements of PACIFIC included
elsewhere in this Joint Proxy/Information Statement and Prospectus and should
be read in conjunction with the detailed information and financial statements
for the related period, including the notes thereto. Results of operations for
the nine months ended September 30, 1994 are not necessarily indicative of
results that may be expected for the year as a whole.
<TABLE>
<CAPTION>
NINE MONTHS ENDED PERIOD ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993(1)
------------------ --------------------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
OPERATIONS SUMMARY:
Rental Income.......................... $ 12,635 $ 797
Total Revenues......................... 12,656 797
General and Administrative Expenses.... 57 1
REIT Management Fee.................... 1,073 75
Net Earnings........................... 3,854 267
Common Stock Distributions............. $ 3,604 $ --
PER SHARE DATA:
Net Earnings........................... $ 0.44 $ 0.14
Book Value per Share of Common Stock... 10.04 10.06
Common Stock Distributions............. $ 0.42 $ --
Weighted Average Number of Shares of
Common Stock Outstanding.............. 8,702 1,949
OTHER DATA:
Net Cash Provided by Operating
Activities............................ $ 4,523 $ 473
Net Cash Used by Investing Activities.. (92,370) (47,777)
Net Cash Provided by Financing
Activities............................ $ 88,584 $ 47,791
<CAPTION>
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ --------------------
<S> <C> <C>
FINANCIAL POSITION:
Real Estate Owned, at cost............. $163,787 $ 55,666
Total Assets........................... 166,058 56,576
Mortgages Payable...................... 23,428 7,879
Total Liabilities...................... 26,941 8,508
Stockholders' Equity................... $139,117 $ 48,068
Number of Shares of Common Stock
Outstanding........................... 13,860 4,780
</TABLE>
- --------
(1) Reflects operations of PACIFIC from October 22, 1993 (the date of its
inception).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
From its inception in October 1993 through August 1994, PACIFIC was a wholly
owned subsidiary of Security Capital Group. PACIFIC's operating results depend
primarily upon income from multifamily properties, which is substantially
influenced by (i) the demand for and supply of multifamily units in PACIFIC's
primary target market and submarkets, (ii) operating expense levels and (iii)
the pace and price at which PACIFIC can acquire and develop additional
multifamily properties. PACIFIC's target market cities and submarkets have
benefitted substantially in recent periods from demographic trends (including
population and job growth) which increases the demand for multifamily units
while financing constraints
44
<PAGE>
(specifically, reduced availability of development capital) have limited new
construction to levels substantially below construction activity in prior
years. Consequently, rental rates for multifamily units have increased at or
about the inflation rate for the last two years and are expected to continue to
experience such increases for the next twelve months based on market research
conducted in each target market by Security Capital (U.S.) Investment Research
Incorporated in terms of occupancy rates, supply, demographic factors, job
growth rates and recent rental trends. Expense levels also influence operating
results, and rental expenses (other than real estate taxes) for multifamily
properties have generally increased at approximately the rate of inflation for
the past year and are expected to increase at the rate of inflation for the
next twelve months.
Results of Operations
Nine Months Ended September 30, 1994
During the nine months ended September 30, 1994, PACIFIC acquired seven
operating multifamily properties aggregating 2,462 units for a total purchase
price, including planned renovations, of approximately $105.8 million. From
October 22, 1993 (date of inception) through December 31, 1993, PACIFIC
acquired 1,270 units for a total purchase price, including planned renovations,
of approximately $56.9 million. During the nine month period ended September
30, 1994, rental income increased $11,838,000, depreciation increased
$1,752,000 and interest expense increased $939,000 over the two month period
ended December 31, 1993, as a result of the aforementioned transactions and a
longer reporting period.
Interest and other income was $21,000 for the nine months ended September 30,
1994. This income was primarily derived from short term investment of cash and
cash equivalents. Interest expense was $1.0 million for the nine months ended
September 30, 1994. This expense was primarily attributable to mortgage notes
assumed in connection with the acquisition of multifamily properties.
The REIT management fee paid by PACIFIC for the nine months ended September
30, 1994 was $1,073,000. The REIT management fee fluctuates with the level of
cash flow and will, therefore, increase as PACIFIC acquires additional
properties.
Period Ended December 31, 1993
During the period from October 22, 1993 (date of inception) through December
31, 1993, PACIFIC acquired five operating multifamily properties aggregating
1,270 units for a total purchase price, including planned renovations, of
approximately $56.9 million. For operating multifamily properties, rental
expenses were 32.6% of rental revenues for the period ended December 31, 1993.
Interest expense was $64,000 for the period ended December 31, 1993. This
expense was primarily attributable to mortgage notes assumed in connection with
the acquisition of multifamily properties.
The REIT management fee paid by PACIFIC for the period ended December 31,
1993 was $75,000. The REIT management fee fluctuates with the level of cash
flow and will, therefore, increase as PACIFIC acquires additional properties.
Liquidity and Capital Resources
Since its inception, PACIFIC has received an aggregate of $138,600,000 of
proceeds from the issuance of shares of PACIFIC Common Stock of which
$135,288,250 has been funded by Security Capital Group. PACIFIC used the net
proceeds from the offerings to acquire and develop multifamily properties.
In October 1994, PACIFIC entered into a $75 million secured revolving line of
credit with Wells Fargo Realty Advisors Funding ("Wells Fargo"), as agent. The
line of credit bears interest at prime or, at
45
<PAGE>
PACIFIC's option, LIBOR plus 2%, and is scheduled to mature in October 1997.
This line may be extended annually for an additional year with the approval of
Wells Fargo. All debt incurrences are subject to a covenant that PACIFIC
maintain a debt to tangible net worth ratio of not greater than 1 to 1.
Additionally, PACIFIC is required to maintain an adjusted net worth (as
defined) of at least $120 million and to maintain interest payment coverage (as
defined) of not less than 2 to 1. PACIFIC is in compliance with all covenants
and $45.3 million of borrowings are currently outstanding.
From its inception in October 1993 through September 30, 1994, PACIFIC had
invested $163.8 million for the acquisition and development of 4,344
multifamily units. These purchases and developments were financed with cash on
hand, the assumption of existing mortgage debt, capital contributions from
Security Capital Group and proceeds from PACIFIC's $10 million private
offering.
At September 30, 1994, PACIFIC had $30.2 million of budgeted development
costs for developments in planning, of which $25.7 million was unfunded. In
addition, at September 30, 1994, PACIFIC had letters of intent or contingent
contracts, subject to PACIFIC's final due diligence, for the acquisition of, or
was in the initial development stages for, 1,986 multifamily units in various
target market cities with an aggregate acquisition, improvement and development
cost of $92.1 million. The foregoing transactions are subject to a number of
conditions, and PACIFIC cannot predict with certainty that any of them will be
consummated.
PACIFIC expects to finance construction, development and acquisitions
primarily with cash on hand, borrowings under its line of credit and additional
capital contributions from Security Capital Group.
PACIFIC's REIT Manager considers PACIFIC's liquidity and ability to generate
cash to be adequate and expects it to continue to be adequate to meet PACIFIC's
acquisition, development, operating and shareholder distribution requirements.
PACIFIC's current distribution policy is to pay quarterly distributions to
shareholders based upon what PACIFIC REIT Management considers to be a
reasonable percentage of cash flow. Because depreciation is a non-cash expense,
cash flow will typically be greater than earnings from operations and net
earnings. Therefore, quarterly distributions will consistently be higher than
quarterly earnings.
Net cash flow provided by operating activities was $473,000 for the period
ended December 31, 1993 and $4.5 million for the nine months ended September
30, 1994. PACIFIC's investment activities used approximately $47.8 million in
the period ended December 31, 1993 and $92.4 million in the nine months ended
September 30, 1994.
After deducting distributions to shareholders, PACIFIC's financing activities
provided net cash flow of $47.8 million for the period ended December 31, 1993
and $88.6 million for the nine months ended September 30, 1994.
REIT Management Agreement
Effective October 22, 1993 PACIFIC entered into an agreement (the "PACIFIC
REIT Management Agreement") pursuant to which PACIFIC's REIT Manager assumed
the day-to-day management of PACIFIC. PACIFIC's REIT Manager is a wholly owned
subsidiary of Security Capital Group. All officers of PACIFIC are employees of
PACIFIC's REIT Manager and PACIFIC has no employees.
The PACIFIC REIT Management Agreement requires PACIFIC to pay a base annual
fee of approximately 16% of cash flow as defined in the PACIFIC REIT Management
Agreement. Cash flow is calculated by reference to PACIFIC's cash flow from
operations, plus (i) fees paid to PACIFIC's REIT Manager, (ii) extraordinary
expenses incurred at the request of the PACIFIC Board and (iii) 33% of any
interest paid by PACIFIC on convertible subordinated debentures (of which there
are currently none). Cash flow does not include realized gains from
dispositions of investments or income from cash equivalent
46
<PAGE>
investments. PACIFIC's REIT Manager will also receive a fee of 0.20% per year
on the average daily balance of cash equivalent investments and an incentive
fee with respect to sales of PACIFIC's properties equal to 10% of the gain
above PACIFIC's all-in cost for the assets, including transaction costs and
capital improvements, as increased by the inflation rate since the acquisition
date.
During the years ended December 31, 1993 and 1994, $75,000 and $1,702,000,
respectively, in REIT management fees were earned by PACIFIC's REIT Manager
under the PACIFIC REIT Management Agreement.
PACIFIC is obligated to reimburse PACIFIC's REIT Manager for all expenses
incurred by PACIFIC's REIT Manager on behalf of PACIFIC relating to PACIFIC's
operations, primarily including third party legal, accounting, property
management and similar fees paid on behalf of PACIFIC, and travel expenses
incurred in seeking financing, property acquisitions, property dispositions and
similar activities on behalf of PACIFIC.
The PACIFIC REIT Management Agreement is renewable by PACIFIC annually,
subject to a determination by the PACIFIC Board that PACIFIC's REIT Manager's
performance has been satisfactory and that the compensation payable to
PACIFIC's REIT Manager is fair. Each of PACIFIC and PACIFIC's REIT Manager may
terminate the PACIFIC REIT Management Agreement on 60 days' notice. In the
event that the PACIFIC REIT Management Agreement is terminated, or not renewed,
by PACIFIC as a result of the merger, consolidation, acquisition or liquidation
of PACIFIC, PACIFIC's properties shall be deemed to be sold at the net
aggregate consideration paid to PACIFIC's shareholders upon such event, and
PACIFIC's REIT Manager shall be paid an incentive fee accordingly. Pursuant to
the Merger Agreement, PACIFIC has agreed to terminate the PACIFIC REIT
Management Agreement and PACIFIC's REIT Manager has waived the payment of any
incentive fees that would otherwise be payable in connection with the Merger.
PRINCIPAL SHAREHOLDERS
The following table sets forth as of February 9, 1995 certain information
regarding ownership of PACIFIC Common Stock by each person who beneficially
owns more than five percent of the outstanding PACIFIC Common Stock, by each
director and by all directors and executive officers as a group. Fractional
shares of PACIFIC Common Stock have been rounded to the nearest whole share in
the table below and elsewhere in this Joint Proxy/Information Statement and
Prospectus.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OR NUMBER OF PERSONS IN OF BENEFICIAL PERCENT
GROUP(1) OWNERSHIP OF CLASS
---------------------------------------- ----------------- --------
<S> <C> <C>
Security Capital Group(2)................... 13,528,825 97.6%
William D. Sanders(2)....................... 13,543,825 97.7%
Anthony R. Manno, Jr........................ 3,000 *
All directors and executive officers as a
group
(7 persons)................................ 13,552,825 97.8%
</TABLE>
- --------
* Less than 1%
(1) The business address for each of the persons in this table is c/o SC Group
Incorporated, 7777 Market Center Avenue, El Paso, Texas 79912.
(2) Security Capital Group may acquire additional shares of PACIFIC Common
Stock prior to the Merger. See "Certain Considerations--Conflicts of
Interest in the Merger." As a result of his position with Security Capital
Group, Mr. Sanders may be deemed to beneficially own all of the shares of
PACIFIC Common Stock owned by Security Capital Group. The shares of PACIFIC
Common Stock attributed to Mr. Sanders in the chart include all shares of
PACIFIC Common Stock owned by Security Capital Group.
47
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In addition to the PACIFIC REIT Management Agreement described above, PACIFIC
has entered into the following transactions:
Investor Agreement
PACIFIC and Security Capital Group are parties to an Investor Agreement,
dated as of October 22, 1993 (the "PACIFIC Investor Agreement"), which required
Security Capital Group to purchase $28 million in PACIFIC Common Stock, subject
to certain conditions. The PACIFIC Investor Agreement, among other things,
grants Security Capital Group the right to approve substantially the same
matters as PTR has granted Security Capital Group under the PTR Investor
Agreement. See "Information Concerning PTR--Certain Relationships and
Transactions--Investor Agreement." Security Capital Group is also entitled to
designate two or more persons as directors, and PACIFIC is obligated to use its
best efforts to cause the election of such persons, so long as Security Capital
Group owns at least 10% of the outstanding shares of PACIFIC Common Stock.
Security Capital Group and PACIFIC have agreed to terminate the PACIFIC
Investor Agreement upon consummation of the Merger.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
Set forth below is a brief summary of certain policies of PACIFIC. Each of
the policies below may be changed by a vote of the PACIFIC Board without a vote
of shareholders.
Investment Policies
PACIFIC evaluates investments based on its estimate of the contribution of an
investment to increased cash flow and distributions, on an unleveraged basis,
without regard to residual values. PACIFIC's strategy is to acquire and develop
income producing multifamily properties which are well located and meet the
most common needs of the renter market. As a result, PACIFIC targets
investments in cities which PACIFIC's REIT Manager believes have a growing
population and job market and a reduced supply of real estate investment
capital.
PACIFIC's strategy includes the development of multifamily product designed
for the largest renter groups. Although the PACIFIC Articles of Incorporation
do not contain the same restrictions on investments as does the PTR Declaration
of Trust, PACIFIC's investment policies are the same as those of PTR. PTR's
investment policies will not be changed as a result of the Merger. See
"Information Concerning PTR--Policies With Respect to Certain Activities--
Investment Policies."
Financing Policies
Although the PACIFIC Articles of Incorporation do not contain any
restrictions on PACIFIC's financing activities, PACIFIC's investment policies
are the same as those of PTR. See "Information Concerning PTR--Policies With
Respect to Certain Activities--Financing Policies."
Policies with Respect to Other Activities
PACIFIC may, but does not presently intend to, make investments other than as
previously described. All investments will be primarily related to multifamily
properties and the management and development thereof. PACIFIC has not engaged
in trading, underwriting or agency distribution or sale of securities of other
issuers and does not intend to do so. PACIFIC does not intend to engage in the
purchase or sale of investments (other than acquisition or disposition of
properties in accordance with the REIT rules and PACIFIC's investment
policies).
48
<PAGE>
At all times, PACIFIC intends to make investments in such a manner as to be
consistent with the requirements of the Code for PACIFIC to qualify as a REIT
unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the PACIFIC Board determines that it is no longer in the
best interests of PACIFIC to qualify as a REIT.
INFORMATION CONCERNING PTR
Set forth below is certain information concerning PTR and its policies.
Additional information concerning PTR is contained in PTR's Annual Report to
Shareholders on Form 10-K for the year ended December 31, 1993 (as amended by
Form 10-K/A No. 1 dated February 1, 1995), its Quarterly Reports on Form 10-Q
for the quarters ended March 31, June 30, and September 30, 1994 (each as
amended by Forms 10-Q/A No. 1 dated February 1, 1995) and PTR's Current Reports
on Form 8-K dated January 22 and Form 8-K/A No. 2 dated August 11, Forms 8-K
dated November 4, November 22, and December 17, 1993, and February 2, April 29,
May 3, July 11, July 19, July 27, and November 30, 1994 (as amended by Form
8-K/A No. 1 dated November 30, 1994) each of which is incorporated herein by
reference.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
Investment Policies
PTR evaluates investments based on its estimate of the contribution of an
investment to increased cash flow and distributions, on an unleveraged basis
without regard to effects of residual values. PTR seeks to achieve long term
sustainable growth in cash flow and distributions through a commitment to
fundamental real estate research, actively reviewing and reallocating assets to
product types and submarkets with strong growth prospects, developing industry-
leading multifamily product designed for the largest renter groups and making
opportunistic acquisitions.
Prospective property investments are analyzed pursuant to several
underwriting criteria, including purchase price, competition and other market
factors, and prospects for growth in income and market value. PTR's development
or acquisition decision is based upon the expected contribution of the property
to cash flow growth and increases in shareholder distributions. The expected
economic contribution is based on an estimate of all cash revenues from leases
and other revenue sources, minus expenses incurred in operating the property
(generally real estate taxes, insurance, maintenance, personnel costs and
utility charges, but excluding depreciation, debt service and amortization of
loan costs). Residual value and the effects of debt financing are not
considered in the calculation.
PTR believes that the properties currently owned by PACIFIC meet PTR's
investment criteria. However, the economic contribution of properties cannot be
predicted with certainty, and no assurance can be given that PACIFIC's
properties will contribute to increased cash flow and shareholder
distributions, or that additional developments and acquisitions will be
available on comparable terms in the future.
Although the PTR Declaration of Trust contains less stringent limitations on
PTR's ability to make certain investments, it is PTR's policy to generally
limit its investments such that (i) no more than 10% of its assets are invested
in land held for development other than land under development or where
development is in planning, (ii) PTR will not be treated as an investment
company under the Investment Company Act of 1940, (iii) PTR does not invest in
mortgage loans, other than in connection with the development of multifamily
properties that are contractually required to be sold to PTR upon completion
and (iv) PTR does not invest in securities of other issuers, except in
connection with acquisitions of indirect interests in properties and except for
preferred stock of entities in which PTR has a substantial majority of the
economic interest.
Financing Policies
PTR's long term financing strategy is to keep total long term debt below 50%
of total financial statement capitalization. In addition, PTR intends to limit
the ratio of total debt to the sum of book capitalization and
49
<PAGE>
revolving credit debt to 50%. The PTR Declaration of Trust provides that
aggregate borrowing of PTR, secured and unsecured, shall not be unreasonable in
relation to the net assets of PTR and shall be reviewed by the trustees at
least quarterly. The PTR Declaration of Trust provides that the maximum amount
of such borrowing in relation to the net assets shall, in the absence of a
satisfactory showing that a higher level of borrowing is appropriate, not
exceed 300%. Any excess in borrowing over such 300% level shall be approved by
a majority of the Independent Trustees and disclosed to shareholders in the
next quarterly report of PTR, along with justification for such excess. See
"Certain Considerations--No Limitation on Debt." The term "net assets" means
the total assets (other than intangibles) at cost, before deducting
depreciation or other non-cash reserves, less total liabilities, calculated at
least quarterly on a basis consistently applied.
PTR has an unsecured revolving line of credit for the purpose of
developments, acquisitions or capital improvements or to provide working
capital. PTR may also determine to issue securities senior to the PTR Common
Shares, including preferred shares and debt securities (either of which may be
convertible into PTR Common Shares or be accompanied by warrants to purchase
PTR Common Shares). PTR's financing policies guide it to replace revolving
credit borrowings with the proceeds of equity offerings or long term, fixed
rate, fully amortizing debt. PTR does not intend to incur long term, floating
rate debt other than in connection with property acquisitions in which the debt
assumed is impracticable to prepay or is tax-exempt debt.
Policies With Respect to Operating Expenses
The PTR Declaration of Trust provides that Total Operating Expenses of PTR
shall (in the absence of a satisfactory showing to the contrary) not exceed in
any fiscal year the greater of: (a) 2% of the average of the aggregate book
value of the assets of PTR invested, directly or indirectly, in equity
interests in and loans secured by real estate, before reserves for depreciation
or bad debts or other similar non-cash reserves, computed by taking the average
of such values at the end of each month during such period; or (b) 25% of the
Net Income of PTR for such year. "Net Income" means total revenues applicable
to such year, less the expenses applicable to such year other than additions to
reserves for depreciation or bad debts or other similar non-cash reserves. For
the purposes of the foregoing, Net Income excludes the gain from the sale of
PTR's assets. "Total Operating Expenses" means all operating, general and
administrative expenses of PTR as determined under GAAP except the expenses of
raising capital, interest payments, taxes, non-cash expenditures and costs
related directly to asset acquisition, operation and disposition. The
Independent Trustees have the fiduciary responsibility of limiting such
expenses to amounts that do not exceed such limitations unless the Independent
Trustees shall have made a finding that, based on such unusual and non-
recurring factors which they deem sufficient, a higher level of expenses is
justified for such year. Any such findings and the reasons in support thereof
shall be reflected in the minutes of the meeting of the trustees.
The PTR Declaration of Trust provides that, within 60 days after the end of
any fiscal quarter of PTR for which Total Operating Expenses (for the 12 months
then ended) exceeded 2% of average invested assets (as calculated above) or 25%
of Net Income, whichever is greater, there shall be sent to the shareholders of
PTR a written disclosure of such fact. If the Independent Trustees find that
such higher operating expenses are justified, such disclosure shall be
accompanied by an explanation of the facts the Independent Trustees considered
in arriving at the conclusion that such higher operating expenses were
justified. In the event that the Independent Trustees do not determine such
excess expenses are justified, PTR's REIT Manager shall reimburse PTR for the
amount by which the aggregate annual expenses paid or incurred by PTR exceeded
the limitations herein provided.
Conflict of Interest Policies
PTR does not intend to engage in principal transactions with officers and
trustees or to engage Independent Trustees to provide services to PTR. In
addition, transactions with PTR's REIT Manager and its affiliates are
significantly restricted, as described in the following paragraphs. All
affiliate transactions must be approved by a majority of Independent Trustees.
PTR's policy is not to borrow from or make loans to affiliates, other than
mortgage loans to entities in which PTR owns a substantial majority of the
economic interest.
50
<PAGE>
With a view to resolving potential conflicts of interest and protecting the
interests of PTR's shareholders against such possible conflicts, the PTR
Declaration of Trust requires that a majority of the PTR Board be Independent
Trustees. "Independent Trustee" means a trustee who (i) is not affiliated,
directly or indirectly, with PTR's REIT Manager, whether by ownership of,
ownership interest in, employment by, any material business or professional
relationship with, or service as an officer or director of, PTR's REIT Manager
or a business entity which is an affiliate of PTR's REIT Manager, (ii) is not
serving as a trustee or director for more than three real estate investment
trusts organized by a sponsor of PTR and (iii) performs no other services for
PTR, except as trustee. PTR's Independent Trustees are required to monitor the
performance of PTR's REIT Manager.
Policies Applicable to PTR's REIT Manager and Officers and Trustees of PTR
PTR's REIT Manager is philosophically opposed to engaging in, and has agreed
in writing not to engage in, any principal transaction with PTR, including but
not limited to purchases, sales or leases of property or borrowing or lending
of funds, except for certain transactions approved by a majority of the
Independent Trustees not otherwise interested in such transaction as being fair
and reasonable to PTR and on terms and conditions not less favorable to PTR
than those available from unaffiliated third parties. Additionally, the PTR
Declaration of Trust prohibits PTR from selling property to a sponsor, PTR's
REIT Manager, a trustee, or affiliates thereof. The PTR Declaration of Trust
further provides that PTR shall not enter into any other principal transaction
(including without limitation the making of loans, borrowing money, or
investing in joint ventures) with a sponsor, PTR's REIT Manager, a trustee or
affiliates thereof, except for transactions approved by a majority of the
Independent Trustees not otherwise interested in such transaction as being fair
and reasonable to PTR and on terms and conditions not less favorable to PTR
than those available from unaffiliated third parties. The sole activity of
PTR's REIT Manager is managing PTR.
The PTR REIT Management Agreement permits affiliates of PTR's REIT Manager to
provide property management and other services to PTR for compensation. The
fees charged for such services must be comparable to fees that would be charged
by unaffiliated, qualified third parties. Any property management fees are
reviewed annually by the PTR Board and must be approved by a majority of the
Independent Trustees.
With limited exceptions, officers and employees of PTR's REIT Manager spend
all of their time on PTR's affairs. See "Certain Considerations--Conflicts of
Interest." In the future, certain officers or employees may be transferred to
or from other affiliates of PTR's REIT Manager, consistent with PTR's REIT
Management's plan for management depth and orderly succession.
Under the law of Maryland (where PTR is organized), each trustee is obligated
to offer to PTR any opportunity (with certain limited exceptions) which comes
to him and which PTR could reasonably be expected to have an interest in
developing. In addition, under Maryland law, any contract or transaction
between PTR and any trustee or any entity in which the trustee has a material
financial interest is voidable unless (i) it is approved, after disclosure of
the interest, by the affirmative vote of a majority of disinterested trustees
or by the affirmative vote of a majority of the votes cast by disinterested
shareholders or (ii) it is fair and reasonable to PTR.
Policies with Respect to Other Activities
PTR may, but does not presently intend to, make investments other than as
previously described. All investments will be primarily related to multifamily
properties and the management and development thereof. PTR has authority to
issue senior securities, to offer PTR Common Shares or other securities and to
repurchase or otherwise reacquire PTR Common Shares or any other securities and
may engage in such activities in the future. PTR has not made loans to
affiliates, other than mortgage loans to entities in which it owns a
substantial majority of the economic interest. PTR will not make loans to its
officers and trustees or
51
<PAGE>
to PTR's REIT Manager. PTR may in the future make loans to partnerships, joint
ventures or other entities in which it participates in order to meet working
capital needs. PTR has not engaged in trading, underwriting or agency
distribution or sale of securities of other issuers and does not intend to do
so. PTR does not intend to engage in the purchase or sale of investments (other
than acquisition or disposition of properties in accordance with the REIT rules
and PTR's investment policies) and may on a selected basis in the future offer
securities in exchange for properties. PTR makes annual and quarterly reports
to shareholders. The annual reports contain audited financial statements.
At all times, PTR intends to make investments in such a manner as to be
consistent with the requirements of the Code for PTR to qualify as a REIT
unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the PTR Board determines that it is no longer in the
best interests of PTR to qualify as a REIT.
PRINCIPAL SHAREHOLDERS
The following table sets forth as of February 9, 1995 certain information
regarding ownership of PTR Common Shares by each person known to PTR to own
beneficially more than five percent of the PTR Common Shares, by each trustee
and by all trustees and executive officers as a group. The information below
assumes the conversion of all Series A Preferred Shares owned by such person.
Fractional PTR Common Shares have been rounded to the nearest whole PTR Common
Share in the table below and elsewhere in this Joint Proxy/Information
Statement and Prospectus.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OR NUMBER OF PERSONS IN OF BENEFICIAL PERCENT
GROUP(1) OWNERSHIP OF CLASS
---------------------------------------- ----------------- --------
<S> <C> <C>
Security Capital Group(2)................... 16,070,289 31.9%
William D. Sanders(2)....................... 16,262,194 32.2
The Capital Group, Inc.(3).................. 4,445,960 8.8
333 South Hope Street
Los Angeles, California 90071
C. Ronald Blankenship....................... 18,098 *
Calvin K. Kessler........................... 21,616 *
James H. Polk, III.......................... 50,000 *
John C. Schweitzer.......................... 14,530 *
William G. Myers............................ 603 *
John T. Kelley, III......................... 12,479 *
James A. Cardwell........................... 22,047 *
All trustees and executive officers as a
group
(15 persons)(4)............................ 148,872 *
</TABLE>
- --------
*Less than 1%
(1) Unless otherwise noted, the business address for each of the persons in
this table is c/o SC Group Incorporated, 7777 Market Center Avenue, El
Paso, Texas 79912.
(2) Information regarding ownership of PTR Common Shares by Security Capital
Group is included herein in reliance upon information set forth in a
statement on Schedule 13D filed on March 1, 1990, as most recently amended
and updated. According to such Schedule 13D amendment, the purpose of
Security Capital Group's acquisition of PTR Common Shares is investment; in
addition, Security Capital Group and Mr. Sanders intend to play a major
role in the direction of PTR for the purpose of maximizing the value of
PTR. See "--Certain Relationships and Transactions--REIT Management
Agreement." As a result of his position with Security Capital Group, Mr.
Sanders may be deemed to be the beneficial owner of all PTR Common Shares
owned by Security Capital Group. The PTR Common Shares attributed to Mr.
Sanders in the chart include all PTR Common Shares owned by Security
Capital Group.
(3) Information regarding beneficial ownership of PTR Common Shares by The
Capital Group, Inc. is included herein in reliance upon information set
forth in a statement on Schedule 13G dated February
52
<PAGE>
11, 1994 filed with the Commission. 3,167,250 PTR Common Shares are
beneficially owned by Capital Research and Management Company, a registered
investment advisor and a wholly owned subsidiary of The Capital Group, Inc.
The Capital Group, Inc. has sole dispositive power with respect to all PTR
Common Shares reported, and such PTR Common Shares were acquired in the
ordinary course of business and were not acquired for the purpose, and do
not have the effect, of changing or influencing control of PTR.
(4) Includes 20,000 PTR Common Shares issuable to PTR's Independent Trustees
upon exercise of options granted under PTR's Share Option Plan for Outside
Trustees.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
REIT Management Agreement
Effective March 1, 1991, PTR entered into a REIT management agreement (the
"PTR REIT Management Agreement") with PTR's REIT Manager to provide management
services to PTR. PTR's REIT Manager is a wholly owned subsidiary of Security
Capital Group. All officers of PTR are employees of PTR's REIT Manager and PTR
has no employees.
The PTR REIT Management Agreement requires PTR to pay a base annual fee of
$855,000 plus approximately 16% of cash flow as defined in the PTR REIT
Management Agreement ("Cash Flow") in excess of $4,837,000. In the PTR REIT
Management Agreement, Cash Flow is calculated by reference to PTR's cash flow
from operations before deducting (i) fees paid to PTR's REIT Manager, (ii)
extraordinary expenses incurred at the request of the Independent Trustees of
PTR and (iii) 33% of any interest paid by PTR on convertible subordinated
debentures (of which there has been none since the inception of the PTR REIT
Management Agreement); and, after deducting actual or assumed regularly
scheduled principal and interest payments for long term debt. The PTR REIT
Management Agreement provides that the $200 million of senior notes issued by
PTR in February 1994 will be treated as having regularly scheduled principal
and interest payments as would a 20-year, level monthly payment, fully
amortizing mortgage, and the assumed principal and interest payments are
deducted from Cash Flow in determining the fee. Cash Flow does not include
realized gains from dispositions of investments or income from cash equivalent
investments. PTR's REIT Manager also receives a fee of .25% per year on the
average daily balance of cash equivalent investments.
The PTR REIT Management Agreement has been amended to eliminate the payment
of incentive fees to PTR's REIT Manager.
In 1993 and 1994, PTR incurred an aggregate of $7,073,000 and $13,182,000,
respectively, in REIT Management fees to PTR's REIT Manager.
PTR is obligated to reimburse PTR's REIT Manager for certain expenses
incurred by PTR's REIT Manager on behalf of PTR, primarily travel expenses
incurred in seeking financing, property acquisitions, property dispositions and
similar activities on behalf of PTR.
The PTR REIT Management Agreement is renewable by PTR annually, subject to a
determination by the Independent Trustees that PTR's REIT Manager's performance
has been satisfactory and that the compensation payable to PTR's REIT Manager
is fair. PTR may terminate the PTR REIT Management Agreement on 60 days' notice
prior to expiration of the term. Because of the year-to-year nature of the
agreement, its maximum effect on PTR's results of operations cannot be
predicted, other than that REIT Management fees will generally increase or
decrease in proportion to cash flow increases or decreases. Based upon the
trustees' evaluation of PTR's REIT Manager's performance in 1993, the
Independent Trustees unanimously approved the annual renewal of the PTR REIT
Management Agreement on March 1, 1994.
53
<PAGE>
Investor Agreement
Pursuant to various agreements, as amended (collectively, the "PTR Investor
Agreement"), between PTR and Security Capital Group, Security Capital Group is
entitled to designate three persons to be nominated for election to the PTR
Board. Messrs. Blankenship, Kelley and Polk, due to their affiliations with
Security Capital Group, are deemed to be representatives of Security Capital
Group. So long as Security Capital Group owns at least 10% or more of the PTR
Common Shares, PTR is prohibited from increasing the number of members of the
PTR Board to more than seven. Additionally, the PTR Investor Agreement, among
other things, requires PTR to obtain Security Capital Group's approval of (i)
the annual operating budget and substantial deviations therefrom, (ii)
contracts for investment management, property management or leasing services or
that contemplate annual payments in excess of $100,000 and (iii) acquisitions
or dispositions in a single transaction or a group of related transactions
where the purchase or sale price exceeds $5 million. The PTR Investor Agreement
also provides certain registration rights to Security Capital Group in respect
of PTR Common Shares owned by Security Capital Group.
Security Capital Group is permitted to acquire beneficial ownership of up to
49% of the outstanding PTR Common Shares (assuming the conversion or exchange
of all convertible or exchangeable PTR securities) without triggering any of
PTR's anti-takeover defenses (such as the provision in the PTR Declaration of
Trust permitting PTR to redeem PTR Common Shares owned in excess of 9.8% of the
outstanding PTR Common Shares and PTR's shareholder rights agreement). PTR also
provided Security Capital Group a limited exemption from the application of two
anti-takeover statutes promulgated in Maryland, the jurisdiction in which PTR
is organized. See "Comparison of Rights of Holders of PTR Common Shares and
PACIFIC Common Stock--Business Combinations" and "--Control Share
Acquisitions." Security Capital Group agreed not to acquire for its own account
or through its affiliates, as defined in the PTR Investor Agreement, more than
49% of the outstanding PTR Common Shares except, if at all, pursuant to an all
cash tender offer for all PTR Common Shares which is held open for at least 90
days. PTR would not be restricted in opposing any such tender offer.
Property Management
SCG Realty Services Incorporated ("SCG Realty Services"), a wholly owned
subsidiary of Security Capital Group, currently manages approximately 91% of
PTR's operating multifamily properties, with the balance in various stages of
transition to SCG Realty Services' management. In addition to property
management, SCG Realty Services performs, among other things, certain due
diligence services for PTR's acquisitions and construction management services,
primarily for renovations. The trustees believe such services are performed at
market rates. During 1993 and 1994, PTR paid an aggregate of $3,862,000 and
$7,148,000, respectively, to SCG Realty Services, including $2,872,000 and
$6,317,000, respectively, in property management fees. After the Merger, it is
expected that some or a substantial portion of the properties to be acquired in
the Merger will ultimately be managed by SCG Realty Services.
Concurrent Subscription Offering
Concurrently with the consummation of the Merger, PTR expects to close a
subscription offering of up to 17.8 million PTR Common Shares, which offering
will be made pro rata to PTR shareholders other than Security Capital Group.
The subscription offering is designed to allow other shareholders of PTR to
purchase PTR Common Shares at the same price PACIFIC shareholders are acquiring
PTR Common Shares in the Merger and to maintain PTR's current balance sheet
ratios. To the extent that there are any unsubscribed shares, PTR will allocate
shares to oversubscribing shareholders (including Security Capital Group as if
it had fully subscribed for PTR Common Shares based on the number of shares it
received in the Merger) and, at its discretion, to third parties. To assure
maintenance of PTR's balance sheet ratios, Security Capital Group has agreed to
purchase $50 million of PTR Common Shares in the subscription offering, which
amount will be reduced to the extent that subscriptions are received by PTR
from parties other than Security Capital Group. The price at which PTR Common
Shares are being offered to investors in the subscription offering will be the
same price on which the Exchange Ratio was based ($16.375). The closing of the
Merger is a condition to the closing of the subscription offering.
54
<PAGE>
Recent Developments
On January 4, 1995, an action entitled Ferro v. C. Ronald Blankenship, et al.
(Case No. EP 95 CA 004) was commenced in the United States District Court for
the Western District of Texas, El Paso Division, by a party alleging to be a
shareholder of PTR against PTR, PACIFIC, Security Capital Group and the
individual members of the PTR Board. The action purports to be (i) a derivative
action on behalf of PTR to redress a waste of corporate assets resulting from
an alleged breach by the trustees of their duties of loyalty, due care, good
faith and entire fairness and (ii) a class action on behalf of the plaintiff
and all other similarly situated shareholders of PTR in connection with an
alleged dissemination of a materially false and misleading proxy statement in
violation of Section 14(a) and Rule 14a-9 of the Exchange Act (although no
proxy statement had been mailed to shareholders at that time) and to redress
the breach by the trustees of their fiduciary duties, including their duty of
candor. The complaint seeks injunctive and compensatory relief. PTR believes
that such action is without merit and does not believe that such action will
impact the Merger or have any material adverse effect on PTR's financial
condition or results of operations. On January 25, 1995, all defendants filed a
motion to dismiss the action.
PTR SHARE PRICES AND COMPARATIVE PER SHARE DISTRIBUTIONS
The PTR Common Shares are traded on the NYSE. There is no established public
trading market for the PACIFIC Common Stock. The following table sets forth,
for the period indicated, the high and the low sales prices of PTR Common
Shares, as reported on the NYSE Composite Tape, and the quarterly distributions
paid on each PTR Common Share and each share of PACIFIC Common Stock.
<TABLE>
<CAPTION>
PTR PACIFIC
----------------------------- ----------------
HIGH LOW DISTRIBUTIONS DISTRIBUTIONS(1)
------- ------- ------------- ----------------
<S> <C> <C> <C> <C>
1992:
First Quarter........... $12 1/8 $ 9 3/4 $0.175 $n/a
Second Quarter.......... 11 3/4 10 0.175 n/a
Third Quarter........... 12 3/4 10 7/8 0.175 n/a
Fourth Quarter.......... 14 1/2 11 3/4 0.175 (2) n/a
1993:
First Quarter........... 20 14 0.205 n/a
Second Quarter.......... 19 5/8 17 1/8 0.205 n/a
Third Quarter........... 21 5/8 18 3/8 0.205 n/a
Fourth Quarter.......... 21 1/2 17 5/8 0.205 n/a
1994:
First Quarter........... 21 5/8 18 1/4 0.250 (3) 0.1565
Second Quarter.......... 20 1/8 17 3/4 0.250 0.1322
Third Quarter........... 18 7/8 17 5/8 0.250 0.1322
Fourth Quarter.......... 18 3/8 15 1/2 0.250 0.1330
1995:
First Quarter (through
February 9)............ 18 3/8 16 3/4 0.2875(4) (5)
</TABLE>
- --------
(1) PACIFIC was formed in October 1993 and paid its first distribution in the
first quarter of 1994. Distributions paid have been adjusted to give effect
to a stock split in July 1994.
(2) Declared in the third quarter for payment in the fourth quarter.
(3) Declared in the fourth quarter of 1993 for payment in the first quarter of
1994.
(4) On December 6, 1994, the PTR Board declared a distribution of $0.2875
payable February 13, 1995 to holders of record on February 2, 1995.
(5) PACIFIC intends to pay a special distribution prior to the consummation of
the Merger in an aggregate amount equal to all of its undistributed net
earnings. The amount of the special distribution will vary depending upon
the date of consummation of the Merger but is estimated to range from $0.10
to $0.19 per share. See "The Merger--Distributions."
55
<PAGE>
On February 9, 1995, there were 13,860,000 shares of PACIFIC Common Stock
issued and outstanding, which were held of record by 129 shareholders. PACIFIC
consummated a private offering in August 1994 in which it offered one million
shares of PACIFIC Common Stock at a price of $10.00 per share. Since its
inception, PACIFIC has made isolated sales of shares of PACIFIC Common Stock
aggregating $135,288,250 to Security Capital Group in order to fund
acquisitions of properties and may make additional sales of PACIFIC Common
Stock to Security Capital Group in order to fund the acquisition or development
of properties. PACIFIC also intends to distribute all of its undistributed net
earnings prior to the Merger. See "The Merger--Distributions."
PTR, in order to qualify as a REIT, is required to make distributions (other
than capital gain distributions) to its shareholders in amounts at least equal
to (i) the sum of (A) 95% of its "REIT taxable income" (computed without regard
to the dividends paid deduction and its net capital gain) and (B) 95% of the
net income (after tax), if any, from foreclosure property, minus (ii) the sum
of certain items of noncash income. PTR's distribution strategy is to
distribute what it believes is a conservative percentage of its cash flow,
permitting PTR to retain funds for capital improvements and other investments
while funding its distributions. PTR has paid 75 consecutive quarterly cash
distributions.
PTR announces the following year's projected annual distribution level after
the PTR Board's annual budget review and approval in December of each year. At
its December 6, 1994 meeting, the PTR Board announced a projected increase in
the annual distribution level from $1.00 to $1.15 per PTR Common Share. The
payment of distributions is subject to the discretion of the PTR Board and is
dependent upon the financial condition and operating results of PTR.
For federal income tax purposes, distributions may consist of ordinary
income, capital gains, non-taxable return of capital or a combination thereof.
Distributions which exceed PTR's current and accumulated earnings and profits
(calculated for tax purposes) constitute a return of capital rather than a
dividend and reduce the shareholder's basis in his or her PTR Common Shares. To
the extent that a distribution exceeds both current and accumulated earnings
and profits and the shareholder's basis in his or her PTR Common Shares, it
will generally be treated as gain from the sale or exchange of that
shareholder's PTR Common Shares. PTR annually notifies shareholders of the
taxability of distributions paid during the preceding year. The following table
summarizes the taxability of distributions paid in 1993, 1992 and 1991 in
respect of PTR Common Shares:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Per PTR Common Share:
Ordinary Income....................................... $0.65 $0.67 $0.25
Capital Gains......................................... 0.11 0.03 --
Return of Capital..................................... 0.06 -- 0.39
----- ----- -----
Total............................................... $0.82 $0.70 $0.64
===== ===== =====
</TABLE>
No portion of the 1992 distributions constituted return of capital due to
certain acquisition and sale transactions consummated in 1992 which increased
reported earnings and profits for 1992. Under federal income tax rules, PTR's
earnings and profits will first be allocated to its preferred shares, which
will increase the portion of PTR Common Share distributions classified as
return of capital. PTR's tax returns have not been examined by the Internal
Revenue Service and, therefore, the taxability of distributions is subject to
change. The portion of distributions characterized as return of capital results
primarily from the excess of distributions over earnings, primarily because
non-cash charges such as depreciation are added to earnings in determining
distribution levels. Depreciation has increased as new properties have been
added.
56
<PAGE>
DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN
PTR has a Dividend Reinvestment and Share Purchase Plan (the "Plan") which
allows holders of PTR Common Shares to acquire additional PTR Common Shares by
automatically reinvesting distributions. PTR Common Shares are acquired
pursuant to the Plan at a price equal to 98% of the market price of such PTR
Common Shares, without payment of any brokerage commission or service charge.
The Plan also allows shareholders to purchase a limited number of additional
PTR Common Shares at 98% of the market price of such PTR Common Shares, by
making optional cash payments, without payment of any brokerage commission or
service charge. Shareholders who do not participate in the Plan continue to
receive distributions as declared.
DESCRIPTION OF PTR COMMON SHARES
GENERAL
PTR has 150 million shares of beneficial interest, $1.00 par value,
authorized. On February 9, 1995, there were 50,456,038 PTR Common Shares issued
and outstanding, which were held of record by approximately 3,500 shareholders.
PTR has reserved 148,000 PTR Common Shares for issuance upon the exercise of
options pursuant to the Property Trust of America Share Option Plan for Outside
Trustees and 11,189,040 PTR Common Shares are reserved for issuance upon
conversion of Series A Preferred Shares. In addition, PTR held 164,478 PTR
Common Shares in treasury as of February 9, 1995.
COMMON SHARES
The following description sets forth general terms and provisions of the PTR
Common Shares. The statements below describing the PTR Common Shares are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the PTR Declaration of Trust and Bylaws.
The outstanding PTR Common Shares are fully paid and, except as described
under "Comparison of Rights of Holders of PTR Common Shares and PACIFIC Common
Stock--Shareholder Liability," non-assessable. Each PTR Common Share has one
vote on all matters requiring a vote of shareholders. Holders of PTR Common
Shares do not have preemptive, redemption or conversion rights or the benefit
of a sinking fund. In the event of a liquidation, dissolution or winding up of
PTR, the holders of PTR Common Shares are entitled to receive ratably the
assets remaining after satisfaction of all liabilities and payment of
liquidation preferences and accrued distributions, if any, on the Series A
Preferred Shares and any other preferred shares ranking senior to the PTR
Common Shares with respect to the payment of amounts upon liquidation,
dissolution or winding up. The right of holders of PTR Common Shares are
subject to the rights and preferences established by the PTR Board for any
preferred shares which have been, or may subsequently be, issued by PTR. See
"Comparison of Rights of Holders of PTR Common Shares and PACIFIC Common
Stock--Preferred Shares."
SHELF REGISTRATION
PTR currently has a "shelf" registration statement in effect pursuant to
which it may offer to the public one or more of the following categories of its
securities in an aggregate amount not to exceed approximately $565 million: (i)
PTR Common Shares; (ii) PTR preferred shares, in one or more series; and (iii)
unsecured senior debt securities, in one or more series. Such securities may be
offered separately or together, in separate series or amounts, at prices and on
terms determined by the PTR Board. Other than a subscription offering scheduled
to close concurrently with the Merger, PTR has no present intention to issue
any such securities. See "Information Concerning PTR--Certain Relationships and
Transactions--Concurrent Subscription Offering."
57
<PAGE>
TRANSFER AGENT
The transfer agent and registrar for the PTR Common Shares is Chemical Bank,
P.O. Box 3068, JAF Building, New York, New York 10116-3068. The PTR Common
Shares are listed on the NYSE under the symbol "PTR."
COMPARISON OF RIGHTS OF HOLDERS
OF PTR COMMON SHARES AND PACIFIC COMMON STOCK
The rights of PACIFIC Common Stock are governed by the laws of the State of
Maryland and by the PACIFIC Articles of Incorporation and Bylaws. After the
Effective Time, the rights of holders of PACIFIC Common Stock who receive PTR
Common Shares in the Merger will be governed by the laws of the State of
Maryland and by the PTR Declaration of Trust and Bylaws.
The rights of PACIFIC shareholders differ in some respects from the rights
they would have as shareholders of PTR. A summary of these differences is set
forth below. The following summary sets forth the material differences in the
rights of PACIFIC and PTR shareholders but does not purport to be a complete
statement of the rights of holders of PTR Common Shares under applicable
Maryland law, the PTR Declaration of Trust and Bylaws or a comprehensive
comparison with the rights of the holders of PACIFIC Common Stock under
applicable Maryland law, the PACIFIC Articles of Incorporation and Bylaws, or a
complete description of the provisions referred to herein. This summary is
qualified in its entirety by reference to Maryland law applicable to REITs (the
"Maryland REIT Law") and the governing instruments of PTR, and to the MGCL and
the governing instruments of PACIFIC, to which holders of PACIFIC Common Stock
are referred.
PREFERRED SHARES
Subject to limitations prescribed by Maryland law and the PTR Declaration of
Trust, the PTR Board is authorized to issue, from the authorized but unissued
capital shares of PTR, preferred shares in series and to establish from time to
time the number of preferred shares to be included in such series and to fix
the designation and any preferences, conversion and other rights, voting
powers, restrictions, limitations as to distributions, qualifications and terms
and conditions of redemption of the shares of each series, and such other
subjects or matters as may be fixed by resolution of the PTR Board or duly
authorized committee thereof. On February 9, 1995 PTR had 9,200,000 of its
Series A Preferred Shares issued and outstanding and held of record by
approximately 100 shareholders. PACIFIC is not authorized to issue any shares
of preferred stock without shareholder approval.
RESTRICTIONS ON TRANSFER AND REDEMPTION OF SHARES
Both the PTR Declaration of Trust and the PACIFIC Articles of Incorporation
contain provisions governing the number of shares that each of its shareholders
may beneficially own. While these provisions are included in order to allow PTR
and PACIFIC to more effectively maintain or qualify for REIT status under the
Code, they may also have the effect of making an attempted takeover of the
entities more difficult for an acquiror. The provisions of the PACIFIC Articles
of Incorporation limiting ownership of PACIFIC Common Stock are substantially
similar to the corresponding provisions of the PTR Declaration of Trust
summarized below.
The PTR Declaration of Trust restricts beneficial ownership of PTR's
outstanding capital shares by a single person, or persons acting as a group, to
9.8% of the PTR Common Shares. Beneficial ownership of PTR Common Shares
includes PTR Common Shares which a person may acquire upon conversion of
preferred shares, including Series A Preferred Shares. The ownership limitation
is 49% in the case of Security Capital Group, assuming the conversion or
exchange of all convertible or exchangeable PTR securities. The
58
<PAGE>
purposes of these provisions are to assist in protecting and preserving PTR's
REIT status and to protect the interest of shareholders in takeover
transactions by preventing the acquisition of a substantial block of shares
unless the acquiror makes a cash tender offer for all outstanding shares. For
PTR to qualify as a REIT under the Code, not more than 50% in value of its
outstanding capital shares may be owned by five or fewer individuals at any
time during the last half of PTR's taxable year. The provision permits five
persons to acquire up to a maximum of 9.8% of the PTR Common Shares each, or an
aggregate of 49% of the outstanding PTR Common Shares, and, thus, assists the
PTR Board in protecting and preserving PTR's REIT status for tax purposes.
Capital shares owned by a person or group of persons in excess of 9.8% (49%
in the case of Security Capital Group and certain defined affiliates) of the
outstanding PTR Common Shares ("Excess Shares") are subject to redemption by
PTR, at its option, upon 30 days' notice, at a price equal to the average daily
per share closing sale price during the 30-day period ending on the business
day prior to the redemption date. PTR may make payment of the redemption price
at any time or times up to the earlier of five years after the redemption date
or liquidation of PTR. PTR may refuse to effect the transfer of any PTR Common
Shares which would make the transferee a holder of Excess Shares. Shareholders
of PTR are required to disclose, upon demand of the PTR Board, such information
with respect to their direct and indirect ownership of PTR Common Shares as the
PTR Board deems necessary to comply with the provisions of the Code pertaining
to qualification, for tax purposes, of REITs, or to comply with the
requirements of any other appropriate taxing authority.
The 9.8% restriction does not apply to acquisitions by an underwriter in a
public offering and sale of PTR Common Shares or to any transaction involving
the issuance of PTR Common Shares in which a majority of the PTR Board
determines that the eligibility of PTR to qualify as a REIT for federal income
tax purposes will not be jeopardized or the disqualification of PTR as a REIT
is advantageous to the shareholders. Security Capital Group's ownership of PTR
Common Shares is attributed for tax purposes to its shareholders. The PTR Board
has permitted Security Capital Group to acquire up to 49% of PTR's outstanding
PTR Common Shares (assuming the conversion or exchange of all convertible or
exchangeable PTR securities).
BUSINESS COMBINATIONS
Under Maryland law, certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation or REIT and any person who beneficially owns 10% or more of the
voting power of the corporation's or REIT's shares (an "Interested
Shareholder") must be (i) recommended by the directors or trustees of such
corporation or REIT and (ii) approved by the affirmative vote of at least (a)
80% of the votes entitled to be cast by holders of outstanding voting shares of
the corporation or REIT and (b) two-thirds of the votes entitled to be cast by
holders of outstanding voting shares other than shares held by the Interested
Shareholder with whom the business combination is to be effected, unless, among
other things, the corporation's or REIT's common shareholders receive a minimum
price (as defined in the statute) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Shareholder for his shares. In addition, an Interested Shareholder or any
affiliate thereof may not engage in a "business combination" with the
corporation or REIT for a period of five years following the date he becomes an
Interested Shareholder. These provisions of Maryland law do not apply, however,
to business combinations that are approved or exempted by the board of
directors or trustees of the corporation or REIT prior to the time that the
Interested Shareholder becomes an Interested Shareholder. The PACIFIC Articles
of Incorporation contain provisions exempting Security Capital Group and its
affiliates from the provisions of the business combination statute. The PTR
Board has exempted Security Capital Group from the provisions of the business
combination statute under certain circumstances.
59
<PAGE>
CONTROL SHARE ACQUISITIONS
Maryland law provides that "Control Shares" of a Maryland corporation or REIT
acquired in a "Control Share Acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares owned by the acquiror or by officers or directors or
trustees who are employees of the corporation or REIT. "Control Shares" are
voting shares which, if aggregated with all other such shares previously
acquired by the acquiror or in respect of which the acquiror is able to
exercise voting power in electing directors or trustees, fall within one of the
following ranges of voting power: (i) one-fifth or more but less than one-
third, (ii) one-third or more but less than a majority or (iii) a majority or
more of all voting power. Control Shares do not include capital stock the
acquiring person is then entitled to vote as a result of having previously
obtained shareholder approval. A "Control Share Acquisition" means the
acquisition of Control Shares, subject to certain exceptions.
A person who has made or proposes to make a Control Share Acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors or trustees of the corporation or REIT to
call a special meeting of shareholders to be held within 50 days of demand to
consider voting rights for the shares. If no request for a meeting is made, the
corporation or REIT may itself present the question at any shareholders'
meeting. If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the corporation
or REIT may redeem any or all of the Control Shares (except those for which
voting rights have previously been approved) for fair value determined, without
regard to the absence of voting rights for the Control Shares, as of the date
of the last Control Share Acquisition by the acquiror or of any meeting of
shareholders at which the voting rights of such shares are considered and not
approved. If voting rights for Control Shares are approved at a shareholders'
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other shareholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
Control Share Acquisition.
The Control Share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation or REIT is a party
to the transaction, or to acquisitions approved or exempted by the governing
instruments of the corporation or REIT.
The PACIFIC Articles of Incorporation contain provisions exempting Security
Capital Group and its affiliates from the provisions of the Control Share
acquisition statute. The PTR Bylaws contain provisions exempting Security
Capital Group from the provisions of the Control Share acquisition statute so
long as it owns no more than 49% of the PTR Common Shares.
DISSENTERS' RIGHTS
Under the MGCL, holders of shares have the right, in certain circumstances,
to dissent from certain corporate reorganizations by demanding payment in cash
for their shares equal to the fair value (excluding any appreciation or
depreciation as a consequence or in expectation of the transaction) of such
shares. Under the MGCL, the amount to be received by dissenters for their stock
may be determined by agreement between the dissenters and the corporation or,
if the corporation and the dissenters are unable to agree, the corporation or
the dissenters may petition a court for an appraisal of the fair value of the
stock. See "The Merger-- Dissenters' Rights." Maryland law does not grant
shareholders of REITs dissenters' right in any transaction other than in
connection with certain mergers or in connection with a control share
acquisition. Therefore, PTR shareholders are afforded dissenters' rights in
fewer circumstances than PACIFIC shareholders.
AMENDMENTS TO ARTICLES OF INCORPORATION OR DECLARATION OF TRUST
Except for certain specified matters, the MGCL provides that an amendment or
change to a corporation's articles of incorporation must be authorized by the
board of directors in a resolution setting
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forth the amendment, declaring that it is advisable and directing that it be
submitted to the shareholders for approval. The PACIFIC Articles of
Incorporation reserve to PACIFIC the right to amend, alter or repeal any of its
provisions in the manner prescribed by statute. The PACIFIC Articles of
Incorporation provide that the amendment must then be approved by the
shareholders by the affirmative vote of a majority of the total number of votes
entitled to be cast on the matter.
The PTR Board, by a two-thirds vote, may amend the provisions of the PTR
Declaration of Trust from time to time to qualify PTR as a REIT. Except as set
forth in the preceding sentence, the PTR Declaration of Trust may be amended
only by the affirmative vote or written consent of the holders of not less than
two-thirds of the PTR Common Shares then outstanding.
AMENDMENTS TO THE BYLAWS
The MGCL provides that after the organizational meeting of directors, only
the shareholders of a corporation have the power to amend the bylaws, except to
the extent that the articles of incorporation or bylaws vest this power in the
board of directors. The PACIFIC Articles of Incorporation provide that bylaws
may be adopted, amended or repealed either by the written consent or vote of
the holders of a majority of the outstanding shares entitled to vote or by the
PACIFIC Board. A higher threshold of shareholder votes may be specified with
respect to the adoption, amendment or repeal of a particular bylaw, although
none currently are so specified.
The PTR Declaration of Trust provides that the PTR Bylaws may be altered,
amended or repealed and new Bylaws may be adopted, at any meeting of the PTR
Board by a majority vote of the trustees, subject to repeal or change by action
of the shareholders of PTR entitled to vote thereon.
TERMINATION
The PTR Declaration of Trust permits the termination of PTR and the
discontinuation of the operations of PTR by the affirmative vote or written
consent of the holders of a majority of the outstanding shares of beneficial
interest of PTR of all classes. PACIFIC may only be dissolved after the
adoption by a majority of the directors of a resolution declaring that
dissolution is advisable and the subsequent approval of the dissolution by the
affirmative vote of shareholders holding at least two-thirds of all votes
entitled to be cast on the matter.
DIRECTORS AND TRUSTEES
The PACIFIC Articles of Incorporation provide that the number of directors
shall be three, which number may be increased or decreased from time to time by
a vote of a majority of the entire PACIFIC Board. See "Information Concerning
PACIFIC--Certain Relationships and Transactions--Investor Agreement." The
directors are divided into three classes. One class will hold office for a term
expiring at the annual meeting of shareholders in 1995, a second class will
hold office for a term expiring at the annual meeting of shareholders in 1996
and a third class will hold office for a term expiring at the annual meeting of
shareholders in 1997. Each director will hold office for the term to which he
or she is elected and until his or her successor is duly elected and qualified.
At each annual meeting of PACIFIC shareholders, the successors to the class of
directors whose terms expire at such meeting will be elected to hold office for
a term expiring at the annual meeting of shareholders held in the third year
following the year of their election.
The PTR Declaration of Trust provides that the number of trustees cannot be
less than three nor more than fifteen with the actual number of trustees to be
determined from time to time by resolution of the trustees then in office. The
PTR Board has set the current number of trustees at seven. See "Information
Concerning PTR--Certain Relationships and Transactions--Investor Agreement."
The term of office of each trustee is one year and until the election and
qualification of his or her successor. Trustees may succeed themselves in
office. Trustees must be individuals who are at least 21 years old and not
under legal disability. A majority of
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the trustees may not be affiliated with PTR's REIT Manager or with any of its
affiliates. A trustee is required to have at least three years of relevant
experience demonstrating the knowledge and experience required to successfully
acquire and manage the type of assets being acquired by PTR.
REMOVAL OF DIRECTORS AND TRUSTEES
The MGCL provides that the directors of a corporation may be removed with or
without cause by the shareholders (but not by other directors) by the
affirmative vote of a majority of all votes entitled to be cast on the election
of directors unless the articles of incorporation provide otherwise. The
PACIFIC Articles of Incorporation do not contain a provision altering the
foregoing requirements.
The PTR Declaration of Trust provides that a trustee may be removed with or
without cause by the vote of the holders of two-thirds of the outstanding PTR
Common Shares or by vote of two-thirds of the trustees then in office (which
action shall be taken only by vote at a meeting and not by authorization
without a meeting).
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
The MGCL provides that unless the articles of incorporation or bylaws of a
corporation provide otherwise, newly created directorships resulting from an
increase in the number of directors are to be filled by a majority of the board
of directors, and vacancies on the board that result from any other cause may
be filled by a majority of the remaining directors. Vacancies on the board
resulting from the removal of a director by the shareholders may also be filled
by the shareholders. The PACIFIC Articles of Incorporation provide that
vacancies resulting from an increase in the size of the PACIFIC Board or from
the removal of a director may be filled by a majority of the entire PACIFIC
Board. Any director elected by the PACIFIC Board to fill a vacancy shall serve
until the next annual meeting and until his or her successor is elected and
qualified and any director elected by PACIFIC's shareholders to fill a vacancy
resulting from a removal of a director shall serve the remainder of the term of
his or her predecessor.
Vacancies on the PTR Board (including vacancies resulting from an increase in
the number of trustees) will be filled either at a special meeting of
shareholders called for that purpose or at the next annual meeting of
shareholders. In the alternative, vacancies may be filled by two-thirds of the
remaining trustees. Trustees elected at special meetings of shareholders to
fill vacancies shall hold office until the next annual meeting of shareholders.
Independent Trustees are required to nominate replacements for vacancies
amongst the Independent Trustees' positions.
LIMITATION ON DIRECTOR AND TRUSTEE LIABILITY
The MGCL allows a corporation's articles of incorporation and the Maryland
REIT Law allows a REIT's declaration of trust to contain a provision limiting a
director's or an officer's personal liability to the corporation and its
shareholders for money damages for breaches of duty in such capacity. No such
provision, however, may limit the liability of directors and officers to the
corporation or REIT or the shareholders of either (i) to the extent that it is
proved that the person actually received an improper benefit or profit in
money, property or services, for the amount of the benefit or profit or (ii) to
the extent that a judgment or other final adjudication adverse to the person is
entered in a proceeding based on a finding in the proceeding that the person's
action or failure to act was the result of active and deliberate dishonesty and
was material to the cause of action adjudicated in the proceeding. The PACIFIC
Articles of Incorporation and Bylaws limit the liability of its directors and
officers to the fullest extent permitted by the MGCL.
In addition, the PTR Declaration of Trust limits the liability of trustees
and officers of PTR for monetary damages for any act or omission by such person
unless (i) the trustee's or officer's action or failure to act constitutes
willful misconduct or deliberate recklessness or (ii) such liability to PTR is
specifically imposed upon trustees or officers by statute.
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SHAREHOLDER LIABILITY
Both the Maryland REIT Law and the PTR Declaration of Trust provide that
shareholders shall not be personally liable for any obligation of PTR. The PTR
Declaration of Trust further provides that PTR shall indemnify and hold each
shareholder harmless from all claims and liabilities to which the shareholder
may become subject by reason of his or her being or having been a shareholder
and that PTR shall reimburse each shareholder for all legal and other expenses
reasonably incurred by the shareholder in connection with any such claim or
liability, except to the extent that such claim or liability arises out of the
shareholder's bad faith, willful misconduct or gross negligence and provided
that such shareholder gives PTR prompt notice of any claim or liability and
permits PTR to conduct the defense thereof. In addition, PTR is required to,
and as a matter of practice does, insert a clause in its management and other
contracts providing that shareholders assume no personal liability for
obligations entered into on behalf of PTR. Nevertheless, with respect to tort
claims, contractual claims where shareholder liability is not so negated,
claims for taxes and certain statutory liability, the shareholders may, in some
jurisdictions, be personally liable to the extent that such claims are not
satisfied by PTR. Inasmuch as PTR carries public liability insurance which it
considers adequate, any risk of personal liability to shareholders is limited
to situations in which PTR's assets plus its insurance coverage would be
insufficient to satisfy the claims against PTR and its shareholders.
Shareholders of PACIFIC are not personally liable for the obligations of
PACIFIC.
INDEMNIFICATION
The MGCL permits indemnification of directors, officers, employees and agents
of a corporation unless the act or omission was material to the matter giving
rise to the proceeding and was committed in bad faith, was the result of active
and deliberate dishonesty, the party seeking indemnification actually received
an improper personal benefit or, in the case of criminal prosecutions, the
party seeking indemnification had reasonable cause to believe that the act or
omission was unlawful. The PACIFIC Articles of Incorporation and Bylaws provide
for the indemnification of directors and officers to the fullest extent
permitted by the MGCL and permits the PACIFIC Board to make further provision
for indemnifying directors, officers and employees.
Maryland REIT Law permits a REIT to indemnify or advance expenses to
trustees, officers, employees and agents of the REIT to the same extent as is
permitted for directors, officers, employees and agents of a Maryland
corporation under the MGCL. The PTR Declaration of Trust provides that PTR
shall indemnify and hold harmless each trustee from and against all claims and
liabilities, whether they proceed to judgment or are settled, to which such
trustee may become subject by reason of his being or having been a trustee, or
by reason of any action alleged to have been taken or omitted by him as
trustee, and shall reimburse him for all legal and other expenses reasonably
incurred by him in connection with any such claim or liability, including any
claim or liability arising under the provisions of federal or state securities
laws. The PTR Declaration of Trust provides that no trustee shall be
indemnified or reimbursed under the foregoing provisions in relation to any
matter unless it shall have been adjudicated that his action or omission did
not constitute willful misfeasance, bad faith or gross negligence in the
conduct of his duties, or, unless, in the absence of such an adjudication, PTR
shall have received a written opinion from independent counsel, approved by the
trustees, to the effect that if the matter of willful misfeasance, bad faith or
gross negligence in the conduct of duties had been adjudicated, it would have
been adjudicated in favor of such trustee. Additionally, PTR has entered into
indemnity agreements with each of its officers and trustees which provide for
reimbursement of all expenses and liabilities of such officer or trustee,
arising out of any lawsuit or claim against such officer or trustee due to the
fact that he was or is serving as an officer or trustee, except for liabilities
and expenses (i) the payment of which is judicially determined to be unlawful,
(ii) relating to claims under Section 16(b) of the Exchange Act or (iii)
relating to judicially determined criminal violations.
SHAREHOLDERS' MEETINGS
The MGCL provides that special meetings of the shareholders may be called by
the president, the board of directors or any other person specified in the
articles of incorporation or bylaws of a corporation. Special
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meetings may also be called by the secretary of the corporation upon the
written request of the holders of 25% of the votes entitled to be cast at the
meeting setting forth the purpose for which the meeting is being called. The
PACIFIC Bylaws give the Chairman of the Board the power to call a special
meeting of the shareholders.
The PTR Declaration of Trust provides for an annual meeting of shareholders
to be held upon reasonable notice and within a reasonable period (not less than
30 days) following delivery of PTR's annual report, but in any event such
meeting must be held within six months after the end of each full fiscal year.
Special meetings of shareholders may be called by a majority of the trustees, a
majority of the Independent Trustees or by an officer of PTR and shall be
called upon the written request of shareholders holding in the aggregate not
less than 10% of the outstanding PTR Common Shares entitled to vote. Written
notice stating the place, date and hour of the shareholders' meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than 10 nor more than 60 days before the
day of the meeting to each holder of record.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary description of the material federal income tax
consequences of the Merger. This summary is not a complete description of all
of the consequences of the Merger and, in particular, does not address the
federal tax considerations that may affect the treatment of certain holders,
such as financial institutions, broker-dealers, life insurance companies, tax-
exempt organizations, investment companies, foreign taxpayers or other special
status taxpayers.
Each holder of PACIFIC Common Stock is advised to consult a tax advisor as to
the specific tax consequences of the Merger to that holder because each
holder's individual circumstances may affect the tax consequences of the Merger
to such holder and no information is provided herein with respect to the tax
consequences of the Merger under applicable foreign, state or local laws.
The Merger is conditioned upon the receipt by PACIFIC, at the Effective Time,
of an opinion from its counsel, Mayer, Brown & Platt, to the effect that (i)
the Merger will qualify as a reorganization under Section 368 of the Code, (ii)
no income or gain will be recognized by PACIFIC as a result of the Merger,
(iii) no gain or loss will be recognized by shareholders of PACIFIC (except for
cash received in lieu of fractional shares and by dissenting shareholders) and
(iv) the performance of the Merger Agreement will not jeopardize the ability of
PACIFIC to qualify as a "real estate investment trust" under the Code up to and
including the Effective Time.
The Merger is also conditioned upon the receipt by PTR, at the Effective
Time, of an opinion from its counsel, King & Spalding, to the effect that (i)
the Merger will qualify as a reorganization under Section 368 of the Code, (ii)
no income or gain will be recognized by PTR as a result of the Merger and (iii)
the performance of the Merger Agreement will not jeopardize the status of PTR
as a "real estate investment trust" under the Code.
Such opinions will be based upon certain representations from the management
of PACIFIC and PTR and Security Capital Group. A ruling from the Internal
Revenue Service (the "IRS") concerning the tax consequences of the Merger will
not be requested.
Assuming the Merger qualifies as a "reorganization" and that PACIFIC and PTR
are parties to that reorganization within the meaning of Section 368(b) of the
Code, the expected material federal income tax effects thereof are as follows.
TAX TREATMENT TO PACIFIC AND PTR
No gain or loss will be recognized by PTR or PACIFIC as a result of the
Merger.
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RECEIPT OF PTR COMMON SHARES IN EXCHANGE FOR PACIFIC COMMON STOCK
No gain or loss will be recognized by a holder of PACIFIC Common Stock who
receives solely PTR Common Shares (except for cash received in lieu of
fractional shares, as discussed below) in exchange for all of his or her shares
of PACIFIC Common Stock. The tax basis of the PTR Common Shares received by a
holder in such exchange will be equal to the tax basis of the PACIFIC Common
Stock surrendered in exchange thereof. The holding period of the PTR Common
Shares received will include the holding period of shares of PACIFIC Common
Stock surrendered in exchange thereof, provided that such shares were held as
capital assets of the holder at the Effective Time.
CASH IN LIEU OF FRACTIONAL SHARES
A holder of PACIFIC Common Stock who receives in the Merger, in exchange for
such stock, solely PTR Common Shares and cash in lieu of a fractional share
interest in PTR Common Shares will be treated as having received such fraction
of a share of PTR Common Shares and then as having received in cash redemption
by PTR of the fractional share interest. Under the IRS's present advance ruling
position, since the cash is being distributed in lieu of fractional shares
solely for the purpose of saving PTR the expense and inconvenience of issuing
and transferring fractional shares, and is not separately bargained-for
consideration, the cash received will be treated as having been received in
part or full payment in exchange for the fractional share redeemed, and as
capital gain or loss, not as a dividend (provided that such shares were held as
capital assets of the holder at the Effective Time).
EXERCISE OF DISSENTERS' RIGHTS
The transaction will be a taxable event for a holder of PACIFIC Common Stock
who exercises his or her dissenter's rights and receives solely cash in
exchange for his or her shares. Such a holder should generally recognize
capital gain or loss, provided that such shares were held by such holder as
capital assets at the Effective Time, equal to the difference between the
amount of cash received and the holder's tax basis in the shares surrendered.
However, if such dissenting holder is treated as owning the shares of another
holder (including a corporation or a trust) not also exercising dissenters'
rights, under certain constructive ownership rules, the amount received could
be treated as a dividend for federal income tax purposes. Shareholders of
PACIFIC who plan to dissent should consult their own tax advisers with respect
to the tax consequences to them resulting from the exercise of dissenters'
rights.
TAXATION OF PTR AFTER THE MERGER
PTR (i) believes that it currently qualifies and (ii) intends to continue to
operate in a manner that permits it to satisfy the requirements for taxation as
a REIT under the applicable provisions of the Code. No assurance can be given,
however, that such requirements have been and will be met. The following is a
description of the federal income tax consequences to PTR and its shareholders
of the treatment of PTR as a REIT. Since these provisions are highly technical
and complex, each PACIFIC shareholder is urged to consult his or her own tax
advisor with respect to the federal, state, local, foreign and other tax
consequences of the ownership and disposition of the PTR Common Shares.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as PTR, that invest primarily in real estate
and that otherwise would be treated for federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" (at both the corporate and
shareholder levels) that generally results from the use of corporations.
If PTR fails to qualify as a REIT in any year, however, it will be subject to
federal income taxation as if it were a domestic corporation, and its
shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, PTR could be subject to potentially significant
tax liabilities, and therefore the amount of cash available for distribution to
its shareholders would be reduced or eliminated.
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To qualify as a REIT under the Code for a taxable year, PTR must meet certain
requirements relating to its assets, income, stock ownership and distributions
to shareholders. Generally, at the end of each calendar quarter, (i) at least
75% of the value of the total assets of PTR must consist of real estate assets,
cash or government securities, (ii) not more than 25% of the value of its total
assets may consist of securities (other than government securities) and (iii)
PTR may not own more than 10% of the outstanding voting securities of any one
issuer and may not own securities of any one issuer whose value represents more
than 5% of the total value of PTR's assets (shares of qualified REITs and of
certain wholly-owned subsidiaries are exempt from the requirements described in
clauses (ii) and (iii)).
PTR must also satisfy three gross income tests. First, at least 75% of a
REIT's gross income must be derived from specified real estate sources for each
taxable year. Income that qualifies under the 75% test includes certain
qualified rents from real property, gains from the sale of real property not
held primarily for sale to customers in the ordinary course of business,
dividends on REIT shares, interest on loans secured by mortgages on real
property, income from foreclosure property, and certain qualified temporary
investment income attributable to the investment of new capital received by the
REIT in exchange for either stock or certain debt instruments during the one-
year period following the receipt of such new capital. In order for rents to
qualify under the 75% test, they may not be derived from tenants having certain
relationships with PTR and may not be based on the income or profits of any
person, except that they may be based on a fixed percentage or percentages of
gross income or receipts. Further, the REIT may not manage the property or
furnish services to the tenants from whom the rents are received unless either
(i) the property is managed by an independent contractor which is paid an
arm's-length fee for its services and from which the REIT derives no income or
(ii) any services performed are of a type customarily rendered in connection
with the rental of space for occupancy only.
Second, at least 95% of PTR's gross income for each taxable year must be
derived from income that qualifies under the 75% test (other than qualified
temporary investment income), plus dividends, interest or gains from
disposition of certain stock or securities.
Third, gross income from the sale or other disposition (i) of stock and
securities held for less than one year, (ii) of property in certain prohibited
transactions and (iii) of real property held for less than four years must
comprise less than 30% of the gross income for each taxable year of PTR.
In order to qualify as a REIT, PTR must also satisfy certain ownership
requirements with respect to the PTR Common Shares. The PTR Common Shares must
be held by at least 100 shareholders, and no more than 50% in value of the
outstanding shares may be owned, actually or constructively, by five or fewer
individuals (including certain types of pension funds and other tax-exempt
entities that are treated as individuals for this purpose) at any time during
the last half of PTR's taxable year. In order to ensure compliance with the 50%
test, PTR has placed certain restrictions on the transfer of the PTR Common
Shares to prevent additional concentration of ownership. Moreover, to evidence
compliance with these requirements under United States Treasury Department
("Treasury") regulations, PTR must maintain records which disclose the actual
ownership of the outstanding PTR Common Shares. In fulfilling its obligations
to maintain records, PTR has and will continue to demand written statements
each year from the record holders of designated percentages of PTR Common
Shares disclosing the actual owners of such shares (as prescribed by Treasury
regulations). A list of those persons failing or refusing to comply with such
demand must be maintained as part of PTR's records. A shareholder failing or
refusing to comply with PTR's written demand must submit with his or her tax
returns a similar statement disclosing the actual ownership of PTR Common
Shares and certain other information. In addition, the PTR Declaration of Trust
provides restrictions regarding the transfer of PTR Common Shares that are
intended to assist PTR in continuing to satisfy the share ownership
requirements. See "Comparison of Rights of Holders of PTR Common Shares and
PACIFIC Common Stock--Restrictions on Transfer and Redemption of Shares." PTR
intends to enforce the 9.8% limitation on ownership of PTR Common Shares to
assure that its qualification as a REIT will not be compromised.
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Finally, PTR must distribute to its shareholders annually an amount
(determined without regard to capital gains dividends) at least equal to (i)
95% of its REIT taxable income (computed without regard to net capital gains
and the dividends received deduction), plus (ii) 95% of the after-tax income
from any foreclosure property, and less (iii) certain noncash income. If PTR
were to fail the 95%-distribution requirement as to a particular taxable year,
then, provided certain conditions are met, PTR generally would be entitled to
cure the deficiency retroactively by paying deficiency dividends to its
shareholders. However, PTR would be liable for interest charges on such
deficiency dividends.
So long as PTR satisfies the above described requirements and thus qualifies
for taxation as a REIT, it generally will not be subject to federal income tax
on that portion of its taxable income and capital gain that is currently
distributed to its shareholders. Any undistributed taxable income or capital
gain, however, will be taxed to PTR at regular corporate rates. In addition,
PTR may be subject to other special income and excise taxes (including the
alternative minimum tax) in certain circumstances.
If PTR fails to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, PTR will be subject to applicable federal and
state tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which PTR fails to qualify will not be deductible by PTR, nor generally will
they be required to be made under the Code. In such event, to the extent of
current and accumulated earnings and profits, all distributions to shareholders
will be taxable as ordinary income, and, subject to certain limitations in the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, PTR
also will be disqualified from re-electing taxation as a REIT for the four
taxable years following the year during which qualification was lost.
The following summary is based on existing law, is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local, or foreign tax considerations, nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to certain types
of shareholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) subject to special treatment under
the federal income tax laws.
TAXATION OF PTR SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as PTR qualifies as a REIT, distributions made to PTR's taxable
domestic shareholders out of current or accumulated earnings and profits (and
not designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for corporations. Distributions that are designated as capital gain dividends
will be taxed as long term capital gains (to the extent they do not exceed
PTR's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its PTR Common Shares. However,
corporate shareholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. To the extent that PTR makes distributions
in excess of current and accumulated earnings and profits, these distributions
are treated first as a tax-free return of capital to the shareholder, reducing
the tax basis of a shareholder's PTR Common Shares by the amount of such
distribution (but not below zero), with distributions in excess of the
shareholder's tax basis taxable as capital gains (if the PTR Common Shares are
held as a capital asset). See "PTR Share Prices and Comparative Per Share
Distributions." In addition, any dividend declared by PTR in October, November
or December of any year and payable to a shareholder of record on a specific
date in any such month shall be treated as both paid by PTR and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid by PTR during January of the following calendar year. Shareholders may not
include in their individual income tax returns any net operating losses or
capital losses of PTR. Federal income tax rules may also require that certain
minimum tax adjustments and preferences be apportioned to PTR shareholders.
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In general, any loss upon a sale or exchange of PTR Common Shares by a
shareholder who has held such PTR Common Shares for six months or less (after
applying certain holding period rules) will be treated as a long term capital
loss, to the extent of distributions from PTR required to be treated by such
shareholder as long term capital gains.
BACKUP WITHHOLDING
PTR will report to its domestic shareholders and to the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any, with respect thereto. Under the backup withholding rules, a shareholder
may be subject to backup withholding at applicable rates with respect to
dividends paid unless such shareholder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A shareholder that does not
provide PTR with its correct taxpayer identification number may also be subject
to penalties imposed by the IRS. Any amount paid as backup withholding will be
credited against the shareholder's income tax liability. In addition, PTR may
be required to withhold a portion of capital gain distributions made to any
shareholders who fail to certify their non-foreign status to PTR.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are highly complex and the
following is only a summary of such rules. Prospective Non-U.S. Shareholders
should consult with their own tax advisors to determine the impact of federal,
state and local income tax laws with regard to an investment in PTR Common
Shares, including any reporting requirements. PTR will qualify as a
"domestically-controlled REIT" so long as less than 50% in value of its shares
are held by foreign persons (i.e., non-resident aliens, and foreign
corporations, partnerships, trusts and estates). PTR currently anticipates that
it qualifies as a domestically-controlled REIT. Under these circumstances, gain
from the sale of PTR Common Shares by a foreign person should not be subject to
United States taxation, unless such gain is effectively connected with such
person's United States business or, in the case of an individual foreign
person, such person is present within the United States for more than 182 days
during the taxable year. However, notwithstanding PTR's current belief that it
qualifies as a domestically-controlled REIT, because the PTR Common Shares are
publicly traded, no assurance can be given that PTR will continue to so
qualify.
Distributions of cash generated by PTR's real estate operations (but not by
the sale or exchange of properties) that are paid to foreign persons generally
will be subject to United States withholding tax at a rate of 30%, unless (i)
an applicable tax treaty reduces that tax and the foreign shareholder files
with PTR the required form evidencing such lower rate, or (ii) the foreign
shareholder files an IRS Form 4224 with PTR claiming that the distribution is
"effectively connected" income.
Distributions of proceeds attributable to the sale or exchange of United
States real property interests of PTR are subject to income and withholding
taxes pursuant to the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"), and may be subject to branch profits tax in the hands of a
shareholder which is a foreign corporation if it is not entitled to treaty
relief or exemption. PTR is required by applicable Treasury regulations to
withhold 35% of any distribution to a foreign person that could be designated
by PTR as a capital gain dividend; this amount is creditable against the
foreign shareholder's FIRPTA tax liability.
The federal income taxation of foreign persons is a highly complex matter
that may be affected by many other considerations. Accordingly, foreign
investors in PTR should consult their own tax advisors regarding the income and
withholding tax considerations with respect to their investments in PTR.
68
<PAGE>
Taxation of Tax-Exempt Shareholders
The IRS has issued a revenue ruling in which it held that amounts distributed
by a REIT to a tax-exempt employees' pension trust do not constitute unrelated
business taxable income ("UBTI"). Subject to the discussion below regarding a
"pension-held REIT," based upon the ruling, the analysis therein and the
statutory framework of the Code, distributions by PTR to a shareholder that is
a tax-exempt entity should also not constitute UBTI, provided that the tax-
exempt entity has not financed the acquisition of its PTR Common Shares with
"acquisition indebtedness" within the meaning of the Code, and that the PTR
Common Shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity, and that PTR, consistent with its present intent, does not
hold a residual interest in a real estate mortgage investment company.
However, for taxable years beginning on or after January 1, 1994, if any
pension or other retirement trust that qualifies under Section 401(a) of the
Code ("qualified pension trust") holds more than 10% by value of the interests
in a "pension-held REIT" at any time during a taxable year, a portion of the
dividends paid to the qualified pension trust by such REIT may constitute UBTI.
For these purposes, a "pension-held REIT" is defined as a REIT if (i) such REIT
would not have qualified as a REIT but for the provisions of the Code which
look through such a qualified pension trust in determining ownership of stock
of the REIT for purposes of the 50% test and (ii) at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or one
or more qualified pension trusts (each owning more than a 10% interest by value
in the REIT) hold in the aggregate more than 50% by value of the interests in
such REIT.
OTHER TAX CONSIDERATIONS
PTR Development Services
PTR Development Services Incorporated ("PTR Development Services"), an entity
in which PTR owns a substantial majority of the economic interest, will pay
federal and state income taxes at the full applicable corporate rates on its
income prior to payment of any dividends. PTR Development Services will attempt
to minimize the amount of such taxes, but there can be no assurance whether or
the extent to which measures taken to minimize taxes will be successful. To the
extent that PTR Development Services is required to pay federal, state or local
taxes, the cash available for distribution by PTR Development Services to its
shareholders will be reduced accordingly.
Tax on Built-in Gain
With respect to any asset (a "Built-In Gain Asset") acquired by PTR from a
corporation which is or has been a C Corporation (i.e., generally a corporation
subject to full corporate-level tax) in certain transactions in which the basis
of the Built-In Gain Asset in the hands of PTR is determined by reference to
the basis of the asset in the hands of the C Corporation, if PTR recognizes
gain on the disposition of such asset during the ten-year period (the
"Recognition Period") beginning on the date on which such asset was acquired by
PTR, then, to the extent of the Built-in Gain (i.e., the excess of (a) the fair
market value of such asset over (b) PTR's adjusted basis in such asset,
determined as of the beginning of the Recognition Period), such gain will be
subject to tax at the highest regular corporate tax pursuant to IRS guidelines
which have not yet been promulgated. The results described above with respect
to the recognition of Built-In Gain assume that PTR will make an election
pursuant to IRS Notice 88-19, 1988-1 C.B. 486. A "Built-In Gain Asset" for
these purposes includes an asset of PACIFIC acquired by PACIFIC in the manner
described above. In addition, if PACIFIC fails to qualify as a REIT for the
1994 or 1995 taxable years, all of PACIFIC's assets acquired by PTR could be
treated as Built-In Gain Assets.
Possible Legislative or Other Actions Affecting Tax Consequences
Prospective shareholders should recognize that the present federal income tax
treatment of an investment in PTR may be modified by legislative, judicial or
administrative action at any time and that any such action
69
<PAGE>
may affect investments and commitments previously made. The rules dealing with
federal income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the Treasury, resulting in revisions of
regulations and revised interpretations of established concepts as well as
statutory changes. Revisions in federal tax laws and interpretations thereof
could adversely affect the tax consequences of an investment in PTR.
STATE AND LOCAL TAXES
PTR and its shareholders may be subject to state or local taxation in various
jurisdictions, including those in which it or they transact business or reside.
The state and local tax treatment of PTR and its shareholders may not conform
to the federal income tax consequences discussed above. Consequently,
prospective shareholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in the PTR Common Shares.
EACH SHAREHOLDER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE OWNERSHIP AND SALE
OF PTR COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF PACIFIC
The discussion above relating to the taxation of PTR as a REIT should equally
apply to PACIFIC except that (i) PACIFIC does not have to meet the share
ownership test described above until the second taxable year of PACIFIC for
which a REIT election is made and (ii) PACIFIC (or PTR as its successor) must
elect REIT status for PACIFIC for the taxable year ending December 31, 1994.
EXPERTS
The financial statements of PTR as of December 31, 1993 and 1992 and for each
of the years in the three-year period ended December 31, 1993, and related
schedule, incorporated by reference herein; the combined statements of revenues
and certain expenses for certain multifamily properties acquired, or to be
acquired, by PTR, incorporated by reference herein; the statement of revenues
and certain expenses of Brompton Court Apartments, incorporated by reference
herein; and the financial statements of PACIFIC as of September 30, 1994 and
December 31, 1993, and for the nine-month period ended September 30, 1994 and
the period from inception (October 22, 1993) through December 31, 1993, and
related schedule, included herein; and the combined statements of revenues and
certain expenses for certain multifamily properties acquired, or to be
acquired, by PACIFIC included herein, have been included or incorporated by
reference herein and in the Registration Statement in reliance upon the reports
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere or incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
With respect to the unaudited interim financial information of PTR
incorporated by reference herein, the independent certified public accountants
have reported that they applied limited procedures in accordance with
professional standards for a review of such information. However, their
separate reports included in PTR's quarterly reports on Form 10-Q for the
quarters ended March 31, June 30, and September 30, 1994, incorporated by
reference herein, state that they did not audit, and they do not express an
opinion on, that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. The accountants are not
subject to the liability provisions of section 11 of the Securities Act for
their reports on the unaudited interim financial information because those
reports are not a "report" or a "part" of the registration statement prepared
or certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act.
70
<PAGE>
KPMG Peat Marwick LLP has not examined, compiled, or otherwise applied
agreed-upon procedures to the prospective financial information presented or
incorporated herein and, accordingly, does not express an opinion or any other
form of assurance on it.
LEGAL MATTERS
The validity of the PTR Common Shares offered to holders of PACIFIC Common
Stock by this Joint Proxy/Information Statement and Prospectus will be passed
upon for PTR by King & Spalding, Atlanta, Georgia. King & Spalding will rely on
the opinion of Piper & Marbury, Baltimore, Maryland, as to matters of Maryland
law. An opinion as to the tax aspects of the Merger as they relate to PTR will
be rendered for PTR by King & Spalding. King & Spalding has in the past
rendered local counsel opinions to certain affiliates of Security Capital
Group, including PACIFIC, in connection with property acquisitions and credit
agreements. An opinion as to the tax aspects of the Merger as they relate to
holders of PACIFIC Common Stock will be rendered for PACIFIC by Mayer, Brown &
Platt, Chicago, Illinois. Mayer, Brown & Platt has in the past represented, and
is currently representing, PACIFIC, PTR and certain of their affiliates,
including Security Capital Group.
SHAREHOLDER PROPOSALS
Proposals of shareholders must be received by PTR at its principal executive
offices located at 7777 Market Center Avenue, El Paso, Texas 79912 within a
reasonable time in advance of PTR's 1995 annual meeting of shareholders
(currently scheduled for June 13, 1995) for inclusion in PTR's proxy statement
and form of proxy relating to such annual meeting.
EXPENSES OF SOLICITATION
PTR will pay the expenses in connection with the filing, printing and
distribution of this Joint Proxy/Information Statement and Prospectus. The
costs of solicitation of proxies will be borne by PTR. PTR will reimburse
brokers, fiduciaries, custodians and other nominees for reasonable out-of-
pocket expenses incurred in sending this Joint Proxy/Information Statement and
Prospectus and other proxy materials to, and obtaining instructions relating to
such materials from, beneficial owners of stock. PTR shareholder proxies may be
solicited by trustees or directors or officers of PTR in person, by letter or
by telephone or telegram. In addition, PTR has retained Georgeson & Company
Inc., New York, New York, to assist in the solicitation of proxies. It is
estimated that its fees for services to PTR will not exceed $10,000 plus
expenses.
PTR will also reimburse custodians, nominees and fiduciaries for forwarding
proxies and proxy materials to the beneficial owners of its stock in accordance
with regulations of the Commission and the NYSE.
71
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
INDEX TO FINANCIAL STATEMENTS
PRO FORMA (UNAUDITED):
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED:
Pro Forma Combined Balance Sheets as of September 30, 1994............. F-3
Pro Forma Combined Statements of Earnings for the year ended December
31, 1993.............................................................. F-4
Pro Forma Combined Statements of Earnings for the nine months ended
September 30, 1994.................................................... F-5
Notes to Pro Forma Combined Financial Statements....................... F-6
Pro Forma Combined Estimated Twelve Month Pro Forma Statement of
Taxable Net Operating Income and Funds Available...................... F-13
HISTORICAL:
SECURITY CAPITAL PACIFIC INCORPORATED:
Independent Auditors' Report............................................. F-15
Balance Sheets as of September 30, 1994 and December 31, 1993............ F-16
Statements of Earnings for the nine months ended September 30, 1994 and
for the period from October 22, 1993 (date of inception) to December 31,
1993.................................................................... F-17
Statements of Stockholders' Equity for the period from October 22, 1993
(date of inception) to December 31, 1993 and for the nine months ended
September 30, 1994...................................................... F-18
Statements of Cash Flows for the nine months ended September 30, 1994 and
for the period from October 22, 1993 (date of inception) to December 31,
1993 ................................................................... F-19
Notes to Financial Statements............................................ F-20
Schedule XI--Real Estate and Accumulated Depreciation.................... F-25
STATEMENTS OF REVENUES AND CERTAIN EXPENSES PURSUANT TO RULE 3-14:
Independent Auditors' Report............................................. F-27
Group A Properties Combined Statement of Revenues and Certain Expenses
for the year
ended December 31, 1993 and Unaudited Period from January 1, 1994 to the
earlier of September 30, 1994 or Date of Acquisition.................... F-28
Notes to Group A Properties Combined Statement of Revenues and Certain
Expenses................................................................ F-29
Independent Auditors' Report............................................. F-31
Group B Properties Combined Statement of Revenues and Certain Expenses
for the nine months ended September 30, 1994............................ F-32
Notes to Group B Properties Combined Statement of Revenues and Certain
Expenses................................................................ F-33
</TABLE>
F-1
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined financial statements of Property
Trust of America ("PTR") and Security Capital Pacific Incorporated ("PACIFIC")
reflect (i) the Merger, (ii) certain properties acquired, or to be acquired, by
PTR and PACIFIC and (iii) the concurrent subscription offering, as if these
transactions had been consummated, with respect to the statements of earnings,
at January 1, 1993, or, with respect to the balance sheet, as of September 30,
1994. The information presented is derived from, should be read in conjunction
with, and is qualified in its entirety by reference to, the separate historical
financial statements and the notes thereto appearing elsewhere in this Joint
Proxy/Information Statement and Prospectus or incorporated in this Joint
Proxy/Information Statement and Prospectus by reference. The unaudited pro
forma combined financial statements have been included for comparative purposes
only and do not purport to be indicative of the results of operations or
financial position which would have actually been obtained if these
transactions had been effected at the dates indicated or of the financial
position or results of operations which may be obtained in the future.
F-2
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
PRO FORMA COMBINED BALANCE SHEETS
SEPTEMBER 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
PRO
FORMA
BEFORE
SUBSCRIPTION
PTR PACIFIC OFFERING
------------------------------------- ------------------------------------- -------------------------
PRO FORMA PRO FORMA PRO PRO FORMA
HISTORICAL ADJUSTMENTS(A) PRO FORMA HISTORICAL ADJUSTMENTS FORMA ADJUSTMENTS(M) PRO FORMA
---------- ------------- ---------- ---------- ----------- -------- ------------- ----------
ASSETS
------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate........ $1,233,021 $11,550 $1,244,571 $163,787 $87,674 (c) $251,461 $(1,512) $1,494,520
Less accumulated
depreciation 39,071 -- 39,071 2,012 -- 2,012 (2,012) 39,071
---------- ------- ---------- -------- ------- -------- ------- ----------
1,193,950 11,550 1,205,500 161,775 87,674 249,449 500 1,455,449
Mortgage notes
receivable......... 22,553 -- 22,553 -- -- -- -- 22,553
---------- ------- ---------- -------- ------- -------- ------- ----------
Total
investments..... 1,216,503 11,550 1,228,053 161,775 87,674 249,449 500 1,478,002
Cash and cash
equivalents........ 12,475 (9,475) 3,000 1,224 (1,224)(d) -- (500) 2,500
Accounts
receivable......... 2,209 -- 2,209 205 -- 205 -- 2,414
Other assets....... 13,350 -- 13,350 2,854 -- 2,854 -- 16,204
---------- ------- ---------- -------- ------- -------- ------- ----------
Total assets.... $1,244,537 $ 2,075 $1,246,612 $166,058 $86,450 $252,508 $ -- $1,499,120
========== ======= ========== ======== ======= ======== ======= ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Line of credit.... $ 53,500 $ 2,075 $ 55,575 $ -- $52,548 (d)&(e) $ 52,548 $ -- $ 108,123
Long term debt.... 200,000 -- 200,000 -- -- -- -- 200,000
Mortgages
payable........... 96,200 -- 96,200 23,428 36,010 (d) 59,438 -- 155,638
Distributions
payable........... -- -- -- 1,591 (1,591)(e) -- -- --
Accounts payable.. 12,494 -- 12,494 143 -- 143 -- 12,637
Accrued expenses
and other
liabilities....... 24,719 -- 24,719 1,779 -- 1,779 -- 26,498
---------- ------- ---------- -------- ------- -------- ------- ----------
Total
liabilities..... 386,913 2,075 388,988 26,941 86,967 113,908 -- 502,896
---------- ------- ---------- -------- ------- -------- ------- ----------
Shareholders'
Equity:
Series A
Preferred shares.. 230,000 -- 230,000 -- -- -- -- 230,000
Common shares..... 50,562 -- 50,562 139 -- 139 8,329 59,030
Additional paid-
in capital........ 621,787 -- 621,787 138,461 -- 138,461 (8,329) 751,919
Deficit (excess)
of distributions
to net earnings... (42,796) -- (42,796) 517 (517)(e) -- -- (42,796)
Treasury shares... (1,929) -- (1,929) -- -- -- -- (1,929)
---------- ------- ---------- -------- ------- -------- ------- ----------
Total
shareholders'
equity.......... 857,624 -- 857,624 139,117 (517) 138,600 -- 996,224
---------- ------- ---------- -------- ------- -------- ------- ----------
Total
liabilities and
shareholders'
equity.......... $1,244,537 $ 2,075 $1,246,612 $166,058 $86,450 $252,508 $ -- $1,499,120
========== ======= ========== ======== ======= ======== ======= ==========
Outstanding
common shares... 50,397 50,397 13,860 13,860 8,468 (n) 58,865
========== ========== ======== ======== ==========
Book value per
common share.... $ 12.45 $ 12.45 $ 10.04 $ 10.00 $ 13.02
========== ========== ======== ======== ==========
<CAPTION>
COMBINED
PRO FORMA
SUB- AFTER SUB-
SCRIPTION SCRIPTION
OFFERING OFFERING
------------- -----------
ASSETS
------
<S> <C> <C>
Real estate........ $ -- $1,494,520
Less accumulated
depreciation -- 39,071
------------- -----------
-- 1,455,449
Mortgage notes
receivable......... -- 22,553
------------- -----------
Total
investments..... -- 1,478,002
Cash and cash
equivalents........ -- 2,500
Accounts
receivable......... -- 2,414
Other assets....... -- 16,204
------------- -----------
Total assets.... -- $1,499,120
============= ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Line of credit.... $(50,000)(o) $ 58,123
Long term debt.... 200,000
Mortgages
payable........... -- 155,638
Distributions
payable........... -- --
Accounts payable.. -- 12,637
Accrued expenses
and other
liabilities....... -- 26,498
------------- -----------
Total
liabilities..... (50,000) 452,896
------------- -----------
Shareholders'
Equity:
Series A
Preferred shares.. -- 230,000
Common shares..... 3,053 (o) 62,083
Additional paid-
in capital........ 46,947 (o) 798,866
Deficit (excess)
of distributions
to net earnings... -- (42,796)
Treasury shares... -- (1,929)
------------- -----------
Total
shareholders'
equity.......... 50,000 1,046,224
------------- -----------
Total
liabilities and
shareholders'
equity.......... $ -- $1,499,120
============= ===========
Outstanding
common shares... 3,053 (o) 61,918
============= ===========
Book value per
common share.... $ 13.18
===========
</TABLE>
See accompanying notes to pro forma financial statements.
F-3
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
PRO FORMA COMBINED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
----------------------------------------------------------
<TABLE>
<CAPTION>
COMBINED PRO FORMA
BEFORE SUBSCRIPTION
OFFERING
PACIFIC --------------------
HISTORICAL PRO FORMA PTR PRO HISTORICAL PRO FORMA PRO PRO FORMA PRO SUBSCRIPTION
PTR ADJUSTMENTS(A) FORMA PACIFIC(F) ADJUSTMENTS FORMA ADJUSTMENTS FORMA OFFERING
---------- ------------- -------- ---------- ----------- ------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income... $76,186 $91,027 $167,213 $ 797 $34,962(g) $35,759 $ -- $202,972 $ --
Interest income. 2,232 (261) 1,971 -- -- -- -- 1,971 --
------- ------- -------- ----- ------- ------- ----- -------- ------
78,418 90,766 169,184 797 34,962 35,759 -- 204,943 --
------- ------- -------- ----- ------- ------- ----- -------- ------
Expenses:
Rental expenses. 30,484 43,931 74,415 260 15,598(g) 15,858 -- 90,273 --
Depreciation.... 10,509 11,371 21,880 130 4,698(h) 4,828 -- 26,708 --
Interest
expense......... 3,923 18,937 22,860 64 7,683(i) 7,747 -- 30,607 (3,405)(p)
General and
administrative
and REIT
management fee.. 7,733 3,921 11,654 76 1,869(j) 1,945 -- 13,599 545 (p)
Provision for
possible loss on
investments..... 2,270 -- 2,270 -- -- -- -- 2,270 --
Other........... 308 -- 308 -- -- -- -- 308 --
------- ------- -------- ----- ------- ------- ----- -------- ------
55,227 78,160 133,387 530 29,848 30,378 -- 163,765 (2,860)
------- ------- -------- ----- ------- ------- ----- -------- ------
Earnings from
operations....... 23,191 12,606 35,797 267 5,114 5,381 -- 41,178 2,860
Gains on sale of
investments, net. 2,302 -- 2,302 -- -- -- -- 2,302 --
------- ------- -------- ----- ------- ------- ----- -------- ------
Net earnings..... 25,493 12,606 38,099 267 5,114 5,381 -- 43,480 2,860
Less Series A
Preferred share
distributions.... 1,341 9,182 10,523 -- -- -- -- 10,523 --
------- ------- -------- ----- ------- ------- ----- -------- ------
Net earnings
attributable to
common
shareholders..... $24,152 $ 3,424 $ 27,576 $ 267 $ 5,114 $ 5,381 $ -- $ 32,957 $2,860
======= ======= ======== ===== ======= ======= ===== ======== ======
Weighted average
common shares
outstanding...... 36,549 9,151 45,700 1,949 11,911(k) 13,860 8,468(n) 54,168 3,053 (o)
======= ======== ===== ======= ========
Net earnings per
share
attributable to
common
shareholders(b).. $ 0.66 $ 0.60 $0.14 $ 0.39 $ 0.61
======= ======== ===== ======= ========
<CAPTION>
COMBINED PRO
FORMA AFTER
SUBSCRIPTION
OFFERING
------------
<S> <C>
Revenues:
Rental income... $202,972
Interest income. 1,971
------------
204,943
------------
Expenses:
Rental expenses. 90,273
Depreciation.... 26,708
Interest
expense......... 27,202
General and
administrative
and REIT
management fee.. 14,144
Provision for
possible loss on
investments..... 2,270
Other........... 308
------------
160,905
------------
Earnings from
operations....... 44,038
Gains on sale of
investments, net. 2,302
------------
Net earnings..... 46,340
Less Series A
Preferred share
distributions.... 10,523
------------
Net earnings
attributable to
common
shareholders..... $ 35,817
============
Weighted average
common shares
outstanding...... 57,221
============
Net earnings per
share
attributable to
common
shareholders(b).. $ 0.63
============
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-4
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
PRO FORMA COMBINED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1994
------------------------------------------------------------
<TABLE>
<CAPTION>
COMBINED PRO FORMA
BEFORE SUBSCRIPTION
OFFERING
----------------------
HISTORICAL PRO FORMA PTR HISTORICAL PRO FORMA PACIFIC PRO FORMA SUBSCRIPTION
PTR ADJUSTMENTS(A) PRO FORMA PACIFIC ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA OFFERING
---------- ------------- --------- ---------- ----------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income... $131,103 $13,607 $144,710 $12,635 $15,642 (g) $28,277 $ -- $172,987 $ --
Interest income. 2,093 (195) 1,898 21 (21)(l) -- -- 1,898 --
-------- ------- -------- ------- ------- ------- ------ -------- ------
133,196 13,412 146,608 12,656 15,621 28,277 -- 174,885 --
-------- ------- -------- ------- ------- ------- ------ -------- ------
Expenses:
Rental expenses. 56,662 5,935 62,597 4,731 6,713 (g) 11,444 -- 74,041 --
Depreciation.... 17,411 1,762 19,173 1,882 2,057 (h) 3,939 -- 23,112 --
Interest
expense......... 14,021 2,126 16,147 1,003 4,961 (i) 5,964 -- 22,111 (2,715)(p)
General and
administrative
and REIT
management fee.. 9,965 737 10,702 1,130 632 (j) 1,762 -- 12,464 434 (p)
Provision for
possible loss on
investments..... 1,600 -- 1,600 -- -- -- -- 1,600 --
Other........... 533 -- 533 56 -- 56 -- 589 --
-------- ------- -------- ------- ------- ------- ------ -------- ------
100,192 10,560 110,752 8,802 14,363 23,165 -- 133,917 (2,281)
-------- ------- -------- ------- ------- ------- ------ -------- ------
Earnings from
operations....... 33,004 2,852 35,856 3,854 1,258 5,112 -- 40,968 2,281
Less Series A
Preferred share
distributions.... 12,075 -- 12,075 -- -- -- -- 12,075 --
-------- ------- -------- ------- ------- ------- ------ -------- ------
Net earnings
attributable to
common
shareholders..... $ 20,929 $ 2,852 $ 23,781 $ 3,854 $ 1,258 $ 5,112 $ -- $ 28,893 2,281
======== ======= ======== ======= ======= ======= ====== ======== ======
Weighted average
common shares
outstanding...... 45,490 3,339 48,829 8,702 5,158 (k) 13,860 8,468(n) 57,297 3,053 (o)
======== ======== ======= ======= ========
Net earnings per
share
attributable to
common
shareholders (b). $ 0.46 $ 0.49 $ 0.44 $ 0.37 $ 0.50
======== ======== ======= ======= ========
<CAPTION>
COMBINED PRO
FORMA AFTER
SUBSCRIPTION
OFFERING
------------
<S> <C>
Revenues:
Rental income... $172,987
Interest income. 1,898
------------
174,885
------------
Expenses:
Rental expenses. 74,041
Depreciation.... 23,112
Interest
expense......... 19,396
General and
administrative
and REIT
management fee.. 12,898
Provision for
possible loss on
investments..... 1,600
Other........... 589
------------
131,636
------------
Earnings from
operations....... 43,249
Less Series A
Preferred share
distributions.... 12,075
------------
Net earnings
attributable to
common
shareholders..... $ 31,174
============
Weighted average
common shares
outstanding...... 60,350
============
Net earnings per
share
attributable to
common
shareholders (b). $ 0.52
============
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-5
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
PTR PRO FORMA
(a) Reflects the pro forma effects of operating properties acquired during
1993 and 1994 as previously reported in PTR's Form 8-K dated November 30, 1994
as amended by Form 8-K/A No. 1 dated November 30, 1994 incorporated herein by
reference.
The pro forma financial statements do not give effect to development
expenditures as such investment activity has no prior operating history. Total
real estate investment activity during the reported periods was as follows
(amounts in thousands):
<TABLE>
<CAPTION>
TWELVE NINE
MONTHS MONTHS SUBSEQUENT
ENDED ENDED TO
12/31/93 9/30/94 9/30/94 TOTAL
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Acquisition of operating multifamily
properties as previously reported by PTR
in Forms 8-K during 1993 and 1994, net
of mortgages assumed.................... $389,346 $175,039 $11,550 $575,935
Development and other real estate
activity not accounted for on a pro
forma basis by PTR in Forms 8-K during
1993 and 1994........................... 147,276 144,229 -- 291,505
-------- -------- ------- --------
Total real estate investment activity, as
reported in Form 10-K or Form 10-Q...... 536,622 319,268 11,550 867,440
Mortgages assumed upon acquisition of
operating properties, as reported in
Form 10-K or Form 10-Q.................. 26,952 56,829 -- 83,781
-------- -------- ------- --------
Total investment activity.............. $563,574 $376,097 $11,550 $951,221
======== ======== ======= ========
</TABLE>
The above investment activity was funded by PTR through the issuance of long
term debt, line of credit borrowings, mortgage debt assumptions and preferred
and common share issuances as follows (amounts in thousands):
<TABLE>
<CAPTION>
TWELVE NINE
MONTHS MONTHS SUBSEQUENT
ENDED ENDED TO
12/31/93 9/30/94 9/30/94 TOTAL
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Long term debt issued February 1994...... $ -- $200,000 $ -- $200,000
Net proceeds from line of credit
borrowings and other sources............ 13,369 14,544 11,550 39,463
Mortgages assumed........................ 26,952 56,829 -- 83,781
Proceeds from preferred shares issued
November 1993, net of expenses.......... 219,670 -- -- 219,670
Proceeds from common shares issued
February 1993, September 1993 and August
1994, net of expenses................... 303,583 104,724 -- 408,307
-------- -------- ------- --------
Total funding sources.................. $563,574 $376,097 $11,550 $951,221
======== ======== ======= ========
</TABLE>
F-6
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
A proportionate amount of total funding sources were reflected in the pro
forma financial statements as if they had been funded on January 1, 1993 in
order to reflect the funds that would have been required to fund the operating
property acquisition portion of total investment activity. The resulting
increases in historical weighted average outstanding balances for each funding
source and the related pro forma adjustments were as follows (amounts in
thousands):
<TABLE>
<CAPTION>
INCREASE IN
WEIGHTED
AVERAGE
OUTSTANDING PRO FORMA
BALANCES HISTORICAL RATES ADJUSTMENTS
---------------- ---------------- ----------------
12/31/93 9/30/94 12/31/93 9/30/94 12/31/93 9/30/94
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Long term debt issued...... $136,639 $18,978 7.37% 7.37% $10,070 $1,049
Net proceeds from line of
credit borrowings and
other sources............. $ 39,333 $(6,916) 6.81% 7.24% $ 2,679 $ (376)
Mortgages assumed.......... $ 82,679 $31,656 7.48% 6.12% $ 6,188 $1,453
------- ------
Total pro forma interest
expense adjustment...... $18,937 $2,126
Proceeds from preferred
shares issued, net of
expenses.................. $131,178 $ -- 7.00% 7.00% $ 9,182 $ --
Proceeds from common shares
issued (17,617,831 shares
in 1993 and 5,752,459
shares in 1994), net of
expenses.................. $166,358 $60,911 $18.18 $18.24 9,151 3,339
</TABLE>
(b) The effect on earnings per share assuming conversion of the Series A
Preferred Shares is anti-dilutive for both the historical and pro forma
amounts.
PACIFIC PRO FORMA
The following acquisitions of multifamily properties including properties
acquired, or under contract to be acquired subsequent to September 30, 1994,
were or will be made by PACIFIC from unrelated parties. PACIFIC acquired these
properties because PACIFIC and its REIT manager, Security Capital (Pacific)
Incorporated believe that multifamily property investments in the western
United States present excellent long term opportunities for consistent rental
increases, high occupancies and value appreciation. PACIFIC is not aware of any
material factors relating to the properties that would cause the reported
financial information not to be necessarily indicative of future operating
results.
PACIFIC acquired Double Tree Phase I apartments on November 16, 1993 from a
corporation. Double Tree Phase I is a 245 unit, middle income complex located
in Vancouver, Washington. PACIFIC acquired this property for approximately
$10.9 million. At date of purchase, the property's occupancy rate was 99%.
PACIFIC acquired Knights Castle apartments on November 16, 1993 from a
corporation. Knight Castle is a 296 unit, middle income complex located in
Wilsonville, Oregon. PACIFIC acquired this property for approximately $12.9
million. At date of purchase, the property's occupancy rate was 98%.
PACIFIC acquired Squire's Court apartments on November 16, 1993 from a
corporation. Squire's Court is a 235 unit, middle income complex located in
Clackamas, Oregon. PACIFIC acquired this property for approximately $10.8
million. At date of purchase, the property's occupancy rate was 98%.
PACIFIC acquired Club at the Green apartments on December 16, 1993 from a
corporation. Club at the Green is a 254 unit, middle income complex located in
Portland, Oregon. PACIFIC acquired this property for approximately $11 million.
At date of purchase, the property's occupancy rate was 92.5%.
F-7
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
PACIFIC acquired Riverwood Heights apartments on December 16, 1993 from a
corporation. Riverwood Heights is a 240 unit, middle income complex located in
Tigard, Oregon. PACIFIC acquired this property for approximately $10 million.
At date of purchase, the property's occupancy rate was 95.5%.
PACIFIC acquired Kings Crossing apartments on February 3, 1994 from a
corporation. Kings Crossing is a 440 unit, middle income complex located in Las
Vegas, Nevada. PACIFIC acquired this property for approximately $19.2 million.
At date of purchase, the property's occupancy rate was 98%.
PACIFIC acquired Greenpointe apartments on March 18, 1994 from a corporation.
Greenpointe is a 192 unit, middle income complex located in Salt Lake City,
Utah. PACIFIC acquired this property for approximately $5.8 million. At date of
purchase, the property's occupancy rate was 99%.
PACIFIC acquired Mountain Shadow apartments on March 18, 1994 from a
corporation. Mountain Shadow is a 174 unit, middle income complex located in
Salt Lake City, Utah. PACIFIC acquired this property for approximately $5.5
million. At date of purchase, the property's occupancy rate was 100%.
PACIFIC acquired Sunterra apartments on March 18, 1994 from a corporation.
Sunterra is a 444 unit, middle income complex located in Las Vegas, Nevada.
PACIFIC acquired this property for approximately $14 million. At date of
purchase, the property's occupancy rate was 92%.
PACIFIC acquired Horizons at Peccole Ranch apartments on June 28, 1994 from a
limited partnership. Horizons is a 408 unit, middle income complex located in
Las Vegas, Nevada. PACIFIC acquired this property for approximately $21.1
million. At date of purchase, the property's occupancy rate was 97.1%.
PACIFIC acquired The Hamptons apartments on July 27, 1994 from a corporation.
The Hamptons is a 492 unit, middle income complex located in Las Vegas, Nevada.
PACIFIC acquired this property for approximately $19.5 million. At date of
purchase, the property's occupancy rate was 95%.
PACIFIC acquired Meridian at Murrayhill apartments on September 23, 1994 from
a corporation. Meridian is a 312 unit, upper middle income complex located in
Beaverton, Oregon. PACIFIC acquired this property for approximately $16.9
million. At date of purchase, the property's occupancy rate was 95.5%.
PACIFIC acquired Walden Pond apartments on October 21, 1994 from a
corporation. Walden Pond is a 316 unit, middle income complex located in
Everett, Washington approximately fifteen miles north of downtown Seattle,
Washington. PACIFIC acquired this property for approximately $13.5 million. At
date of purchase, the property's occupancy rate was 92.7%.
PACIFIC acquired Anchor Village apartments on October 26, 1994 from a limited
partnership. Anchor Village is a 896 unit, middle income complex located in Las
Vegas, Nevada. PACIFIC acquired this property for approximately $39.3 million.
At date of purchase, the property's occupancy rate was 95%.
PACIFIC acquired Logan's Ridge apartments on December 30, 1994 from a
corporation. Logan's Ridge is a 258 unit, middle income complex located in
Redmond, Washington. PACIFIC acquired this property for approximately $13
million. At date of purchase, the property's occupancy rate was 95%.
PACIFIC acquired Cherry Creek apartments on January 17, 1995 from a Utah
general partnership. Cherry Creek is a 225 unit, middle income complex located
north of Salt Lake City in Riverdale, Utah. PACIFIC acquired this property for
approximately $8.6 million. At date of purchase, the property's occupancy rate
was 95.2%.
F-8
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
PACIFIC has entered into a contract to acquire Matanza Creek apartments
during the first quarter of 1995 from a corporation. Matanza Creek is a 152
unit, middle income complex located in Everett, Washington and is currently
96.5% occupied. The anticipated cost of the property is approximately $6.9
million.
PACIFIC has entered into a contract to acquire Double Tree Phase II
apartments during the first quarter of 1995 from a corporation. Double Tree
Phase II is a 124 unit, middle income complex located in Vancouver, Washington
and is currently 94.4% occupied. The anticipated cost of this property is
approximately $6.6 million.
(c) Represents PACIFIC's acquisitions subsequent to September 30, 1994 and
operating properties under contract to be acquired in February 1995, as
follows:
<TABLE>
<CAPTION>
ACQUISITION AMOUNT
PROPERTY DATE (IN THOUSANDS)
-------- -------------- -------------
<S> <C> <C>
Walden Pond................................. 10/21/94 $13,450
Anchor Village.............................. 10/26/94 39,250
Logan's Ridge............................... 12/30/94 13,000
Cherry Creek................................ 1/17/95 8,550
Matanza Creek............................... Under contract 6,849
Double Tree Phase II........................ Under contract 6,575
-------
Total................................... $87,674
=======
</TABLE>
(d) Reflects the application of cash of $1,224,000 and line of credit
borrowings of $52,548,000 utilized to fund pro forma acquisitions of properties
and distributions. Additionally, PACIFIC anticipates assuming approximately
$36,010,000 in mortgage notes payable upon the purchase of Anchor Village
Apartments, Cherry Creek Apartments and Double Tree Phase II Apartments. Under
the terms of PACIFIC's revolving line of credit, any outstanding balances must
be repaid upon the Merger. Such outstanding balances will be repaid with
proceeds from the concurrent subscription offering described in Note (o) and
borrowings on PTR's line of credit.
(e) Reflects the payment of declared and accrued distributions in the amount
of $1,591,000 and the pro forma distribution in the amount of $517,000 of the
undistributed net earnings prior to consummation of the Merger. Amounts paid
are assumed to be funded by line of credit borrowings.
(f) Reflects historical revenues and expenses of PACIFIC for the period from
October 22, 1993 (date of inception) to December 31, 1993.
(g) Reflects historical revenues and certain expenses, including mortgage
interest if applicable, on properties acquired, or to be acquired within 40
days of the date of this Joint Proxy/Information Statement and Prospectus, by
PACIFIC during 1993 and 1994, as described in this Joint Proxy/Information
Statement and Prospectus for the portion of the year ended December 31, 1993 or
for the portion of the nine months ended September 30, 1994 that is not
included in PACIFIC's historical operating results. Historical revenues and
certain expenses exclude amounts which would not be comparable to the proposed
future operations of the properties, such as certain interest expense, interest
income, income taxes and depreciation.
F-9
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following table reconciles the audited information for the Group A
properties and the Group B properties to the pro forma amounts contained in the
pro forma combined statements of earnings:
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------------ -----------------------
RENTAL RENTAL RENTAL RENTAL
INCOME EXPENSE INCOME EXPENSE
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Group A Properties (iv) for
the year ended December 31,
1993 or for the period
January 1, 1994 to the date
of acquisition (Per F-28).. $ 6,532 3,059 15,267 $ 8,205
Pro forma adjustment for
the year ended December
31, 1993 or for the
period January 1, 1994 to
the date of acquisition.. -- 62 (i) -- 174 (i)
--------- -------- -------- ---------
Total Group A
Properties............. 6,532 3,121 15,267 8,379
--------- -------- -------- ---------
Group B Properties (v) for
the year ended December 31,
1993....................... n/a n/a 10,814 4,778
Group B Properties for the
nine months ended September
30, 1994 (Per F-32)........ 8,311 5,411 n/a n/a
Pro forma adjustment for
the year ended December
31, 1993 or for the nine
months ended September
30, 1994................. -- (60)(i) -- (32)(i)
--------- -------- -------- ---------
Total Group B
Properties............. 8,311 5,351 10,814 4,746
--------- -------- -------- ---------
Other properties acquired,
or to be acquired in
February 1995.............. 799 (ii) 348 (ii) 8,881 (ii) 3,580 (ii)
Less:
Interest expense
reclassified............. -- (2,107)(iii) -- (1,107)(iii)
--------- -------- -------- ---------
Total Pro Forma
adjustment............. $ 15,642 6,713 34,962 $ 15,598
========= ======== ======== =========
</TABLE>
- --------
(i) Represents the adjustment for the difference between historical property
management fee expense and PACIFIC's management fee expense.
(ii) Represents 1993 results and results for the nine months ended September
30, 1994 for properties acquired, or to be acquired imminently, that are
not included in the Group A or Group B properties.
(iii) Represents mortgage interest expense that is included in "certain
expenses" for Group A or Group B properties that was reclassified to
interest expense for purposes of the pro forma financial statements.
(iv) Group A Properties include:
<TABLE>
<CAPTION>
PROPERTY LOCATION DATE ACQUIRED
-------- -------- -------------
<S> <C> <C>
King's Crossing Las Vegas, Nevada 02/03/94
Sunterra Las Vegas, Nevada 03/18/94
Mountain Shadow Salt Lake City, Utah 03/18/94
Greenepointe Salt Lake City, Utah 03/18/94
Horizons at Peccole Ranch Las Vegas, Nevada 06/28/94
The Hamptons Las Vegas, Nevada 07/27/94
Meridian at Murrayhill Portland, Oregon 09/23/94
(v) Group B Properties include:
<CAPTION>
PROPERTY LOCATION DATE ACQUIRED
-------- -------- -------------
<S> <C> <C>
Walden Pond Seattle, Washington 10/21/94
Anchor Village Las Vegas, Nevada 10/26/94
Logan's Ridge Seattle, Washington 12/30/94
Cherry Creek Salt Lake City, Utah 01/17/95
</TABLE>
F-10
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(h) Reflects pro forma depreciation expense adjustment resulting from
acquired properties and based on the depreciable basis of PACIFIC's purchase
cost assuming asset lives ranging from 10 to 40 years as if the properties had
been acquired on January 1, 1993. The pro forma depreciation expense adjustment
amounts by property are as follows (amounts in thousands):.
<TABLE>
<CAPTION>
ACQUISITION
----------------------
PROPERTY DATE COST 12/31/93 9/30/94
-------- -------------- ------- -------- -------
<S> <C> <C> <C> <C>
Club at the Green...................... 12/16/93 $11,000 $ 211 $ --
Double Tree 1.......................... 11/16/93 10,900 191 --
Greenpointe............................ 03/18/94 5,800 116 29
The Hamptons........................... 07/27/94 19,500 390 228
Horizons at Peccole Ranch.............. 06/28/94 21,100 422 211
King's Crossing........................ 02/04/94 19,200 384 32
Knight's Castle........................ 11/16/93 12,900 226 --
Meridian at Murrayhill................. 09/23/94 16,900 338 254
Mountain Shadow........................ 03/18/94 5,500 138 29
Riverwood Heights...................... 12/16/93 10,000 192 --
Squire's Court......................... 11/16/93 10,800 189 --
Sunterra............................... 03/18/94 14,000 280 58
Walden Pond............................ 10/21/93 13,500 269 202
Anchor Village......................... 10/21/94 39,300 785 589
Logan's Ridge.......................... 12/30/94 13,000 260 195
Cherry Creek........................... 01/17/95 8,600 171 128
Matanza Creek.......................... Under contract 6,900 136 102
------ ------
Total pro forma adjustment............ $4,698 $2,057
====== ======
</TABLE>
(i) Reflects the utilization of pro forma line of credit borrowings of
$52,548,000 which would have occurred to fund the acquisitions on January 1,
1993 at a pro forma weighted average interest rate of 6.81% for the year ended
December 31, 1993 and 7.24% for the nine months ended September 30, 1994 and
mortgage interest associated with mortgage debt assumed in connection with the
acquisitions acquired or to be acquired in February 1995 in the amount of
$4,104,000 for the year ended December 31, 1993 and $2,107,000 for the nine
months ended September 30, 1994.
(j) Reflects adjustments to PACIFIC's REIT management fee expense related to
the increase in cash flow resulting from acquisition of multifamily properties
(amounts in thousands):
<TABLE>
<CAPTION>
12/31/93 9/30/94
-------- -------
<S> <C> <C>
Pro Forma Adjustments:
Rental income.............................................. $ 34,962 $15,642
Interest income............................................ -- (21)
Rental expense............................................. (15,598) (6,713)
Interest expense........................................... (7,683) (4,961)
-------- -------
11,681 3,947
REIT management fee percentage............................. 16.00% 16.00%
-------- -------
Pro forma REIT management fee expense adjustment............ $ 1,869 $ 632
======== =======
</TABLE>
(k) The pro forma weighted average common shares outstanding for the year
ended December 31, 1993 and the nine months ended September 30, 1994 reflect
the assumption that all shares outstanding at September 30, 1994 would have
been issued had the operating property acquisitions occurred at January 1,
1993.
F-11
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(l) Reflects the elimination of PACIFIC's interest income from cash and cash
equivalents due to the pro forma utilization of the cash for property
acquisitions.
COMBINED PRO FORMA
(m) Reflects the proposed Merger of PACIFIC with and into PTR as follows (in
thousands):
<TABLE>
<S> <C>
PAR VALUE OF SHARES:
Shares of PTR to be received by Stockholders of PACIFIC............. $ 8,468
Elimination of existing shares in PACIFIC........................... (139)
---------
Pro forma adjustment to common shares............................... $ 8,329
=========
PROCEEDS:
Purchase price for pro forma purposes--8,468,460 shares @ $16.375
per share.......................................................... $ 138,671
Par value of shares of PTR to be received by Stockholders of
PACIFIC............................................................ (8,468)
---------
Purchase price allocated to additional paid-in capital.............. 130,203
Elimination of existing additional paid-in capital in PACIFIC....... (138,461)
Difference due to rounding in the exchange ratio.................... (71)
---------
Pro forma adjustment to additional paid-in capital.................. $ (8,329)
=========
</TABLE>
The actual purchase cost to be recorded will be determined based upon the
closing price of PTR Common Shares at the date of consummation of the Merger.
Costs of the proposed merger are estimated to be $500,000.
(n) Reflects the issuance of PTR Common Shares in exchange for PACIFIC shares
as discussed in (m) above.
(o) Reflects Security Capital Group's maximum committed investment of $50
million in the proposed concurrent subscription offering. The proposed offering
price is $16.375 per share and proceeds are assumed to be utilized for pro
forma purposes to repay the pro forma borrowings under PACIFIC's revolving line
of credit.
(p) Reflects the reduction of interest expense for the year ended December
31, 1993 and the nine months ended September 30, 1994 which would have occurred
as a result of the minimum proceeds assumed to have been received from the
concurrent subscription offering, as described in note (o) at the weighted
average interest rates disclosed in note (i), net of the 16% REIT management
fee.
F-12
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
PRO FORMA COMBINED ESTIMATED TWELVE MONTH PRO FORMA STATEMENT
OF TAXABLE NET OPERATING INCOME AND FUNDS AVAILABLE
(IN THOUSANDS)
(UNAUDITED)
The following unaudited statement is a pro forma combined estimate for a
twelve month period of taxable income and funds available from operations. This
statement does not purport to forecast actual operating results for any period
in the future.
<TABLE>
<S> <C>
ESTIMATE OF TAXABLE OPERATING RESULTS:
Historical net earnings exclusive of depreciation and provisions
for possible loss on investments of:
PTR (Note 1)..................................................... $ 64,638
PACIFIC (Note 1)................................................. 6,133
--------
Combined........................................................ 70,771
--------
Acquisitions (from October 1, 1993 to the earlier of the
respective dates of acquisition or September 30, 1994):
1993 and 1994 acquisitions by PTR previously reported on Forms
8-K (Note 2).................................................. 11,072
1993 and 1994 acquisitions by PACIFIC as described in the notes
to pro forma combined financial statements (Note 2)........... 9,934
Pro forma effect of 1993 and 1994 acquisitions (Note 3):
Line of credit interest expense.................................. (4,793)
Long term debt interest expense.................................. (3,567)
REIT management fee.............................................. (2,371)
Property management fee.......................................... 12
Real estate property taxes....................................... (52)
Interest income.................................................. (288)
Estimated tax depreciation of:
PTR--historical.................................................. (21,132)
PACIFIC--historical.............................................. (2,012)
--------
Combined--historical............................................ (23,144)
Acquired properties (Note 4):
1993 and 1994 acquisitions by PTR previously reported on Forms
8-K........................................................... (3,426)
1993 and 1994 acquisitions by PACIFIC as described in the notes
to pro forma combined financial statements.................... (3,231)
--------
Estimated pro forma combined tax depreciation.................. (29,801)
--------
Pro forma combined taxable income before REIT dividend deduction. $ 50,917
Estimated REIT dividend deduction................................ 50,917
--------
Pro forma combined taxable income................................ $ --
========
Estimate of combined funds available from operations:
Pro forma combined taxable income before REIT dividend deduction. $ 50,917
Add estimated depreciation....................................... 29,801
--------
Pro forma combined funds available from operations............... $ 80,718
Series A Preferred pro forma dividend requirement................ 14,706
--------
Pro forma combined funds available from operations attributable
to common shareholders.......................................... $ 66,012
========
</TABLE>
F-13
<PAGE>
PROPERTY TRUST OF AMERICA
SECURITY CAPITAL PACIFIC INCORPORATED
NOTES TO PRO FORMA COMBINED ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF
TAXABLE NET OPERATING INCOME AND FUNDS AVAILABLE
Note 1: The historical net earnings exclusive of depreciation and provisions
for possible losses is for the twelve months ended September 30, 1994 as
reflected in PTR's and PACIFIC's historical financial statements.
Note 2: Reflects historical revenues and certain expenses, including mortgage
interest, if applicable, of properties acquired during the period from October
1, 1993 to the earlier of the respective dates of acquisition or September 30,
1994. Historical revenues and certain expenses exclude amounts which would not
be comparable to the proposed future operations of the properties such as
certain interest expense, interest income, income taxes and depreciation.
Note 3: Property management fees, the REIT management fee, mortgage interest
expense and real estate property tax amounts represent certain adjustments
which are factually supportable for each of the acquired properties. The
adjustments to long term debt and line of credit interest expense are a result
of adjusted pro forma line of credit and long term debt borrowings and common
and preferred share issuances as more fully described in the notes to the pro
forma combined financial statements.
Note 4: Tax depreciation for the acquired properties is based on PTR's and
PACIFIC's purchase price which was allocated to the buildings and other
depreciable assets and depreciated on the straight-line method assuming asset
lives ranging from ten to forty years.
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Security Capital Pacific Incorporated:
We have audited the accompanying balance sheets of Security Capital Pacific
Incorporated as of September 30, 1994 and December 31, 1993, and the related
statements of earnings, stockholders' equity, and cash flows for the nine-month
period ended September 30, 1994, and the period from inception (October 22,
1993) through December 31, 1993. In connection with our audits, we also have
audited the accompanying Schedule XI, Real Estate and Accumulated Depreciation.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Capital Pacific
Incorporated as of September 30, 1994 and December 31, 1993, and the results of
its operations and its cash flows for the nine-month period ended September 30,
1994 and the period from inception (October 22, 1993) through December 31,
1993, in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
El Paso, Texas
November 22, 1994, except as to note 8,
which is as of December 6, 1994
F-15
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1994 1993
------ ------------- ------------
<S> <C> <C>
Real estate......................................... $163,787 $55,666
Less accumulated depreciation....................... 2,012 130
-------- -------
Total investments............................... 161,775 55,536
Cash and cash equivalents........................... 1,224 487
Accounts receivable................................. 205 7
Other assets........................................ 2,854 546
-------- -------
Total assets.................................... $166,058 $56,576
======== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Mortgages payable................................. $ 23,428 $ 7,879
Distributions payable............................. 1,591 --
Accounts payable.................................. 143 116
Accrued expenses and other liabilities............ 1,779 513
-------- -------
Total liabilities............................... 26,941 8,508
-------- -------
Stockholders' Equity:
Shares of common stock (shares issued--13,860,000
in 1994 and 4,780,114 in 1993)................... 139 48
Additional paid-in capital........................ 138,461 47,753
Net earnings in excess of distributions........... 517 267
-------- -------
Total stockholders' equity...................... 139,117 48,068
-------- -------
Total liabilities and stockholders' equity...... $166,058 $56,576
======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FROM DATE
OF INCEPTION
NINE MONTHS (OCTOBER 22,
ENDED 1993) TO
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
<S> <C> <C>
Revenues:
Rental income..................................... $ 12,635 $ 797
Interest income................................... 21 --
---------- ----------
Total revenue............................... 12,656 797
---------- ----------
Expenses:
Rental expenses................................... 4,731 260
Depreciation...................................... 1,882 130
Interest.......................................... 1,003 64
General and administrative and REIT management
fee.............................................. 1,130 76
Other............................................. 56 --
---------- ----------
Total expenses.............................. 8,802 530
---------- ----------
Net earnings........................................ $ 3,854 $ 267
========== ==========
Weighted average shares outstanding................. 8,702,347 1,949,200
========== ==========
Net earnings per share.............................. $ 0.44 $ 0.14
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
FROM DATE OF INCEPTION (OCTOBER 22, 1993) TO DECEMBER 31, 1993 AND
NINE MONTHS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
250 MILLION SHARES
AUTHORIZED
------------------- ADDITIONAL NET EARNINGS TOTAL
NUMBER OF $.01 PAR PAID-IN IN EXCESS OF STOCKHOLDERS'
SHARES VALUE CAPITAL DISTRIBUTIONS EQUITY
---------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at October 22,
1993................... -- $-- $ -- $ -- $ --
Net earnings.......... -- -- -- 267 267
Distributions......... -- -- -- -- --
Sale of Shares........ 4,780,114 48 47,753 -- 47,801
---------- ---- -------- ------- --------
Balances at December 31,
1993................... 4,780,114 48 47,753 267 48,068
Net earnings.......... -- -- -- 3,854 3,854
Distributions......... -- -- -- (3,604) (3,604)
Sales of Shares....... 9,079,886 91 90,708 -- 90,799
---------- ---- -------- ------- --------
Balances at September
30, 1994............... 13,860,000 $139 $138,461 $ 517 $139,117
========== ==== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FROM DATE OF
INCEPTION
NINE MONTHS (OCTOBER 22,
ENDED 1993) TO
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings...................................... $ 3,854 267
Items not requiring cash:
Depreciation and amortization................... 1,882 130
Accounts receivable............................. (198) (7)
Other assets.................................... (2,308) (546)
Accounts payable................................ 27 116
Accrued expenses................................ 1,266 513
------- -------
Net cash flow provided by operating
activities................................... 4,523 473
------- -------
INVESTING ACTIVITIES:
Net real estate investments....................... (92,370) (47,777)
------- -------
Net cash used in investment activities........ (92,370) (47,777)
------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock............ 90,799 47,801
Regularly scheduled principal payments on
mortgages payable................................ (202) (10)
Cash distributions paid on common stock........... (2,013) --
------- -------
Net cash flow provided by financing
activities................................... 88,584 47,791
------- -------
Net increase in cash and cash equivalents........... 737 487
Cash and cash equivalents, beginning of period...... 487 --
------- -------
Cash and cash equivalents, end of period............ $ 1,224 $ 487
======= =======
NON-CASH FINANCING ACTIVITIES:
Mortgage notes assumed upon purchase of
multifamily properties........................... $15,751 7,889
Distributions declared............................ 1,591 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Security Capital Pacific Incorporated ("PACIFIC"), a corporation organized
under the laws of the state of Maryland, primarily owns, acquires, develops and
operates income-producing multifamily properties in a six-state region of the
western United States. From its inception on October 22, 1993 through August
1994, PACIFIC was a wholly owned subsidiary of Security Capital Realty
Incorporated (which management intends to name Security Capital Group
Incorporated, herein referred to as "Security Capital Group"). At September 30,
1994, Security Capital Group owned approximately 97.6% of PACIFIC's outstanding
common stock. See Notes 5 and 6.
Cash and Cash Equivalents
PACIFIC considers all cash on hand, demand deposits with financial
institutions and short term highly liquid investments with original maturities
of three months or less to be cash equivalents.
Real Estate and Depreciation
Real estate is carried at the lower of cost or net realizable value.
Costs directly related to the acquisition, renovation or development of real
estate are capitalized. Costs incurred in connection with the pursuit of
unsuccessful acquisitions are expensed at the time the acquisition is deemed
terminated.
Repairs and maintenance are expensed as incurred. Renovations and
improvements are capitalized and depreciated over their estimated useful lives.
Depreciation is computed over the expected useful lives of depreciable
property on a straight-line basis. Properties are depreciated principally over
the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................... 20-40 years
Furnishings and other......................................... 2-10 years
</TABLE>
Capital Markets Costs
Costs incurred in connection with the issuance of common stock are deducted
from stockholders' equity. Costs incurred in connection with the incurrence or
renewal of debt are capitalized, included with other assets and amortized over
the term of the related loan.
Revenue Recognition
Rental and interest income is recorded on the accrual method of accounting
for financial reporting and tax purposes. Gain or loss on sales of real estate
are recorded when criteria required by FAS-66 have been met. A provision for
possible loss is made when collection of receivables is considered doubtful.
Federal Income Taxes
PACIFIC intends to elect to be taxed as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended, effective for the
taxable year ending December 31, 1994. During 1993, PACIFIC was a qualified
REIT subsidiary. Accordingly, no provision has been made for federal income
taxes in the accompanying financial statements.
Earnings per Common Share
Per share data is computed based upon the weighted average number of shares
of common stock, par value $0.01 per share, outstanding during the period.
Exercise of the outstanding stock warrants would not have a dilutive effect on
earnings per share.
F-20
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) REAL ESTATE
Investments
Investments in real estate, at cost, were as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994 DECEMBER 31, 1993
----------------- -----------------
INVESTMENTS UNITS INVESTMENTS UNITS
----------- ----- ----------- -----
<S> <C> <C> <C> <C>
Operating properties.................. $159,263 3,732 $55,666 1,270
Developments in planning.............. 4,524 612 -- --
-------- ----- ------- -----
Total............................. $163,787 4,344 $55,666 1,270
======== ===== ======= =====
</TABLE>
At September 30, 1994, investment in developments in planning consists
primarily of land acquisition cost. Total completed construction costs for
developments in planning at September 30, 1994 are anticipated to be $30.2
million. PACIFIC has not entered into contracts for these developments.
The change in investments in real estate, at cost, from December 31, 1993 to
September 30, 1994 consisted of the following (in thousands):
<TABLE>
<S> <C>
Balance at December 31, 1993..................................... $ 55,666
Acquisitions and renovation expenditures....................... 103,597
Development expenditures, including land acquisitions.......... 4,524
--------
Balance at September 30, 1994.................................... $163,787
========
</TABLE>
Capitalized Interest
PACIFIC capitalizes interest as part of the cost of real estate projects
under development. Capitalized interest for the period ended September 30, 1994
was $85,983. No interest was capitalized during 1993. During the periods ended
September 30, 1994 and December 31, 1993 the total interest paid on all
outstanding debt was $980,460 and $20,928, respectively.
Repairs and Maintenance
Repairs and maintenance charged to rental expense for the periods ended
September 30, 1994 and December 31, 1993 were $505,110 and $10,943,
respectively.
Property Taxes
Property taxes charged to rental expense for the periods ended September 30,
1994 and December 31, 1993 were $1,051,741 and $86,554, respectively.
(3) LINE OF CREDIT
On October 17, 1994, PACIFIC entered into a $75 million secured revolving
line of credit with Wells Fargo Realty Advisors Funding ("Wells Fargo"). The
line of credit bears interest at prime or, at PACIFIC's option, LIBOR plus 2%,
and is scheduled to mature in October 1997. This line may be extended annually
for an additional year with the approval of Wells Fargo and the other
participating lenders.
All debt incurrences are subject to a covenant that PACIFIC maintain a debt
to tangible net worth ratio of not greater than 1 to 1. Additionally, PACIFIC
is required to maintain an adjusted net worth (as defined) of at least $120
million and to maintain interest coverage (as defined) of not less than 2 to 1.
At November 22, 1994 PACIFIC had outstanding borrowings of $28.0 million,
bearing interest at 7.63% per annum (LIBOR plus 2%), pursuant to its line of
credit and had pledged $62.6 million of real estate assets.
F-21
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In the event the proposed merger discussed in Note 8 is consummated, the loan
agreement requires that borrowings pursuant to the line of credit be repaid and
the line of credit terminated.
(4) MORTGAGES PAYABLE
Mortgages payable are secured by real estate with an undepreciated cost of
$38,763,287, at September 30, 1994 and are due in installments over various
terms extending to 2000, with interest rates ranging from 6.56% to 8.50%.
The following is a summary of activity in mortgages payable for the nine
months ended September 30, 1994 (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- ------
<S> <C> <C>
Beginning Balance........................................ $ 7,879 $ --
Mortgages assumed........................................ 15,751 7,889
Principal payments....................................... (202) (10)
------- ------
Ending Balance........................................... $23,428 $7,879
======= ======
</TABLE>
Approximate principal payments due during each of the years in the five-year
period ending September 30, 1999 and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1995............................................................. $ 360
1996............................................................. 389
1997............................................................. 7,762
1998............................................................. 287
1999............................................................. 312
Thereafter....................................................... 14,318
-------
Total mortgages payable.......................................... $23,428
=======
</TABLE>
Based on market borrowing rates available to PACIFIC for mortgages with
similar terms and average maturities, the fair value of mortgages payable
approximated $22.4 million at September 30, 1994 and approximated recorded
value at December 31, 1993.
(5) STOCKHOLDERS' EQUITY
Ownership Restrictions and Significant Stockholder
PACIFIC's Articles of Incorporation restrict beneficial ownership of
PACIFIC's outstanding common stock by a single person, or persons acting as a
group, to 9.8% of PACIFIC's common stock (except Security Capital Group). The
purpose of this provision is to assist in protecting and preserving PACIFIC's
anticipated REIT status and to protect the interest of stockholders in takeover
transactions by preventing the acquisition of a substantial block of stock
unless the acquiror makes a cash tender offer for all outstanding stock. For
PACIFIC to qualify as a REIT under the Internal Revenue Code of 1986, as
amended, not more than 50% in value of its outstanding capital stock may be
owned by five or fewer individuals at any time during the last half of
PACIFIC's taxable year. The provision permits five persons to acquire up to a
maximum of 9.8% each of the common stock, or an aggregate of 49% of the
outstanding common stock, and, thus, assists the Board of Directors in
protecting and preserving PACIFIC's anticipated REIT status for tax purposes.
F-22
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Common stock owned by a person or group of persons in excess of these limits
are subject to redemption by PACIFIC. The provision does not apply where a
majority of the Board of Directors, in its sole and absolute discretion, waives
such limit after determining that the eligibility of PACIFIC to qualify as a
REIT for federal income tax purposes will not be jeopardized or the
disqualification of PACIFIC as a REIT is advantageous to the stockholders.
Security Capital Group, an affiliate of the REIT Manager (see Note 6),
currently owns 97.6% of PACIFIC's outstanding common stock. Security Capital
Group's ownership of common stock is attributed for tax purposes to its
stockholders.
Outstanding Warrants
PACIFIC has outstanding warrants which are exercisable for 200,000 PACIFIC
shares at $10 per share related to a property acquisition in November 1993. The
warrants will expire on November 8, 1999. In addition, the seller of one of the
properties under contract to be purchased will receive warrants to purchase
30,000 shares at an exercise price of $10 per share (see Note 7).
Stock Conversion
On July 22, 1994 each outstanding share of PACIFIC common stock was converted
to one hundred (100) shares of common stock. All share and per share
information in the financial statements have been adjusted to retroactively
reflect the stock conversion. An amount equal to the par value of the common
shares issued was transferred from additional paid-in capital to the common
stock account.
(6) REIT MANAGEMENT AGREEMENT
Effective October 22, 1993, PACIFIC entered into a REIT management agreement
(the "REIT Management Agreement") with Security Capital (Pacific) Incorporated
(the "REIT Manager") to provide management services to PACIFIC. The REIT
Manager will become a wholly owned subsidiary of Security Capital Group
(effective January 1, 1995). All officers of PACIFIC are employees of the REIT
Manager and PACIFIC has no other employees. The REIT Manager provides both
strategic and day-to-day management of PACIFIC, including research, investment
analysis, acquisition and development, asset management, capital markets, legal
and accounting services.
The REIT Management Agreement requires PACIFIC to pay an annual fee of 16% of
cash flow as defined in the REIT Management Agreement ("Cash Flow"). In the
REIT Management Agreement, cash flow is calculated by reference to PACIFIC's
cash flow from operations before deducting (i) fees paid to the REIT Manager,
(ii) extraordinary expenses incurred at the request of the Independent Trustees
of PACIFIC, and (iii) 33% of any interest paid by PACIFIC on convertible
subordinated debentures (of which there was none since inception of the REIT
Management Agreement); and after deducting regularly scheduled principal
payments on mortgages with an original maturity of 15 years or greater. Cash
Flow does not include realized gains from dispositions of investments or income
from cash equivalent investments. The REIT Manager also receives a fee of .20%
per year on the average daily balance of cash equivalent investments.
The REIT Management Agreement also requires PACIFIC to pay the REIT Manager
an incentive fee upon any sale of PACIFIC's real estate assets. The fee equals
10% of the gain above PACIFIC's all-in cost for the assets, including
transaction costs and capital improvements, as increased by the inflation rate
since the date of acquisition. All incentive fees are averaged over three-year
periods to avoid any windfalls related to sales in any particular year. At the
discretion of the Board of Directors, the incentive fees earned by the REIT
Manager can be paid in common stock at the then market price or cash.
REIT management fees aggregated $1,072,711 for the nine months ended
September 30, 1994 and $75,000 for the period from inception to December 31,
1993. No incentive fees have been earned by the REIT Manager.
F-23
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
PACIFIC is obligated to reimburse the REIT Manager for certain expenses
incurred by the REIT Manager on behalf of PACIFIC, primarily travel expense
incurred in seeking financing, property acquisitions, property sales and
similar activities on behalf of PACIFIC.
The REIT Management Agreement is renewable by PACIFIC annually, subject to a
determination by the independent Directors that the REIT Manager's performance
has been satisfactory and that the compensation payable to the REIT Manager is
fair. PACIFIC may terminate the REIT Management Agreement on 60 days' notice.
In the event that the REIT Management Agreement is terminated, or not renewed,
by PACIFIC as a result of the merger, consolidation, acquisition or liquidation
of PACIFIC, PACIFIC's properties shall be deemed to be sold at the net
aggregate consideration paid to PACIFIC's stockholders upon such event, and the
REIT Manager shall be paid an incentive fee accordingly. If the REIT Management
Agreement is otherwise terminated or not renewed by PACIFIC without cause,
PACIFIC shall pay the REIT Manager an incentive fee on any sale or refinancing
which occurs within two years of such a termination so long as the property was
owned by PACIFIC at the time of termination. Because of the year-to-year nature
of the agreement, its maximum effect on PACIFIC's results of operations cannot
be predicted, other than that REIT management fees will generally increase or
decrease in proportion to cash flow increases or decreases. See Note 8.
(7) COMMITMENTS AND CONTINGENCIES
PACIFIC is a party to various claims and routine litigation arising in the
ordinary course of business. PACIFIC does not believe that the result 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.
PACIFIC is subject to environmental regulations related to the ownership,
operation, development and acquisition of real estate. As part of due diligence
procedures, PACIFIC has conducted Phase I environmental assessments on each
property prior to acquisition. The cost of complying with environmental
regulations was not material to PACIFIC's results of operations from inception
through September 30, 1994. PACIFIC is not aware of any environmental condition
on any of its properties which is likely to have a material adverse affect on
PACIFIC's financial condition or results of operations.
On October 21, 1994, PACIFIC purchased the 316 unit Walden Pond Apartments in
Everett, Washington for $13,450,000 and on October 26, 1994 purchased the 896
unit Anchor Village Apartments in Las Vegas, Nevada for $39,250,000. PACIFIC
assumed a mortgage payable aggregating $26.9 million in connection with one of
these acquisitions.
PACIFIC has entered into six agreements, subject to certain conditions, to
acquire a total of 1,023 multifamily units including land for the development
of 228 units at an aggregate purchase price of approximately $48.6 million,
including the assumption of approximately $16.5 million in mortgages. The terms
of one of the agreements also includes the issuance of warrants to purchase
30,000 shares of stock at $10 per share and provides the seller an option to
receive the purchase price in excess of mortgage debt assumed (approximately
$1.76 million) in shares of PACIFIC common stock at a value of $10 per share.
(8) PROPOSED MERGER
On December 6, 1994 PACIFIC entered into an agreement to merge with and into
Property Trust of America ("PTR"), a publicly owned REIT which is affiliated
with Security Capital Group. The merger is subject to various conditions
including obtaining approval of holders of at least two-thirds of the
outstanding PTR common shares and PACIFIC common stock. Security Capital Group
has agreed to vote its 97.6% ownership in PACIFIC in favor of the merger.
Additionally, PACIFIC and PACIFIC's REIT Manager have agreed to terminate the
REIT Management Agreement subject to the consummation of the Merger.
If the merger is approved, each PACIFIC stockholder would receive .611 shares
of a PTR common share (an equivalent value of $10.00 per PACIFIC share, based
on PTR's recent market price) for each share of PACIFIC common stock.
F-24
<PAGE>
SCHEDULE XI
SECURITY CAPITAL PACIFIC INCORPORATED
REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COST TO PACIFIC SEPTEMBER 30, 1994
------------------------------- -----------------------------
BUILDINGS CAPITALIZED BUILDINGS
ENCUM- AND SUBSEQUENT TO AND ACCUMULATED CONSTRUCTION
PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS DEPRECIATION YEAR
---------- ------- ------- ------------ ------------- ------- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multifamily:
Las Vegas, Nevada:
The Hamptons...... $ -- $ 2,942 $ 16,675 $ 106 $ 2,942 $ 16,781 $ 19,723 $ 77 1989
Horizons at
Peccole Ranch..... -- 3,184 18,055 139 3,184 18,194 21,378 131 1990
Kings Crossing.... (b) 2,905 16,468 56 2,905 16,524 19,429 308 1991
Sunterra.......... 8,428 2,111 11,977 89 2,111 12,066 14,177 179 1986
Portland, Oregon:
Club at the Green. (b) 1,668 9,495 79 1,668 9,574 11,242 217 1991
Double Tree....... (b) 1,628 9,290 2 1,628 9,292 10,920 241 1990
Knight's Castle... 7,782 1,928 10,976 7 1,928 10,983 12,911 284 1989
Meridian at
Murrayhill........ -- 2,531 14,342 -- 2,531 14,342 16,873 -- 1990
Riverwood Heights. (b) 1,494 8,509 130 1,494 8,639 10,133 193 1990
Squire's Court.... (b) 1,613 9,188 1 1,613 9,189 10,802 233 1989
Reno, Nevada:
Reno Vista Ridge.. -- 2,008 -- 109 2,008 109 2,117 (a) (a)
Salt Lake City,
Utah:
Greenpointe....... 3,763 876 5,141 25 876 5,166 6,042 77 1985
Mountain Shadow... 3,455 823 4,787 23 823 4,810 5,633 72 1985
Remington......... -- 2,338 -- 69 2,338 69 2,407 (a) (a)
------- ------- -------- ----- ------- -------- -------- ------
Total........... $23,428 $28,049 $134,903 $ 835 $28,049 $135,738 $163,787 $2,012
======= ======= ======== ===== ======= ======== ======== ======
<CAPTION>
YEAR
PROPERTIES ACQUIRED
---------- --------
<S> <C>
Multifamily:
Las Vegas, Nevada:
The Hamptons...... 1994
Horizons at
Peccole Ranch..... 1994
Kings Crossing.... 1994
Sunterra.......... 1994
Portland, Oregon:
Club at the Green. 1993
Double Tree....... 1993
Knight's Castle... 1993
Meridian at
Murrayhill........ 1994
Riverwood Heights. 1993
Squire's Court.... 1993
Reno, Nevada:
Reno Vista Ridge.. 1994
Salt Lake City,
Utah:
Greenpointe....... 1994
Mountain Shadow... 1994
Remington......... 1994
Total...........
</TABLE>
- ----
(a)--Under development.
(b)--Pledged to secure PACIFIC's $75 million revolving line of credit to Wells
Fargo.
F-25
<PAGE>
SCHEDULE XI
CONTINUED
SECURITY CAPITAL PACIFIC INCORPORATED
REAL ESTATE AND ACCUMULATED DEPRECIATION
SEPTEMBER 30, 1994
The following is a reconciliation of the carrying amount and related
accumulated depreciation of PACIFIC's investment in real estate, at cost (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
CARRYING AMOUNTS 1994 1993
- ---------------- ------------- ------------
<S> <C> <C>
Beginning Balance................................... $ 55,666 $ --
Acquisitions and renovation expenditures............ 103,266 55,666
Development expenditures, including land
acquisition......................................... 4,524 --
Capital improvements................................ 331 --
-------- -------
Ending Balance...................................... $163,787 $55,666
======== =======
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ACCUMULATED DEPRECIATION 1994 1993
- ------------------------ ------------- ------------
<S> <C> <C>
Beginning Balance................................... $ 130 $ --
Depreciation for the period......................... 1,882 130
-------- -------
Ending Balance...................................... $ 2,012 $ 130
======== =======
</TABLE>
At September 30, 1994, the aggregate cost for federal income tax purposes of
PACIFIC's investment in real estate totaled $163,787,000.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Security Capital Pacific Incorporated:
We have audited the accompanying combined statement of revenues and certain
expenses of the Group A Properties described in note 1 for the year ended
December 31, 1993. This combined financial statement is the responsibility of
management. Our responsibility is to express an opinion on this combined
statement of revenues and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement of revenues and
certain expenses is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
combined statement of revenues and certain expenses. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the combined
statement of revenues and certain expenses. We believe that our audit provides
a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and for inclusion in the registration
statement on Form S-4 of Property Trust of America. As described in note 2, it
is not intended to be a complete presentation of the Group A Properties'
revenues and expenses.
In our opinion, the combined statement of revenues and certain expenses
referred to above presents fairly, in all material respects, the amount of
combined revenues and certain expenses of the Group A Properties for the year
ended December 31, 1993, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
El Paso, Texas
December 6, 1994
F-27
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
GROUP A PROPERTIES
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1993 AND UNAUDITED PERIOD FROM
JANUARY 1, 1994 TO THE EARLIER OF SEPTEMBER 30, 1994 OR DATE OF ACQUISITION
(SEE NOTES 1 AND 2)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994
1993 (UNAUDITED)
------- ----------
<S> <C> <C>
Rental income............................................... $14,810 $6,274
Other real estate income.................................... 457 258
------- ------
15,267 6,532
------- ------
Certain expenses:
Salaries and benefits..................................... 1,772 669
Utilities................................................. 907 394
Repairs and maintenance................................... 1,645 657
Management fees (note 3).................................. 436 194
Real estate taxes......................................... 1,088 462
Advertising and promotion................................. 395 159
Insurance................................................. 232 67
Interest expense on debt assumed (note 4)................. 1,107 280
Other..................................................... 623 177
------- ------
8,205 3,059
------- ------
Revenues in excess of certain expenses.................. $ 7,062 $3,473
======= ======
</TABLE>
The accompanying notes are an integral part of the combined statement of
revenues and certain expenses.
F-28
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
GROUP A PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1993 AND UNAUDITED PERIOD FROM JANUARY 1, 1994
TO THE EARLIER OF SEPTEMBER 30, 1994 OR DATE OF ACQUISITION
(1) OPERATING PROPERTIES
The combined statement of revenues and certain expenses relates to the
operations of the following properties ("Group A Properties") which were
acquired from unaffiliated parties by Security Capital Pacific Incorporated:
<TABLE>
<CAPTION>
MULTIFAMILY
PROPERTY METROPOLITAN AREA ACQUISITION DATE PURCHASE PRICE
----------- ----------------- ---------------- --------------
<S> <C> <C> <C>
King's Crossing Las Vegas, Nevada 2/03/94 $ 19,210,000
Sunterra Las Vegas, Nevada 3/18/94 14,000,000
Mountain Shadow Salt Lake City, Utah 3/18/94 5,450,000
Greenepointe Salt Lake City, Utah 3/18/94 5,800,000
Horizons at Peccole
Ranch Las Vegas, Nevada 6/28/94 21,050,000
The Hamptons (for- Las Vegas, Nevada 7/27/94
merly known as
Fountainbleu) 19,485,000
Meridian at
Murrayhill Portland, Oregon 9/23/94 16,850,000
------------
$101,845,000
============
</TABLE>
(2) BASIS OF PRESENTATION
The combined statement of revenues and certain expenses has been prepared
on the accrual basis of accounting. In the opinion of management, the combined
unaudited financial information contains all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the combined statement
of revenues and certain expenses for the interim period. The results for the
interim period are not necessarily indicative of the results to be expected for
the full year.
Rental income attributable to residential leases is recorded when due from
residents. Leases are for periods up to one year with rental amounts due
monthly.
The combined statement of revenues and certain expenses excludes certain
amounts which would not be comparable to the proposed future operations of the
properties as follows:
(a) depreciation of the buildings and improvements;
(b) interest expense related to debt not assumed;
(c) interest income;
(d) income taxes; and
(e) other income and expense items unique to the prior owners.
(3) RELATED PARTY TRANSACTIONS
Approximately $93,000 and $70,000 (unaudited) was paid in management fees
and approximately $32,000 and $23,000 (unaudited) was paid in insurance
premiums to affiliates of prior owners in 1993 and 1994, respectively.
No management fee expense is reflected for Horizons at Peccole Ranch as no
fee was charged.
F-29
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
GROUP A PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES--(CONCLUDED)
YEAR ENDED DECEMBER 31, 1993 AND UNAUDITED PERIOD FROM JANUARY 1, 1994 TO THE
EARLIER OF SEPTEMBER 30, 1994 OR DATE OF ACQUISITION
(4) DEBT ASSUMPTION
The following is information related to mortgage loans assumed in connection
with the Group A Properties:
<TABLE>
<CAPTION>
DECEMBER 31, INTEREST EXPENSE
MORTGAGE ORIGINAL DEBT 1993 PRINCIPAL FOR THE YEAR ENDED
MULTIFAMILY ORIGINATION MATURITY AMOUNT BALANCE INTEREST DECEMBER 31, 1993 (i)
PROPERTY LENDER DATE DATE (IN THOUSANDS) (IN THOUSANDS) RATE (IN THOUSANDS)
----------- ------ ----------- -------- ------------- -------------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sunterra........ Krupp Mortgage Company 2/18/93 3/01/00 $8,594 $8,505 8.25% $ 588
Mountain Shadow. Krupp Mortgage Company 2/18/93 3/01/00 3,520 3,485 8.50% 248
Greenpointe..... Krupp Mortgage Company 2/18/93 3/01/00 3,834 3,796 8.50% 271
------
$1,107
======
<CAPTION>
(UNAUDITED)
INTEREST EXPENSE
FOR THE PERIOD FROM
JANUARY 1, 1994 TO
MULTIFAMILY DATE OF ACQUISITION
PROPERTY (IN THOUSANDS)
----------- -------------------
<S> <C>
Sunterra........ $149
Mountain Shadow. 63
Greenpointe..... 68
-------------------
$280
===================
</TABLE>
- ------
(i) Represents interest expense from February 18, 1993 (loan inception date) to
December 31, 1993.
The notes are secured by the properties and are subject to a scheduled
balloon payment of approximately $7,597,000, $3,124,000, and $3,403,000,
respectively. The notes are subject to a prepayment penalty as defined in the
applicable loan agreement.
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Security Capital Pacific Incorporated:
We have audited the accompanying combined statement of revenues and certain
expenses of the Group B Properties described in note 1 for the nine months
ended September 30, 1994. This combined financial statement is the
responsibility of management. Our responsibility is to express an opinion on
this combined statement of revenues and certain expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement of revenues and
certain expenses is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
combined statement of revenues and certain expenses. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the combined
statement of revenues and certain expenses. We believe that our audit provides
a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and for inclusion in the registration
statement on Form S-4 of Property Trust of America. As described in note 2, it
is not intended to be a complete presentation of the Group B Properties'
revenues and expenses.
In our opinion, the combined statement of revenues and certain expenses
referred to above presents fairly, in all material respects, the combined
revenues and certain expenses of the Group B Properties for the nine months
ended September 30, 1994, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
El Paso, Texas
December 6, 1994
F-31
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
GROUP B PROPERTIES
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(SEE NOTES 1 AND 2)
(IN THOUSANDS)
<TABLE>
<S> <C>
Rental income........................................................... $7,963
Other real estate income................................................ 348
------
8,311
------
Certain expenses:
Salaries and benefits................................................. 768
Utilities............................................................. 586
Repairs and maintenance............................................... 844
Management fees (note 3).............................................. 342
Real estate taxes..................................................... 579
Advertising and promotion............................................. 110
Insurance............................................................. 105
Interest expense on debt assumed (note 4)............................. 1,827
Other................................................................. 250
------
5,411
------
Revenues in excess of certain expenses.............................. $2,900
======
</TABLE>
The accompanying notes are an integral part of the combined statement of
revenues and certain expenses.
F-32
<PAGE>
SECURITY CAPITAL PACIFIC INCORPORATED
GROUP B PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(1) OPERATING PROPERTIES
The combined statement of revenues and certain expenses relates to the
operations of the following properties ("Group B Properties") which were either
(1) acquired from unaffiliated parties by Security Capital Pacific Incorporated
between October 1, 1994 and December 7, 1994 or (2) in management's judgment
are likely to be acquired from unaffiliated parties.
<TABLE>
<CAPTION>
ACQUISITION
MULTIFAMILY PROPERTY METROPOLITAN AREA DATE PURCHASE PRICE
-------------------- ----------------- ----------- --------------
<S> <C> <C> <C>
Walden Pond Seattle, Washington 10/21/94 $13,450,000
Anchor Village Las Vegas, Nevada 10/26/94 39,250,000
Cherry Creek Salt Lake City, Utah under contract 8,550,000
Logan's Ridge Seattle, Washington under contract 13,000,000
-----------
$74,250,000
===========
</TABLE>
(2) BASIS OF PRESENTATION
The combined statement of revenues and certain expenses has been prepared on
the accrual basis of accounting.
Rental income attributable to residential leases is recorded when due from
residents. Leases are for periods up to one year with rental payments due
monthly.
The combined statement of revenues and certain expenses excludes certain
amounts which would not be comparable to the proposed future operations of the
properties as follows:
(a) depreciation of the buildings and improvements;
(b) interest expense related to debt not assumed;
(c) interest income;
(d) income taxes; and
(e) other income and expense items unique to the prior owners.
(3) RELATED PARTY TRANSACTIONS
Approximately $245,000 was paid in management fees to affiliates of prior
owners for the nine months ended September 30, 1994.
(4) DEBT ASSUMPTION
The following is information related to mortgage loans assumed in connection
with the Group B Properties:
<TABLE>
<CAPTION>
SEPTEMBER 30, INTEREST EXPENSE FOR
1994 THE NINE MONTHS
MORTGAGE ORIGINAL DEBT PRINCIPAL ENDED
MULTIFAMILY ORIGINATION MATURITY AMOUNT BALANCE INTEREST SEPTEMBER 30, 1994
PROPERTY LENDER DATE DATE (IN THOUSANDS) (IN THOUSANDS) RATE (IN THOUSANDS)
----------- ------ ----------- -------- ------------- ------------- -------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Anchor Village John Hancock Mutual 11/19/93 12/01/98 $27,200 $26,930 7.875% $1,613
Life Insurance
Company
Cherry Creek Weber County
Housing Authority 11/01/91 Various 4,900 4,510 Various 214
------
$1,827
======
</TABLE>
F-33
<PAGE>
ANNEX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 6, 1994
BY AND AMONG
PROPERTY TRUST OF AMERICA,
SECURITY CAPITAL PACIFIC INCORPORATED
AND
SECURITY CAPITAL REALTY INCORPORATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
THE MERGER
<C> <S> <C>
SECTION 1.1 THE MERGER.................................................. 1
SECTION 1.2 EFFECTIVE TIME OF THE MERGER................................ 1
ARTICLE II
THE SURVIVING ENTITY
SECTION 2.1 DECLARATION OF TRUST........................................ 2
SECTION 2.2 BYLAWS...................................................... 2
SECTION 2.3 TRUSTEES.................................................... 2
SECTION 2.4 OFFICERS.................................................... 2
SECTION 2.5 FURTHER ACTION.............................................. 2
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 CONVERSION OF COMPANY SHARES IN THE MERGER.................. 2
SECTION 3.2 NO MODIFICATION OF PURCHASER SECURITIES..................... 3
SECTION 3.3 EXCHANGE OF CERTIFICATES.................................... 3
SECTION 3.4 NO FRACTIONAL SECURITIES.................................... 5
SECTION 3.5 DISSENTING SHAREHOLDERS..................................... 5
SECTION 3.6 CLOSING..................................................... 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.1 ORGANIZATION AND QUALIFICATION.............................. 5
SECTION 4.2 CAPITALIZATION.............................................. 6
SECTION 4.3 SUBSIDIARIES................................................ 6
SECTION 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS..................... 6
SECTION 4.5 FINANCIAL STATEMENTS........................................ 7
SECTION 4.6 ABSENCE OF UNDISCLOSED LIABILITIES.......................... 7
SECTION 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS........................ 8
SECTION 4.8 LITIGATION.................................................. 8
SECTION 4.9 REGISTRATION STATEMENT AND PROXY/INFORMATION STATEMENT...... 8
SECTION 4.10 NO VIOLATION OF LAW......................................... 8
SECTION 4.11 COMPLIANCE WITH AGREEMENTS.................................. 9
SECTION 4.12 TAXES....................................................... 9
SECTION 4.13 EMPLOYEE BENEFIT PLANS; ERISA............................... 10
SECTION 4.14 CERTAIN AGREEMENTS.......................................... 10
SECTION 4.15 BOOKS, RECORDS AND ACCOUNTS................................. 10
SECTION 4.16 COMPANY OWNERSHIP OF PURCHASER COMMON SHARES................ 11
</TABLE>
I-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 4.17 CONTRACTS, ETC.............................................. 11
SECTION 4.18 DISCLOSURE.................................................. 11
SECTION 4.19 BROKERS AND FINDERS......................................... 11
SECTION 4.20 REIT QUALIFICATION.......................................... 11
SECTION 4.21 TITLE TO PROPERTIES......................................... 11
SECTION 4.22 TITLE INSURANCE............................................. 11
SECTION 4.23 ENVIRONMENTAL MATTERS....................................... 11
SECTION 4.24 DEFECTS..................................................... 12
SECTION 4.25 CONDEMNATION................................................ 12
SECTION 4.26 TAXES AND ASSESSMENTS ON COMPANY PROPERTIES................. 12
SECTION 4.27 MORTGAGES................................................... 12
SECTION 4.28 INVESTMENT COMPANY ACT...................................... 12
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.1 ORGANIZATION AND QUALIFICATION.............................. 13
SECTION 5.2 CAPITALIZATION.............................................. 13
SECTION 5.3 SUBSIDIARIES................................................ 13
SECTION 5.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS..................... 13
SECTION 5.5 REPORTS AND FINANCIAL STATEMENTS............................ 14
SECTION 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS........................ 15
SECTION 5.7 REGISTRATION STATEMENT AND PROXY/INFORMATION STATEMENT...... 15
SECTION 5.8 TAXES....................................................... 15
SECTION 5.9 DISCLOSURE.................................................. 16
SECTION 5.10 BROKERS AND FINDERS......................................... 16
SECTION 5.11 REIT QUALIFICATION.......................................... 16
SECTION 5.12 INVESTMENT COMPANY ACT...................................... 16
SECTION 5.13 NYSE LISTING................................................ 16
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SECURITY CAPITAL
SECTION 6.1 ORGANIZATION AND QUALIFICATION.............................. 16
SECTION 6.2 AUTHORITY: NON-CONTRAVENTION; APPROVALS..................... 16
SECTION 6.3 INVESTMENT COMPANY ACT...................................... 17
SECTION 6.4 NO DISPOSITION OF SHARES.................................... 17
ARTICLE VII
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 7.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER....... 17
SECTION 7.2 CONDUCT OF BUSINESS BY THE PURCHASER PENDING THE MERGER..... 18
SECTION 7.3 ACQUISITION TRANSACTIONS.................................... 19
</TABLE>
I-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE VIII
ADDITIONAL AGREEMENTS
<C> <S> <C>
SECTION 8.1 ACCESS TO INFORMATION..................................... 19
SECTION 8.2 REGISTRATION STATEMENT AND PROXY STATEMENT................ 20
SECTION 8.3 SHAREHOLDERS' APPROVAL.................................... 20
SECTION 8.4 COMPLIANCE WITH THE SECURITIES ACT........................ 20
SECTION 8.5 NYSE...................................................... 20
SECTION 8.6 EXPENSES.................................................. 20
SECTION 8.7 AGREEMENT TO COOPERATE.................................... 20
SECTION 8.8 PUBLIC STATEMENTS......................................... 21
SECTION 8.9 CORRECTIONS TO THE PROXY/INFORMATION STATEMENT AND
PROSPECTUS AND REGISTRATION STATEMENT..................... 21
SECTION 8.10 CONTINUED QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST. 21
SECTION 8.11 REVOLVING CREDIT AGREEMENT................................ 21
SECTION 8.12 VOTING OF SHARES.......................................... 21
ARTICLE IX
CONDITIONS
SECTION 9.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER.................................................... 21
SECTION 9.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER.................................................... 22
SECTION 9.3 CONDITIONS TO OBLIGATION OF THE PURCHASER TO EFFECT THE
MERGER.................................................... 22
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1 TERMINATION............................................... 23
SECTION 10.2 EFFECT OF TERMINATION..................................... 23
SECTION 10.3 AMENDMENT................................................. 23
SECTION 10.4 WAIVER.................................................... 23
ARTICLE XI
SURVIVAL AND REMEDY; INDEMNIFICATION
SECTION 11.1 INDEMNIFICATION BY SECURITY CAPITAL....................... 24
SECTION 11.2 LIMITATION OF INDEMNIFICATION............................. 24
SECTION 11.3 NOTICE OF CLAIMS; ASSUMPTION OF DEFENSE................... 24
SECTION 11.4 SETTLEMENT OR COMPROMISE.................................. 24
SECTION 11.5 FAILURE OF SECURITY CAPITAL TO ACT........................ 24
SECTION 11.6 SURVIVAL.................................................. 24
</TABLE>
I-iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE XII
GENERAL PROVISIONS
<C> <S> <C>
SECTION 12.1 NOTICES..................................................... 25
SECTION 12.2 INTERPRETATION.............................................. 25
SECTION 12.3 MISCELLANEOUS............................................... 26
SECTION 12.4 COUNTERPARTS................................................ 26
SECTION 12.5 PARTIES IN INTEREST......................................... 26
SECTION 12.6 LIMITATION OF LIABILITY..................................... 26
</TABLE>
I-iv
<PAGE>
EXHIBITS
<TABLE>
<C> <S>
Exhibit I: Articles of Merger
Exhibit II: Opinion of King & Spalding
Exhibit III: Opinion of Mayer, Brown & Platt
</TABLE>
SCHEDULES
<TABLE>
<C> <S>
Schedule 4.2(b) Company Capitalization
Schedule 4.3 Company Subsidiaries
Schedule 4.4(b) Company Authority; Non-Contravention; Approvals
Schedule 4.6 Absence of Undisclosed Liabilities by Company
Schedule 4.15 Company Books, Records and Accounts
Schedule 4.17 Company Contracts, etc.
Schedule 4.27 Company Mortgages
Schedule 5.2(b) Purchaser Capitalization
Schedule 5.3 Purchaser Subsidiaries
Schedule 6.2(b) Security Capital Authority; Non-Contravention; Approvals
</TABLE>
I-v
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement"), is entered into as of
December 6, 1994 by and among Property Trust of America, a Maryland real estate
investment trust (the "Purchaser"), Security Capital Pacific Incorporated, a
Maryland corporation (the "Company"), and Security Capital Realty Incorporated,
a Maryland corporation ("Security Capital").
Whereas, the Board of Directors of the Company and the Board of Trustees of
the Purchaser have each approved the merger of the Company with and into the
Purchaser pursuant to this Agreement (the "Merger") and the transactions
contemplated hereby upon the terms and subject to the conditions set forth
herein;
Whereas, it is intended that the Purchaser and the Company and their
respective shareholders (except to the extent such shareholders receive cash in
lieu of fractional shares or upon the exercise of dissenters' rights) will
recognize no gain or loss for federal income tax purposes as a result of the
consummation of the Merger;
Whereas, the Purchaser and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger; and
Whereas, Security Capital is entering into this Agreement to provide for
certain indemnities as set forth herein.
Now, Therefore, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as hereinafter defined) the Company shall be
merged with and into the Purchaser in accordance with the provisions of (i)
Section 8-501.1 of the Corporations and Associations Article of the Annotated
Code of Maryland (the "Maryland Code") and with the effect provided therein and
(ii) Section 3-105 of the Maryland Code and with the effect provided in Section
3-114 of the Maryland Code, and the separate existence of the Company shall
thereupon cease. The Purchaser shall be the surviving entity in the Merger
(hereinafter sometimes referred to as the "Surviving Entity") and shall
continue to be governed by the laws of the State of Maryland and the name of
the Surviving Entity shall be changed to "Security Capital Pacific Trust."
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time of the Merger, (a) the Surviving Entity shall possess all assets
and property of every description, and every interest therein, wherever
located, and the rights, privileges, immunities, powers, franchises and
authority, of a public as well as of a private nature, of each of the Purchaser
and the Company, (b) all obligations belonging to or due each of the Purchaser
and the Company shall be vested in, and become the obligations of, the
Surviving Entity without further act or deed, (c) title to any real estate or
any interest therein vested in either of the Purchaser and the Company shall
not revert or in any way be impaired by reason of the Merger, (d) all rights of
creditors and all liens upon any property of either of the Purchaser and the
Company shall be preserved unimpaired and (e) the Surviving Entity shall be
liable for all of the obligations of each of the Purchaser and the Company and
any claim existing, or action or proceeding pending, by or against either of
the Purchaser or the Company may be prosecuted to judgment with right of
appeal, as if the Merger had not taken place.
Section 1.2 Effective Time of the Merger. The Merger shall become effective
at such time (the "Effective Time") as the Articles of Merger, in substantially
the form set forth as Exhibit I hereto (the
I-1
<PAGE>
"Articles of Merger"), are accepted for filing by the Department of Assessments
and Taxation of the State of Maryland (the "Merger Filing") or such later date
and time as may be specified in the Articles of Merger; such filing shall be
made simultaneously with or as soon as practicable after the closing of the
transactions contemplated by this Agreement in accordance with Section 3.6.
ARTICLE II
THE SURVIVING ENTITY
Section 2.1 Declaration of Trust. Except to the extent amended in the
Articles of Merger, the Declaration of Trust of the Purchaser as in effect
immediately prior to the Effective Time shall be the Declaration of Trust of
the Surviving Entity after the Effective Time, until further amended in
accordance with the terms thereof and applicable law.
Section 2.2 Bylaws. The Bylaws of the Purchaser as in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Entity after
the Effective Time, until amended in accordance with the terms thereof, the
Declaration of Trust of the Surviving Entity and applicable law.
Section 2.3 Trustees. The trustees of the Purchaser at the Effective Time
shall, from and after the Effective Time, be the trustees of the Surviving
Entity until their successors have been duly elected or appointed and qualified
or until their earlier death, resignation or removal in accordance with the
Surviving Entity's Declaration of Trust and applicable law.
Section 2.4 Officers. The officers of the Purchaser at the Effective Time
shall, from and after the Effective Time, be the officers of the Surviving
Entity until their successors have been duly elected or appointed and qualified
or until their earlier death, resignation or removal in accordance with the
Surviving Entity's Declaration of Trust and Bylaws.
Section 2.5 Further Action. If at any time after the Effective Time the
Purchaser shall consider that any further deeds, assignments, conveyances,
agreements, documents, instruments or assurances in law or any other things are
necessary or desirable to vest, perfect, confirm or record in the Surviving
Entity the title to any property, rights, privileges, powers and franchises of
the Company to be acquired by the Surviving Entity by reason of, or as a result
of, the Merger, or otherwise to carry out the provisions of this Agreement, the
Board of Directors and officers of the Company last in office shall, to the
extent then permitted so to do by applicable law, execute and deliver, upon the
Purchaser's reasonable request, any and all deeds, assignments, conveyances,
agreements, documents, instruments or assurances in law, and do all other
things necessary or proper to vest, perfect, confirm or record title to such
property, rights, privileges, powers and franchises in the Surviving Entity,
and otherwise to carry out the provisions of this Agreement.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Conversion of Company Shares in the Merger.
(a) At the Effective Time, by virtue of the Merger and without any action on
the part of any holder of any capital stock of the Company:
(i) Each share of Common Stock, $.01 par value per share, of the Company
(the "Company Common Stock"), issued and outstanding at the Effective Time,
subject to the terms and conditions of this Agreement, shall be converted
(except as provided in clause (ii) of this Section 3.1(a) and except as
provided in Section 3.5), without any further action, into the right to
receive, and become exchangeable for, 0.611 shares (the "Exchange Ratio")
of fully paid and non-assessable Common Shares of Beneficial Interest,
$1.00 par value per share, of the Purchaser (the "Purchaser Common
Shares").
I-2
<PAGE>
(ii) Each share of Company Common Stock, if any, owned by the Purchaser
or any subsidiary of the Purchaser or the Company or any subsidiary of the
Company immediately prior to the Effective Time shall be cancelled and
shall cease to exist from and after the Effective Time;
(iii) (A) The Purchaser shall assume the obligations of the Company
arising with respect to any option, warrant or right to purchase capital
stock of the Company (the "Company Convertible Securities") such that the
holder of such Company Convertible Securities shall receive, if and when
issued in accordance with the terms of such Company Convertible Securities,
such amount of Purchaser Common Shares as constitutes the economic
equivalent of the Company Common Stock such holder would have received
prior to the Effective Time upon the vesting and exercise of such Company
Convertible Securities converted into Purchaser Common Shares at the
Exchange Ratio.
(B) The Company shall take such actions as are necessary to ensure that
from and after the Effective Time none of the Company, the Surviving Entity
or any of their respective subsidiaries is or will be bound by any options,
warrants, rights or agreements (other than pursuant to the Company
Convertible Securities) which would entitle any person, other than the
Purchaser or its wholly owned subsidiaries, to beneficially own, or receive
any payments in respect of (other than as otherwise contemplated by Section
3.5, Section 3.1(a)(i) and this Section 3.1(a)(iii)), any capital stock of
the Company or the Surviving Entity.
(b) If, prior to the Effective Time, the Purchaser should split or combine
the Purchaser Common Shares, or pay a share dividend or other share
distribution in Purchaser Common Shares, or otherwise change the Purchaser
Common Shares into any other securities, then the Exchange Ratio will be
appropriately adjusted to reflect such split, combination, share dividend or
other distribution or change.
(c) If, prior to the Effective Time, the Company should establish a record
date for the payment of any cash dividend with respect to shares of Company
Common Stock other than a dividend contemplated by Section 7.1(b), then the
Exchange Ratio will be appropriately reduced so as to reflect the per share
amount by which such dividend exceeds the amount permitted by Section 7.1(b).
Section 3.2 No Modification of Purchaser Securities. Each Purchaser Common
Share issued and outstanding at the Effective Time shall remain issued and
outstanding thereupon and shall not be converted nor shall the terms thereof be
modified in the Merger.
Section 3.3 Exchange of Certificates.
(a) From and after the Effective Time, each holder of an outstanding
certificate which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the "Company Certificates") shall
cease to have any right as a shareholder of the Company, except as otherwise
provided in this Agreement or by applicable law, and each such holder shall be
entitled to receive in exchange for such holder's Company Certificates, upon
surrender thereof to an exchange agent selected by the Purchaser (the "Exchange
Agent"), a certificate or certificates representing the number of whole
Purchaser Common Shares which such holder is entitled to receive pursuant to
Section 3.1(a) and cash for any fractional Purchaser Common Share which such
holder may be entitled to receive pursuant to Section 3.4. Notwithstanding any
other provision of this Agreement, from and after the Effective Time (i) until
holders or transferees of Company Certificates theretofore representing shares
of Company Common Stock have surrendered such certificates for exchange as
provided herein and without regard to when such Company Certificates are
surrendered for exchange as provided herein, (A) no dividends shall be paid by
the Company with respect to any shares represented by such Company Certificates
(other than such dividends as may be required to be paid by the Company after
the date hereof to comply with the requirements for qualification as a "real
estate investment trust" under the Internal Revenue Code of 1986, as amended
(the "Code") and the rules and regulations thereunder) and dividends payable as
contemplated by Section 7.1(b)) and (B) any dividends that may become payable
on Purchaser Common Shares subsequent to the Effective Time with respect to
record dates occurring after the Effective Time and payments for fractional
shares shall be deposited with the
I-3
<PAGE>
Exchange Agent to be held for and paid to holders of Company Common Stock upon
surrender of Company Certificates in exchange for certificates representing
Purchaser Common Shares and no interest shall be paid on any such dividends or
any payment for fractional shares and (C) no payment for fractional shares
shall be made. If any certificate representing Purchaser Common Shares is to be
issued in a name other than that in which the Company Certificate surrendered
in exchange therefor is registered, it shall be a condition of such exchange
that the person requesting such exchange shall pay any transfer or other taxes
required by reason of the issuance of such certificate representing Purchaser
Common Shares in a name other than that of the registered holder of the Company
Certificate so surrendered, or shall establish to the satisfaction of the
Purchaser that such tax has been paid or is not applicable. No transfers of
Company Common Stock shall be made on the stock transfer books of the Company
after the Effective Time.
(b) Promptly after the Effective Time, the Purchaser shall make available to
the Exchange Agent (i) a sufficient number of certificates representing
Purchaser Common Shares required to effect the exchange referred to in Section
3.3(a), (ii) in the event that the Purchaser shall declare and pay any
dividends on Purchaser Common Shares subsequent to the Effective Time, cash in
an amount sufficient to enable the Exchange Agent to pay the appropriate
dividends on any Purchaser Common Shares when issued upon surrender of Company
Certificates and (iii) cash in an amount sufficient to enable the Exchange
Agent to pay cash in lieu of fractional PTR Common Shares pursuant to Section
3.4.
(c) Promptly after the Effective Time, the Exchange Agent shall mail to each
holder of record of a Company Certificate as of the Effective Time (i) a form
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Company Certificates shall pass, only upon actual
delivery of the Company Certificates to the Exchange Agent) and (ii)
instructions for use in effecting the surrender of the Company Certificates in
exchange for certificates representing Purchaser Common Shares. Upon surrender
of Company Certificates for cancellation to the Exchange Agent, together with a
duly executed letter of transmittal and such other documents as the Exchange
Agent shall reasonably require, the holder of such Company Certificates shall
be entitled to receive in exchange therefor a certificate representing that
number of whole Purchaser Common Shares into which the shares of Company Common
Stock theretofore represented by the Company Certificates so surrendered shall
have been converted pursuant to the provisions of Section 3.1(a) and payment
for any fractional Purchaser Common Share and any dividends that have been
declared and may have become payable with respect to the Purchaser Common
Shares with respect to record dates occurring after the Effective Time, and the
Company Certificates so surrendered shall forthwith be cancelled. Until so
surrendered, Company Certificates shall represent solely the right to receive
the number of whole Purchaser Common Shares into which the shares of Company
Common Stock shall have been converted, any dividends that have been declared
and may have become payable with respect to the Purchaser Common Shares with
respect to Record Dates occurring after the Effective Time and before the
effective date of the exchange of Company Certificates for certificates
representing Purchaser Common Shares and cash in lieu of a fractional Purchaser
Common Share as contemplated by Section 3.4. Notwithstanding the foregoing,
neither the Exchange Agent nor any party hereto shall be liable to a holder of
shares of Company Common Stock for any Purchaser Common Shares or dividends or
distributions thereon delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws. The Exchange Agent shall not be
entitled to vote or exercise any rights of ownership with respect to the
Purchaser Common Shares held by it from time to time hereunder.
(d) At any time following 180 days after the Effective Time of the Merger,
the Surviving Entity shall be entitled to require the Exchange Agent to deliver
to the Surviving Entity any Purchaser Common Shares and cash deposited with the
Exchange Agent to enable the Exchange Agent to pay for any fractional Purchaser
Common Shares as well as any accrued dividends on Purchaser Common Shares
pursuant to Section 3.3(a) which had been made available to the Exchange Agent
by or on behalf of the Purchaser and which have not been disbursed to holders
of Company Certificates, and thereafter such holders shall be entitled to look
to the Surviving Entity (subject to abandoned property, escheat or other
similar laws) only as general creditors thereof with respect to the
consideration payable upon due surrender of their Company Certificates.
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Section 3.4 No Fractional Securities. Notwithstanding any other provision of
this Agreement, no certificates or scrip for fractional Purchaser Common Shares
shall be issued in the Merger and no Purchaser Common Share dividend, share
split or interest shall be paid or have effect with respect to any fractional
interest in a Purchaser Common Share, and such fractional interests shall not
entitle the owner thereof to vote or to any other rights of a security holder.
In lieu of any such fractional shares, each holder of Company Common Stock who
would otherwise have been entitled to receive a fraction of a Purchaser Common
Share upon surrender of Company Certificates for exchange pursuant to this
Article III will receive a payment in cash therefor (without interest) at a pro
rata price based on a price of $16.375 per Purchaser Common Share (which is the
price on which the Exchange Ratio is based).
Section 3.5 Dissenting Shareholders.
(a) For each outstanding share of Company Common Stock, the holder of which
has delivered to the Company a written demand for the fair value of such
holder's Company Common Stock in accordance with Section 3-202 of the Maryland
Code and whose rights have not terminated under such Section (any shareholder
duly making such demand being hereinafter called a "Dissenting Shareholder"),
such shares of Company Common Stock shall not be converted into or represent a
right to receive Purchaser Common Shares hereunder. If any Dissenting
Shareholder shall in accordance with Section 3-202 of the Maryland Code become
entitled to receive payment of the fair value for his or her shares, such
payment shall be made by the Purchaser and the shares of Company Common Stock
held by such Dissenting Shareholder shall thereupon be cancelled. If the rights
of any Dissenting Shareholder shall have terminated in accordance with Section
3-202 of the Maryland Code, such Dissenting Shareholder shall no longer be
entitled to receive payment of the fair value of his or her shares of Company
Common Stock under Section 3-202 of the Maryland Code and such shares of
Company Common Stock shall thereupon be deemed as of the Effective Time of the
Merger to have been converted into and to have become exchangeable for
Purchaser Common Shares, together with payment for any fractional Purchaser
Common Share and any dividends that may have become payable with respect to the
Purchaser Common Shares, without any interest thereon, all in accordance with
Section 3.3(c) of this Agreement.
(b) At all times prior to the Effective Time of the Merger, the Company shall
give the Purchaser prompt notice of any written demands for the fair value of
any shares of Company Common Stock, attempted withdrawals of such demands and
any other instruments served pursuant to the Maryland Code and received by the
Company relating to shareholders' rights to receive fair value of shares of
Company Common Stock. The Company shall consult with the Purchaser regarding
all negotiations between the Company and holders of Company Common Stock with
respect to such demands. The Company shall not, except with the prior written
consent of the Purchaser, voluntarily make any payment with respect to any
demands for fair value of shares of Company Common Stock, or offer to settle or
settle any such demands or approve any withdrawal of any such demands.
Section 3.6 Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Mayer, Brown
& Platt, 190 South LaSalle Street, Chicago, Illinois 60603 on the date on which
the last of the conditions set forth in Article VIII hereof is fulfilled or
waived, or at such other time and place as the Purchaser and the Company shall
mutually agree (the date on which the Closing occurs being the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
Section 4.1 Organization and Qualification. The Company and each of the
Company Subsidiaries (as hereinafter defined) is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and each has the requisite corporate power and authority to own,
lease and operate its assets
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and properties and to carry on its business as it is now being conducted and as
it is proposed by the Company and each such Company Subsidiary to be conducted.
The Company and each Company Subsidiary is qualified to do business and is in
good standing in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in
good standing would not reasonably be expected to have a material adverse
effect on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of the Company and the Company
Subsidiaries, taken as a whole. True, accurate and complete copies of the
charter and bylaws of the Company and each Company Subsidiary, in each case as
in effect on the date hereof, including all amendments thereto, have heretofore
been delivered to the Purchaser.
Section 4.2 Capitalization.
(a) The authorized capital stock of the Company consists of 250 million
shares of Company Common Stock. As of the date of this Agreement, 13,860,000
shares of the Company Common Stock were issued and outstanding and no shares of
any other class of capital stock of the Company were issued and outstanding.
All of the issued and outstanding shares of Company Common Stock are validly
issued and are fully paid, nonassessable and free of preemptive rights. The
authorized capital stock of each Company Subsidiary is owned 100% by the
Company and all of the issued and outstanding shares of each Company Subsidiary
are fully paid and nonassessable.
(b) Except as set forth on Schedule 4.2(b) hereto, there are no outstanding
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating the Company or any Company Subsidiary to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of the
capital stock of the Company or any Company Subsidiary or obligating the
Company or any Company Subsidiary to grant, extend or enter into any such
agreement or commitment. Except as set forth on Schedule 4.2(b) hereto, there
are no voting trusts, proxies or other agreements or understandings to which
the Company is a party or is bound with respect to the voting of any shares of
capital stock of the Company or any Company Subsidiary.
Section 4.3 Subsidiaries. The Company has no subsidiaries except as disclosed
on Schedule 4.3 hereto (the "Company Subsidiaries"). Each Company Subsidiary is
a "qualified REIT subsidiary" under Section 856 of the Code. Neither the
Company nor any Company Subsidiary is a partner in any partnership or joint
venture and neither will become one prior to the Effective Time.
Section 4.4 Authority; Non-Contravention; Approvals.
(a) The Company has full corporate power and authority to enter into this
Agreement and, subject to the Company Shareholders' Approval (as hereinafter
defined) and the Company Required Statutory Approvals (as hereinafter defined),
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement, and the consummation by the Company of the transactions
contemplated hereby, have been duly authorized by the Company's Board of
Directors and no other corporate proceedings on the part of the Company are
necessary to authorize the execution and delivery of this Agreement and the
consummation by the Company of the transactions contemplated hereby, except for
the Company Shareholders' Approval and the obtaining of the Company Required
Statutory Approvals. This Agreement has been duly and validly executed and
delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by the Purchaser and Security Capital, constitutes a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
(b) Except as set forth on Schedules 4.4(b) and 4.27 hereto, the execution
and delivery of this Agreement by the Company do not, and the consummation by
the Company of the transactions contemplated hereby will not, violate, conflict
with or result in a breach of any provision of, or constitute a default (or an
event
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which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Company Subsidiary under any of the
terms, conditions or provisions of (i) the Articles of Incorporation or Bylaws
of the Company or any Company Subsidiary, (ii) subject to obtaining the Company
Required Statutory Approvals and the receipt of the Company Shareholders'
Approval, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to the Company or any Company Subsidiary or, to the
Company's best knowledge, any of their respective properties or assets, or
(iii) any note, bond, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which the Company or any Company Subsidiary is now a party or by which
the Company or any Company Subsidiary or, to the Company's best knowledge, any
of their respective properties or assets may be bound or affected, excluding
from the foregoing clauses (ii) and (iii) such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the aggregate, be
reasonably expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the Company and the Company Subsidiaries, taken as a
whole.
(c) Except for (i) any filings by the Purchaser and the Company that may be
required by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (ii) the filing of the Proxy/Information
Statement and Prospectus (as hereinafter defined) with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the Securities Act of 1933, as
amended (the "Securities Act"), and the declaration of the effectiveness
thereof by the SEC and filings with various state blue sky authorities, (iii)
the making of the Merger Filing with the Department of Assessments and Taxation
of the State of Maryland in connection with the Merger, (iv) any required
filings with or approvals from applicable federal or state environmental
authorities and (v) any required filings with or approvals from applicable
federal or state housing authorities (the filings and approvals referred to in
clauses (i) through (v) are collectively referred to as the "Company Required
Statutory Approvals"), to the Company's best knowledge, no declaration, filing
or registration with, or notice to, or authorization, consent or approval of,
any governmental or regulatory body or authority is necessary for the execution
and delivery of this Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby, other than such declarations,
filings, registrations, notices, authorizations, consents or approvals which,
if not made or obtained, as the case may be, would not, in the aggregate, be
reasonably expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the Company and the Company Subsidiaries, taken as a
whole.
Section 4.5 Financial Statements.
(a) The Company has previously delivered to the Purchaser copies of its
audited financial statements for the period ended December 31, 1993 and for the
nine months ended September 30, 1994 (together, the "Company Financial
Statements"). The Company Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis and
fairly present the financial position of the Company and the Company
Subsidiaries on a consolidated basis as of the dates thereof and the results of
their operations and cash flows for the periods then ended.
(b) All of the accounts receivable of the Company and the Company
Subsidiaries included in the Company Financial Statements or otherwise,
including any transactions with related parties, reflect actual transactions,
are collectible consistent with the Company's past history and will not be
subject to offset or deduction and have arisen in the ordinary course of
business.
Section 4.6 Absence of Undisclosed Liabilities. Except as disclosed on
Schedule 4.6 hereto, neither the Company nor any Company Subsidiary had, at
December 31, 1993, and neither has incurred since that date,
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any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature (other than ordinary and recurring operating
expenses), (a) except liabilities, obligations or contingencies which are
accrued or reserved against in the Company Financial Statements or reflected in
the notes thereto and (b) except for any liabilities, obligations or
contingencies which (i) would not, in the aggregate, be reasonably expected to
have a material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the
Company and the Company Subsidiaries, taken as a whole or (ii) have been
discharged or paid in full prior to the date hereof.
Section 4.7 Absence of Certain Changes or Events. Since December 31, 1993,
there has not been any material adverse change, or any event (other than
general economic or market conditions) which would reasonably be expected to
result in a material adverse change, individually or in the aggregate, in the
business, operations, properties, assets, liabilities, condition (financial or
other), results of operations or prospects of the Company and the Company
Subsidiaries, taken as a whole.
Section 4.8 Litigation. There are no claims, suits, actions or proceedings
pending or, to the best of the Company's knowledge without any independent
investigation, threatened, against, relating to or affecting the Company, any
Company Subsidiary or any of their respective properties before or by any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that could reasonably be expected, either alone or
in the aggregate with all such claims, actions or proceedings, to affect
materially and adversely the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the
Company and the Company Subsidiaries, taken as a whole. Neither the Company nor
any Company Subsidiary is subject to any judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator which prohibits or restricts
the consummation of the transactions contemplated hereby or would have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the
Company and the Company Subsidiaries, taken as a whole.
Section 4.9 Registration Statement and Proxy/Information Statement. None of
the information to be supplied by the Company for inclusion in (a) the
Registration Statement on Form S-4 to be filed under the Securities Act with
the SEC by the Purchaser in connection with the Merger for the purpose of
registering the Purchaser Common Shares to be issued in the Merger (the
"Registration Statement") or (b) the proxy/information statement to be
distributed in connection with the Company's and the Purchaser's meetings of
their respective shareholders to vote upon this Agreement and the transactions
contemplated hereby (the "Proxy/Information Statement" and, together with the
prospectus included in the Registration Statement, the "Proxy/Information
Statement and Prospectus") will, in the case of the Proxy/Information Statement
and Prospectus or any amendments thereof or supplements thereto, at the time of
the mailing of the Proxy/Information Statement and Prospectus and any
amendments thereof or supplements thereto, and at the time of the meetings of
shareholders of the Company and Purchaser to be held in connection with the
transactions contemplated by this Agreement or, in the case of the Registration
Statement, as amended or supplemented, at the time it becomes effective and at
the time of such meetings of the shareholders of the Company and the Purchaser,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Proxy/Information Statement and Prospectus will comply as to
form in all material respects with all applicable laws, including the
provisions of the Securities Act and the Exchange Act (as applicable thereto)
and the rules and regulations promulgated thereunder, except that no
representation is made by the Company with respect to information supplied by
the Purchaser or derived therefrom for inclusion therein.
Section 4.10 No Violation of Law. To the knowledge of the Company, none of
the Company or any Company Subsidiary is in violation of or has been given
notice or been charged with any violation of any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any
applicable environmental law, ordinance or regulation) of any governmental or
regulatory body or authority, except for violations which, in the aggregate,
would not reasonably be expected to have a material adverse effect on the
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business, operations, properties, assets, condition (financial or other),
results of operations or prospects of the Company and the Company Subsidiaries,
taken as a whole. To the knowledge of the Company, none of the Company
Properties (as hereinafter defined) is in violation or has been given notice or
been charged with any violation of any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or regulatory
body or authority, except for violations which, in the aggregate, would not
reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the Company Properties, taken as a whole. No
investigation or review of the Company or the Company Subsidiaries by any
governmental or regulatory body or authority is pending or, to the best
knowledge of the Company without any independent investigation, threatened, nor
has any governmental or regulatory body or authority indicated to the Company
or any Company Subsidiary an intention to conduct the same, other than, in each
case, those the outcome of which, as far as reasonably can be foreseen, would
not reasonably be expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the Company and the Company Subsidiaries, taken as a
whole. Each of the Company and the Company Subsidiaries has all permits,
licenses, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct its business as
presently conducted and as proposed by the Company or such Company Subsidiary
to be conducted, except for permits, licenses, franchises, variances,
exemptions, orders, authorizations, consents and approvals the absence of
which, alone or in the aggregate, would not reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the
Company and the Company Subsidiaries taken as a whole.
Section 4.11 Compliance with Agreements. Neither the Company, any Company
Subsidiary nor, to the best of the Company's knowledge without any independent
investigation, any other party is in breach or violation of or in default in
the performance or observance of any term or provision of, and no event has
occurred which, with lapse of time or action by a third party, could result in
a default under, (a) the Articles of Incorporation or Bylaws of the Company or
the charter or bylaws of any Company Subsidiary or (b) any contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond,
license, approval or other instrument to which the Company or any Company
Subsidiary is a party or by which it is bound or to which any of its properties
are subject, which breaches, violations and defaults, in the case of clause (b)
of this Section 4.11, would be reasonably expected to have, in the aggregate, a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the
Company and the Company Subsidiaries taken as a whole.
Section 4.12 Taxes.
(a) The Company has duly filed with the appropriate governmental authorities
all Tax Returns (as hereinafter defined) required to be filed by it for all
periods ending on or prior to the Effective Time. Each such return and filing
is true and correct in all material respects. All Taxes shown as due on all
such returns and other filings have been paid and the Company Financial
Statements reflect adequate reserves for all Taxes payable. No material issues
have been raised in any examination by any taxing authority with respect to the
businesses and operations of the Company which, by application of similar
principles, reasonably could be expected to result in a proposed adjustment to
the liability for Taxes for any other period not so examined. All Taxes which
the Company is required by law to withhold or collect, including without
limitation, sales and use taxes, have been duly withheld or collected and, to
the extent required, have been paid over to the proper governmental authorities
or are held in separate bank accounts for such purpose.
(b) The Company has not filed for an extension of a statute of limitations
with respect to any Tax and no governmental authorities have requested an
extension of the statute of limitations with respect to any Tax.
(c) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, excise, property, sales, withholding, social security,
occupation, use, service, service use, license, payroll, franchise, transfer
and recording taxes, fees
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and charges, imposed by the United States, or any state, local or foreign
government or subdivision or agency thereof whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall include
any interest, fines, penalties or additional amounts attributable or imposed on
or with respect to any such taxes, charges, fees, levies or other assessments.
(d) For purposes of this Agreement, the term "Tax Return" shall mean any
return, report or other document or information required to be supplied to a
taxing authority in connection with Taxes.
Section 4.13 Employee Benefit Plans; ERISA. The Company does not maintain or
contribute to, and is not a party to, any employee benefit plans, programs,
arrangements or practices, including employee benefit plans within the meaning
set forth in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended, and all regulations promulgated thereunder, as in effect from
time to time ("ERISA"), or any written employment contracts which contracts are
not immediately terminable without penalty or further liability, or other
similar material arrangements for the provision of benefits.
Section 4.14 Certain Agreements.
(a) Neither the Company nor any Company Subsidiary is a party to any oral or
written (i) consulting or similar agreement with any present or former director
or officer or any entity controlled by any such person not terminable on 30
days' or less notice, (ii) agreement with any executive officer of the Company
or any Company Subsidiary the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving
the Company or any Company Subsidiary of the nature contemplated by this
Agreement, (iii) agreement with respect to the employment of any executive
officer of the Company or any Company Subsidiary or (iv) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of the
transactions contemplated by this Agreement.
(b) Neither the Company nor any Company Subsidiary is indebted for money
borrowed, either directly or indirectly, from any of its officers or directors,
or any Affiliate (as hereinafter defined), in any amount whatsoever; nor are
any of its officers, directors or Affiliates indebted for money borrowed from
the Company; nor are there any transactions between the Company or any Company
Subsidiary and any of its officers, directors or Affiliates not subject to
cancellation which will continue beyond the time the Merger becomes effective,
including, without limitation, use of the Company's or any Company Subsidiary's
assets for personal benefit with or without adequate compensation. For purposes
of this Agreement, the term "Affiliate" shall mean any Person that, directly or
indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with, the Person specified. As used in the foregoing
definition, the term (i) "control" shall mean the power through the ownership
of voting securities, contract, or otherwise to direct the affairs of another
Person and (ii) "Person" shall mean an individual, firm, trust, association,
corporation, partnership, government (whether federal, state, local or other
political subdivision, or any agency or bureau of any of them) or other entity.
Section 4.15 Books, Records and Accounts. The Company's books, records and
accounts fairly and accurately reflect the transactions and dispositions of
assets of the Company and the Company Subsidiaries, and the Company's system of
internal accounting controls is sufficient to assure that: (i) transactions are
executed in accordance with management's authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles, and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Except as disclosed on Schedule 4.15 hereto, the Company has segregated all
funds for security and similar deposits received from its lessees. Set forth on
Schedule 4.15 hereto is a complete list of all bank accounts maintained by the
Company and each Company Subsidiary.
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Section 4.16 Company Ownership of Purchaser Common Shares. The Company is
not, and as of the Effective Time will not be, the "beneficial owner" (as such
term is defined in rules and regulations under the Securities Act and the
Exchange Act) of, any of the outstanding Purchaser Common Shares.
Section 4.17 Contracts, Etc. Schedule 4.17 hereto consists of a true and
complete list of all contracts, agreements, commitments and other instruments
(whether oral or written, and including any and all amendments or modifications
thereto) to which the Company or any Company Subsidiary is a party that: (i)
involve a receipt or an expenditure or require the performance of services or
delivery of goods to, by, through, on behalf of or for the benefit of the
Company or any Company Subsidiary, which in each case relates to a contract,
agreement, commitment or instrument that either (A) requires payments or
receipts in excess of $100,000 per year or (B) are not terminable by the
Company or a Company Subsidiary on notice of 30 days or less without penalty or
the Company or a Company Subsidiary being liable for damages; or (ii) involve
an obligation for the performance of services or delivery of goods by the
Company or any Company Subsidiary that cannot, or in reasonable probability
will not, be performed within 45 days subsequent to the date of this Agreement.
Section 4.18 Disclosure. No statement contained herein or in any certificate,
schedule, list, exhibit or other instrument furnished by the Company to the
Purchaser pursuant to the provisions hereof contains or will contain any untrue
statement of any material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading.
Section 4.19 Brokers and Finders. The Company has not employed any broker,
finder or other intermediary in connection with the transactions contemplated
by this Agreement which would be entitled to any brokerage, finder's or similar
fee or commission in connection with this Agreement or the transactions
contemplated hereby.
Section 4.20 REIT Qualification. As of the Effective Time, the Company will
be organized in conformity with the requirements for qualification as a "real
estate investment trust" under the Code and the Company's method of operations
will enable it to satisfy the requirements for qualification as a "real estate
investment trust" under the Code.
Section 4.21 Title to Properties. The Company has good and marketable title
in fee simple to all real property owned by it (individually, a "Company
Property" and collectively, the "Company Properties"), and good and marketable
title to all personal property owned by it which is material to its business,
in each case free and clear of all liens, encumbrances, claims, security
interests and defects, other than those disclosed on Schedules 4.24 and 4.27
hereto and those which would not, either individually or in the aggregate, have
a material adverse effect on any Company Property (collectively, the "Company
Permitted Encumbrances").
Section 4.22 Title Insurance. An owner's policy of title insurance issued by
a nationally recognized title insurance company in a form and containing
coverages customarily approved and required by institutional investors has been
obtained for each Company Property. Each owner's policy of title insurance
insures the fee simple ownership interest of the Company or the appropriate
Company Subsidiary in each Company Property subject only to the Company
Permitted Encumbrances and is in an amount at least equal to the sum of (i) the
cost of the acquisition of such Company Property and (ii) any subsequent cost
of the construction and installation of the improvements made by the Company
located on such Company Property (measured at the time of such construction).
Section 4.23 Environmental Matters. The Company has previously delivered to
the Purchaser copies of all Phase I environmental assessments conducted on or
with respect to the Company Properties. Except as disclosed in such
assessments, the Company has no knowledge of (i) the unlawful presence of any
Hazardous Materials (as hereinafter defined) on any of the properties of the
Company or (ii) any unlawful spills, releases, discharges or disposal of
Hazardous Materials that have occurred or are presently occurring off any of
the Company Properties as a result of any construction on or operation and use
of any of the Company
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Properties. "Hazardous Materials" shall mean (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, polychlorinated biphenyls and, only to the extent it exists at levels
which are considered hazardous to human health, radon gas and (b) any
chemicals, materials or substances defined as or included in the definition of
"hazardous substances," "toxic substances," "toxic pollutants," "contaminants"
or "pollutants" or words of similar import, under any applicable environmental
laws.
Section 4.24 Defects. To the best of the Company's knowledge without any
independent investigation, there are no material defects in the improvements
located on a Company Property including, without limitation, any defect in the
foundation, structural systems or roof or the electrical, plumbing, heating,
ventilating or air conditioning systems included within the improvements
located on such Company Property and there are no repairs or deferred
maintenance required to be made thereto.
Section 4.25 Condemnation. There is no pending or, to the best of the
Company's knowledge without any independent investigation, threatened, public
or private condemnation or similar proceeding affecting a Company Property or
any part thereof which would reasonably be expected to have a material adverse
effect upon the present maintenance, operation, occupancy or use of such
Company Property.
Section 4.26 Taxes and Assessments on Company Properties. There are no
material unpaid real estate property taxes or assessments due and payable
against a Company Property. Neither the Company nor any Company Subsidiary has
received any notice of assessment for public improvements with respect to or
relating to a Company Property.
Section 4.27 Mortgages. Schedule 4.27 hereto sets forth a complete and
correct list of all mortgages, deeds of trust, deeds to secure debt and other
similar security interests encumbering the Company Properties or any part
thereof (individually, a "Company Mortgage" and collectively, the "Company
Mortgages") and sets forth a complete and correct description of (a) the
Company Property encumbered by each Company Mortgage; (b) the names of the
obligor, guarantor, if any, and the holder of each Company Mortgage; (c) the
priority of each Company Mortgage and any mortgage, deed of trust or other
similar instrument that is either prior to or subordinate to each Company
Mortgage; (d) the original principal amount of the debt secured by each Company
Mortgage, the current rate of interest thereunder and the current outstanding
principal balance thereof; (e) the maturity date of the debt secured by each
Company Mortgage, the type of debt secured thereby and whether any balloon
payment is due at the maturity of the debt secured thereby; and (f) the amount
of the current monthly payment of interest, principal or other amounts due
under each Company Mortgage and the amount of any other mandatory principal or
other payment due thereunder prior to the maturity date of the debt secured
thereby. Each Company Mortgage is valid and enforceable, is in full force and
effect, and has not been amended, modified or supplemented except as set forth
on Schedule 4.27 hereto. All payments, installments and charges due and payable
under a Company Mortgage have been paid in full. Neither the Company nor any
Company Subsidiary has received notice of default by the Company or any Company
Subsidiary (which default has not previously been cured) from the holder of a
Company Mortgage nor, to the best of the Company's knowledge, does any
condition or event exist which with the giving of notice or the passage of
time, or both, would constitute a default by the Company or any Company
Subsidiary under a Company Mortgage. Except as set forth on Schedule 4.27
hereto, the occurrence of any of the transactions contemplated by this
Agreement will not require the consent or approval of the holder of a Company
Mortgage and will not violate, conflict with or constitute a default by the
Company or any Company Subsidiary under a Company Mortgage or result in a
condition or event which with the giving of notice or the passage of time, or
both, would constitute a default by the Company under a Company Mortgage.
Section 4.28 Investment Company Act. The Company is not, and as of the
Effective Time will not be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "Investment Company Act").
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company and Security Capital as
follows:
Section 5.1 Organization and Qualification. The Purchaser and each of the
Purchaser Subsidiaries (as hereinafter defined) is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization and each has the requisite power, corporate or otherwise, and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted and as it is proposed by the
Purchaser to be conducted. The Purchaser and each Purchaser Subsidiary is
qualified to do business and is in good standing in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing would not reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the
Purchaser and the Purchaser Subsidiaries, taken as a whole. True, accurate and
complete copies of each of the Declaration of Trust and Bylaws of the Purchaser
and the charter and bylaws, partnership agreement or other organizational
documents of each Purchaser Subsidiary as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to the
Company.
Section 5.2 Capitalization.
(a) The authorized capital shares of the Purchaser consists of 150,000,000
Shares of Beneficial Interest, $1.00 par value per share, of which 50,455,816
Purchaser Common Shares are issued and outstanding as of December 6, 1994 and
of which 9,200,000 Cumulative Convertible Series A Shares of Beneficial
Interest (the "Purchaser Preferred Shares") are issued and outstanding as of
December 6, 1994. All of the issued and outstanding Purchaser Common Shares and
Purchaser Preferred Shares are validly issued, fully paid and, except as
described in the Proxy/Information Statement and Prospectus, nonassessable and
free of preemptive rights. No subsidiary of the Purchaser holds any capital
shares of the Purchaser. The authorized capital stock of each Purchaser
Subsidiary that is a corporation is owned 100% by the Purchaser and all of the
issued and outstanding shares of each such Purchaser Subsidiary are fully paid
and nonassessable.
(b) Except as set forth on Schedule 5.2(b) hereto, as of the date hereof,
there are no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement that is presently exercisable obligating the Purchaser or any
Purchaser Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional capital shares of the Purchaser or any Purchaser
Subsidiary or obligating the Purchaser or any Purchaser Subsidiary to grant,
extend or enter into any such agreement or commitment. Except as set forth on
Schedule 5.2(b) hereto, there are no voting trusts, proxies or other agreements
or understandings to which the Purchaser is a party or is bound with respect to
the voting of any capital shares of the Purchaser or any Purchaser Subsidiary.
The Purchaser Common Shares to be issued to shareholders of the Company in
connection with the Merger will be at the Effective Time duly authorized,
validly issued, fully paid and, except as described in the Proxy/Information
Statement and Prospectus, nonassessable, and free of preemptive rights. The
Purchaser Common Shares to be issued in the Merger will, when issued, be
registered under the Securities Act and the Exchange Act and registered or
exempt from registration under any applicable state securities laws.
Section 5.3 Subsidiaries. The Purchaser has no subsidiaries except as
disclosed on Schedule 5.3 hereto (the "Purchaser Subsidiaries"). Each Purchaser
Subsidiary is a "qualified REIT subsidiary" under Section 856 of the Code.
Section 5.4 Authority; Non-Contravention; Approvals.
(a) The Purchaser has full power, corporate or otherwise, and authority to
enter into this Agreement and, subject to the Purchaser Shareholders' Approval
(as hereinafter defined) and the Purchaser Required
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Statutory Approvals (as hereinafter defined), to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, and the
consummation by the Purchaser of the transactions contemplated hereby, have
been duly authorized by the Purchaser's Board of Trustees and no other trust
proceedings on the part of the Purchaser are necessary to authorize the
execution and delivery of this Agreement and the consummation by the Purchaser
of the transactions contemplated hereby, except for the Purchaser Shareholders'
Approval and the obtaining of the Purchaser Required Statutory Approvals. This
Agreement has been duly and validly executed and delivered by the Purchaser,
and, assuming the due authorization, execution and delivery hereof by the
Company and Security Capital, constitutes a valid and binding agreement of the
Purchaser enforceable against the Purchaser in accordance with its terms,
except that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
(b) The execution and delivery of this Agreement by the Purchaser do not, and
the consummation by the Purchaser of the transactions contemplated hereby will
not, violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Purchaser
under any of the terms, conditions or provisions of (i) the Purchaser's
Declaration of Trust or Bylaws, (ii) subject to obtaining the Purchaser
Required Statutory Approvals and the Purchaser Shareholders' Approval, any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority applicable to
the Purchaser or any Purchaser Subsidiary or, to the Purchaser's best
knowledge, any of their respective properties or assets, or (iii) any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which the Purchaser or any Purchaser Subsidiary is now a party or by
which the Purchaser or any Purchaser Subsidiary or, to the Purchaser's best
knowledge, any of their respective properties or assets may be bound, excluding
from the foregoing clauses (ii) and (iii) such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the aggregate, be
reasonably expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the Purchaser and the Purchaser Subsidiaries, taken
as a whole.
(c) Except for (i) any filings by the Purchaser and the Company that may be
required by the HSR Act, (ii) the filing of the Registration Statement,
including the Proxy/Information Statement and Prospectus with the SEC pursuant
to the Securities Act and the Exchange Act, and the declaration of the
effectiveness thereof by the SEC and filings with various state blue sky
authorities, (iii) the making of the Merger Filing with the Department of
Assessments and Taxation of the State of Maryland in connection with the
Merger, (iv) any required filings with or approvals from applicable federal or
state environmental authorities and (v) any required filings with or approvals
from applicable federal or state housing authorities (the filings and approvals
referred to in clauses (i) through (v) are collectively referred to as the
"Purchaser Required Statutory Approvals"), to the Purchaser's best knowledge,
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Purchaser or
the consummation by the Purchaser of the transactions contemplated hereby,
other than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be, would
not, in the aggregate, be reasonably expected to have a material adverse effect
on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of the Purchaser.
Section 5.5 Reports and Financial Statements.
(a) The Purchaser has filed with the SEC, all forms, statements, reports and
documents (including all exhibits, amendments and supplements thereto) required
to be filed by it under each of the Securities Act
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and the Exchange Act and the respective rules and regulations thereunder all of
which complied in all material respects with all applicable requirements of the
appropriate federal securities act and the rules and regulations thereunder.
The Purchaser has previously delivered to the Company copies of its (i) Annual
Reports on Form 10-K for the fiscal year ended December 31, 1993 (the
"Purchaser 10-K") and for each of the fiscal years ended December 31, 1992 and
1991, as filed with the SEC, (ii) annual reports to shareholders for the three
most recent fiscal years in the form provided to shareholders, (iii) proxy and
information statements relating to all meetings of its shareholders (whether
annual or special) from January 1, 1991 until the date hereof, (iv) Quarterly
Report on Form 10-Q for the nine months ended September 30, 1994 (the
"Purchaser 10-Q") and (v) all other reports or registration statements filed by
the Purchaser with the SEC since January 1, 1991 (other than Registration
Statements filed on Form S-8) (collectively, the "Purchaser SEC Reports"). As
of their respective dates, the Purchaser SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim consolidated financial
statements of the Purchaser included in such reports (the "Purchaser Financial
Statements") have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis and fairly present the
financial position of the Purchaser and the Purchaser Subsidiaries on a
consolidated basis as of the dates thereof and the results of their operations
and cash flows for the periods then ended (except that the unaudited condensed
interim financial statements do not contain certain information and footnote
disclosures normally included in financial statements and are subject to normal
year-end audit adjustments, which individually and in the aggregate, will not
materially adversely affect the unaudited interim financial statements).
(b) All of the accounts receivable of the Purchaser and the Purchaser
Subsidiaries included in the Purchaser Financial Statements or otherwise,
including any transactions with related parties, reflect actual transactions
and will not be subject to offset or deduction and have arisen in the ordinary
course of business.
Section 5.6 Absence of Certain Changes or Events. Since December 31, 1993,
there has not been any material adverse change or any event (other than general
economic or market conditions) which would reasonably be expected to result in
a material adverse change, individually or in the aggregate, in the business,
operations, properties, assets, liabilities, condition (financial or other),
results of operations or prospects of the Purchaser and the Purchaser
Subsidiaries, taken as a whole.
Section 5.7 Registration Statement and Proxy/Information Statement. None of
the information to be supplied by the Purchaser for inclusion or incorporation
by reference in (a) the Registration Statement or (b) the Proxy/Information
Statement and Prospectus will, in the case of the Proxy/Information Statement
and Prospectus or any amendments thereof or supplements thereto, at the time of
the mailing of the Proxy/Information Statement and Prospectus and any
amendments thereof or supplements thereto, and at the time of the meetings of
shareholders of the Company and the Purchaser to be held in connection with the
transactions contemplated by this Agreement or, in the case of the Registration
Statement, as amended or supplemented, at the time it becomes effective and at
the time of such meeting of the shareholders of the Company and the Purchaser,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Proxy/Information Statement and Prospectus will comply as to
form in all material respects with all applicable laws, including the
provisions of the Securities Act and the Exchange Act (as applicable thereto)
and the rules and regulations promulgated thereunder, except that no
representation is made by the Purchaser with respect to information supplied by
the Company or derived therefrom for inclusion therein.
Section 5.8 Taxes. (a) The Purchaser has duly filed with the appropriate
governmental authorities all Tax Returns required to be filed by it for all
periods ending on or prior to the Effective Time. Each such return and filing
is true and correct in all material respects. All Taxes shown as due on all
such returns and other filings have been paid. No material issues have been
raised in any examination by any taxing authority with respect to the
businesses and operations of the Purchaser which, by application of similar
principles,
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reasonably could be expected to result in a proposed adjustment to the
liability for Taxes for any other period not so examined. All Taxes which the
Purchaser is required by law to withhold or collect, including without
limitation, sales and use taxes, have been duly withheld or collected and, to
the extent required, have been paid over to the proper governmental authorities
or are held in separate bank accounts for such purpose.
(b) The Purchaser has not filed for an extension of a statute of limitations
with respect to any Tax and no governmental authorities have requested an
extension of the statute of limitations with respect to any Tax.
Section 5.9 Disclosure. No statement contained herein or in any certificate,
schedule, list, exhibit or other instrument furnished by the Purchaser to the
Company pursuant to the provisions hereof contains or will contain any untrue
statement of any material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading.
Section 5.10 Brokers and Finders. The Purchaser has not employed any broker,
finder or other intermediary in connection with the transactions contemplated
by this Agreement which would be entitled to any brokerage, finder's or similar
fee or commission in connection with this Agreement or the transactions
contemplated hereby.
Section 5.11 REIT Qualification. The Purchaser qualifies as a "real estate
investment trust" under the Code and the Purchaser's methods of operations will
enable it to continue to satisfy the requirements for qualification as a "real
estate investment trust" under the Code.
Section 5.12 Investment Company Act. The Purchaser is not, and as of the
Effective Time will not be, an "investment company" within the meaning of the
Investment Company Act of 1940.
Section 5.13 NYSE Listing. The Purchaser Common Shares are, and as of the
Effective Time will be, listed on the NYSE.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SECURITY CAPITAL
Security Capital represents and warrants to the Purchaser as follows:
Section 6.1 Organization and Qualification. Security Capital is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted and as it is proposed by Security
Capital to be conducted. Security Capital is qualified to do business and is in
good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing would not reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of Security
Capital. True, accurate and complete copies of the Articles of Incorporation
and Bylaws of Security Capital as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to the Company and the
Purchaser.
Section 6.2 Authority: Non-Contravention; Approvals.
(a) Security Capital has full corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement, and the consummation by Security
Capital of the transactions contemplated hereby, have been duly authorized by
Security Capital's Board of Directors and no other corporate proceedings on the
part of Security Capital are necessary to authorize the execution and delivery
of this Agreement and the consummation by Security Capital of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Security Capital and, assuming the due authorization, execution
and delivery hereof by the Company and the Purchaser, constitutes a valid and
binding agreement of Security Capital enforceable
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against Security Capital in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles.
(b) Except as set forth on Schedule 6.2(b) hereto, the execution and delivery
of this Agreement by Security Capital do not, and the consummation by Security
Capital of the transactions contemplated hereby will not, violate, conflict
with or result in a breach of any provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of Security Capital under any of the terms, conditions or
provisions of (i) Security Capital's Articles of Incorporation or Bylaws, (ii)
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to Security Capital or (iii) any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Security Capital is
now a party or by which Security Capital may be bound, excluding from the
foregoing clauses (ii) and (iii) such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the aggregate, be
reasonably expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of Security Capital.
(c) To Security Capital's best knowledge, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the execution and
delivery of this Agreement by Security Capital or the consummation by Security
Capital of the transactions contemplated hereby, other than such declarations,
filings, registrations, notices, authorizations, consents or approvals which,
if not made or obtained, as the case may be, would not, in the aggregate, be
reasonably expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of Security Capital.
Section 6.3 Investment Company Act. Security Capital is not, and as of the
Effective Time will not be, an "investment company" within the meaning of the
Investment Company Act.
Section 6.4 No Disposition of Shares. Security Capital (i) has no plan or
intention to sell, transfer or otherwise dispose of more than 50% of the
Purchaser Common Shares that it will receive in exchange for its Company Common
Stock pursuant to the Merger within the two-year period following its receipt
of such shares and (ii) will not sell, transfer or otherwise dispose of more
than 50% of the Purchaser Common Shares that it will receive in exchange for
its Company Common Stock pursuant to the Merger within the two-year period
following its receipt of such shares, other than transfers of such shares to a
wholly owned subsidiary of Security Capital and a subsequent bona fide pledge
of such shares by such subsidiary to secure a loan. Further, Security Capital
will not sell, transfer or otherwise dispose of any of its Company Common Stock
to any person or entity prior to the Effective Time, other than transfers of
such stock to a wholly owned subsidiary of Security Capital and a subsequent
bona fide pledge of such shares by such subsidiary to secure a loan.
ARTICLE VII
CONDUCT OF BUSINESSES PENDING THE MERGER
Section 7.1 Conduct of Business by the Company Pending the Merger. After the
date hereof and prior to the Closing Date or earlier termination of this
Agreement, except as the Purchaser shall otherwise agree in writing or as may
be otherwise specifically contemplated by this Agreement, the Company shall:
(a) conduct its business in the ordinary and usual course of business and
consistent with past practice;
(b) not (i) amend or propose to amend its Articles of Incorporation or
Bylaws, or (ii) split, combine or reclassify its outstanding capital stock
or declare, set aside or pay any dividend or distribution payable
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in cash, stock, property or otherwise; provided, however, that the Company
may declare and pay dividends equal to 100% of its net earnings (determined
in accordance with generally accepted accounting principles).
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of the Company's capital stock of
any class or any debt or equity securities convertible into or exchangeable
for such capital stock or amend or modify the terms and conditions of any
of the foregoing, except that in the ordinary course of its business and
consistent with its past practices, the Company may issue shares in
connection with the exercise of the rights to acquire Company Common Stock
listed on Schedule 4.2(b) hereto, in all events in accordance with the
terms thereof and except that the Company may issue shares of Company
Common Stock to Security Capital in exchange for a capital contribution by
Security Capital of not less than $10.00 per share in connection with the
funding of acquisitions or developments by the Company or repayments of
borrowings by the Company of the Company Revolving Line of Credit (as
hereinafter defined) used for acquisitions or developments (provided, that
to the extent practicable, the Company shall fund such acquisitions or
developments under the Company Revolving Line of Credit);
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money (provided, however, that the Company may
from time to time make additional borrowings under the Company Revolving
Line of Credit up to the total amount then available for borrowing
thereunder and the Company may assume additional indebtedness in connection
with the acquisition of additional properties), (ii) redeem, purchase,
acquire or offer to purchase or acquire any shares of its capital stock,
other than as required by the governing terms of such securities, (iii)
take any action which would jeopardize the Company's status as a real
estate investment trust, (iv) make any acquisition of any assets or
businesses except for the consummation of the matters set forth on Schedule
4.17 hereto, (v) sell any assets or businesses, or (vi) enter into any
contract, agreement, commitment or arrangement with respect to any of the
foregoing, except as contemplated by Schedule 4.17 hereto;
(e) use reasonable efforts to preserve intact its business organization
and goodwill, keep available the services of its present officers, and
preserve the goodwill and business relationships with all lessees,
operators, suppliers, distributors, customers, and others having business
relationships with the Company and not engage in any action, directly or
indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement;
(f) confer with one or more representatives of the Purchaser when
requested to report on material operational matters and the general status
of ongoing operations of the Company's business;
(g) not enter into or amend any special pay arrangement with any
directors, officers or other representatives or agree to do so;
(h) not, other than in accordance with established compensation
adjustment policies and as contemplated by this Agreement, increase the
rate of remuneration payable to any of its directors, officers or other
representatives, or agree to do so;
(i) maintain, in full force and effect, with all premiums due thereon
paid, policies of insurance covering all of the insurable tangible assets
and businesses of the Company and the Company Subsidiaries in amounts and
as to foreseeable risks usually insured against by persons operating
similar businesses under valid and enforceable policies of insurance issued
by nationally recognized insurers; and
(j) not take any action which would jeopardize the Company's ability to
qualify as a real estate investment trust under the Code.
Section 7.2 Conduct of Business by the Purchaser Pending the Merger. After
the date hereof and prior to the Closing Date or earlier termination of this
Agreement, unless the Company shall otherwise agree in writing or as may be
otherwise specifically contemplated by this Agreement, the Purchaser shall:
(a) conduct its business in the ordinary and usual course of business and
consistent with past practice;
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(b) not (i) amend or propose to amend its Declaration of Trust or Bylaws
(other than as contemplated in the Articles of Merger or as required by
Maryland law applicable to real estate investment trusts), or (ii) split,
combine or reclassify its outstanding capital shares or declare, set aside
or pay any dividend or distribution payable in cash, shares, property or
otherwise other than regular quarterly dividends on Purchaser Common Shares
in an amount not to exceed $0.2875 per Purchaser Common Share;
(c) not take any action which would jeopardize the Purchaser's status as
a real estate investment trust;
(d) use reasonable efforts to preserve intact its business organization
and goodwill, keep available the services of its present officers and
preserve the goodwill and business relationships with all lessees,
operators, suppliers, distributors, customers, and others having business
relationships with the Purchaser and not engage in any action, directly or
indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement;
(e) confer with one or more representatives of the Company when requested
to report on material operational matters and the general status of ongoing
operations of the Purchaser's business;
(f) file its Annual Report on Form 10-K for the year ending December 31,
1994 on or before the date prescribed therefor pursuant to the Exchange Act
and such report shall comply with all of the requirements of the Exchange
Act; and
(g) maintain, in full force and effect, with all premiums due thereon
paid, policies of insurance covering all of the insurable tangible assets
and businesses of the Purchaser in amounts and as to foreseeable risks
usually insured against by persons operating similar businesses under valid
and enforceable policies of insurance issued by nationally recognized
insurers.
Section 7.3 Acquisition Transactions. After the date hereof and prior to the
Effective Time or earlier termination of this Agreement, unless the Purchaser
shall otherwise agree in writing, the Company shall not initiate, solicit,
negotiate, encourage, or provide confidential information to facilitate, and
the Company shall cause any officer or director of the Company or any attorney,
accountant, investment banker or other agent retained by the Company not to
initiate, solicit, negotiate, encourage, or provide confidential information to
facilitate, any proposal or offer to acquire all or any substantial part of the
business and properties of the Company, or capital stock of the Company,
whether by merger, purchase of assets, tender offer or otherwise, whether for
cash, securities or any other consideration or combination thereof.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 Access to Information. The Company shall afford to the Purchaser
and its accountants, counsel, financial advisors and other representatives (the
"Purchaser Representatives") and the Purchaser shall afford to the Company and
its accountants, counsel, financial advisors and other representatives (the
"Company Representatives") full access during normal business hours throughout
the period prior to the Effective Time to all properties, books, contracts,
commitments and records (including, but not limited to, Tax Returns) of the
Company and the Purchaser, as appropriate, and, during such period, each shall
furnish promptly to the other (a) a copy of each report, schedule and other
document filed or received pursuant to the requirements of federal or state
securities laws or filed with the SEC in connection with the transactions
contemplated by this Agreement or which may have a material effect on the
Company's or the Purchaser's business, properties or personnel, as appropriate,
and (b) such other information concerning their respective businesses,
properties and personnel as shall be reasonably requested; provided that no
investigation pursuant to this Section 8.1 shall affect any representation or
warranty made herein or the conditions to the obligations of the respective
parties hereto to consummate the Merger. The Company shall promptly advise the
Purchaser and the Purchaser shall promptly advise the Company in writing of any
change or the occurrence
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of any event after the date of this Agreement having, or which, insofar as can
reasonably be foreseen, in the future may have, any material adverse effect on
the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of the Company and the Company Subsidiaries,
taken as a whole, or the Purchaser and the Purchaser Subsidiaries, taken as a
whole, as the case may be.
Section 8.2 Registration Statement and Proxy/Information Statement. The
Purchaser and the Company shall file with the SEC as soon as is reasonably
practicable after the date hereof the Proxy/Information Statement and
Prospectus and shall use all reasonable efforts to have the Registration
Statement declared effective by the SEC as promptly as practicable. The
Purchaser shall also take any action required to be taken under applicable
state blue sky or securities laws in connection with the issuance of Purchaser
Common Shares. The Purchaser and the Company shall promptly furnish to each
other all information, and take such other actions, as may reasonably be
requested in connection with any action by any of them in connection with the
preceding sentence and shall cooperate with one another and use their
respective best efforts to facilitate the expeditious consummation of the
transactions contemplated by this Agreement.
Section 8.3 Shareholders' Approval. The Purchaser shall promptly take such
action as may be required by its Declaration of Trust and applicable law and
the Company shall promptly take such action as may be required by its Articles
of Incorporation and applicable law to obtain the requisite shareholder
approval of this Agreement and the transactions contemplated hereby (the
"Purchaser Shareholders' Approval" and "Company Shareholders' Approval," as
appropriate), and the Purchaser and the Company shall each use their respective
best efforts to obtain shareholder approval and adoption of this Agreement and
the transactions contemplated hereby as soon as practicable following the date
upon which the Registration Statement is declared effective by the SEC. The
Board of Trustees of the Purchaser and the Board of Directors of the Company
shall recommend to their respective shareholders the approval of this Agreement
and of the transactions contemplated by this Agreement.
Section 8.4 Compliance with the Securities Act. The Company shall use its
best efforts to cause each principal executive officer, each director and each
other person who is an "affiliate," as that term is used in paragraphs (c) and
(d) of Rule 145 under the Securities Act, of the Company to deliver to the
Purchaser on or prior to the Effective Time a written agreement (an "Affiliate
Agreement") to the effect that such person will not offer to sell, sell or
otherwise dispose of any Purchaser Common Shares issued in the Merger, except,
in each case, pursuant to an effective registration statement or in compliance
with Rule 145, as amended from time to time, or in a transaction which, in the
opinion of legal counsel satisfactory to the Purchaser, is exempt from the
registration requirements of the Securities Act.
Section 8.5 NYSE. The Purchaser shall use its best efforts to effect, at or
before the Effective Time, authorization for listing on the NYSE upon official
notice of issuance, of the Purchaser Common Shares to be issued pursuant to the
Merger.
Section 8.6 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses, except that those expenses incurred in connection with
filing, printing and distributing the Proxy/Information Statement and
Prospectus shall be paid by the Purchaser.
Section 8.7 Agreement to Cooperate. Subject to the terms and conditions
herein provided, each of the parties hereto shall cooperate and use its
respective best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using its best efforts to identify
and obtain all necessary or appropriate waivers, consents and approvals to
effect all necessary registrations, filings and submissions (including, but not
limited to, the Company Required Statutory Approvals, the Purchaser Required
Statutory Approvals, any filings under federal and state securities laws and,
if necessary, the HSR Act and any submissions requested by the Federal Trade
Commission or Department of Justice in connection therewith) and to lift any
injunction or other legal bar to the Merger (and, in such case, to proceed with
the Merger as expeditiously as possible), subject, however, to obtaining the
Company Shareholders' Approval and the Purchaser Shareholders' Approval.
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Section 8.8 Public Statements. The parties shall consult with each other
prior to issuing any press release or any written public statement with respect
to this Agreement or the transactions contemplated hereby and shall not issue
any such press release or written public statement prior to review and approval
by the other party, except that prior review and approval shall not be required
if, in the reasonable judgment of the party seeking to issue such release or
public statement, prior review and approval would prevent the timely
dissemination of such release or announcement in violation of any applicable
law, rule, regulation or policy of the NYSE.
Section 8.9 Corrections to the Proxy/Information Statement and Prospectus and
Registration Statement. Prior to the date of the Company Shareholders' Approval
and the Purchaser Shareholders' Approval, each of the Purchaser and the Company
shall correct promptly any information provided by it to be used specifically
in the Proxy/Information Statement and Prospectus and Registration Statement or
relating to it and incorporated by reference into the Proxy/Information
Statement and Prospectus and Registration Statement that shall have become
false or misleading in any material respect and shall take all steps necessary
to file with the SEC and have declared effective or cleared by the SEC any
amendment or supplement to the Proxy/Information Statement and Prospectus or
the Registration Statement so as to correct the same and to cause the
Proxy/Information Statement and Prospectus as so corrected to be disseminated
to the shareholders of the Company and the Purchaser, in each case to the
extent required by applicable law.
Section 8.10 Continued Qualification as a Real Estate Investment Trust. From
and after the date hereof through the Effective Time, the Purchaser will
maintain its qualification as "real estate investment trust" and the Company
will conduct its operations consistent with enabling it to elect to be treated
as a "real estate investment trust" under the Code. The Purchaser will not
undertake any action prior to, on, or after the Effective Time that jeopardizes
the status of the Company as a "real estate investment trust" under the Code
and will elect "real estate investment trust" status effective for the Company
for the taxable year beginning August 31, 1994.
Section 8.11 Revolving Credit Agreement. On or prior to the Effective Time,
the Purchaser shall repay all outstanding borrowings of the Company under that
certain Credit Agreement dated as of October 17, 1994 among the Company, Wells
Fargo Investors and the other lenders named therein (the "Company Revolving
Line of Credit") and the Company shall cause such agreement to be terminated.
Section 8.12 Voting of Shares. Security Capital will vote all Purchaser
Common Shares and all shares of Company Common Stock owned by it in favor of
the Merger.
ARTICLE IX
CONDITIONS
Section 9.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) Each other party shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of such party
shall be true and correct in all material respects on and as of (i) the
date made and (ii) the Closing Date with the same effect as if made on that
date; and each other party shall have received a certificate of an
executive officer of such party to that effect;
(b) This Agreement and the transactions contemplated hereby shall have
been approved by the requisite vote of shareholders of the Purchaser and
the Company;
(c) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, and no stop order suspending
such effectiveness shall have been issued and remain in effect and no
proceeding for that purpose shall have been initiated or threatened by the
SEC;
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(d) No preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Merger
shall have been issued and remain in effect (each party agreeing to use its
best efforts to have any such injunction, order or decree lifted);
(e) All governmental consents, orders and approvals legally required for
the consummation of the Merger and the transactions contemplated hereby
shall have been obtained and be in effect at the Effective Time (including
the Company Required Statutory Approvals and the Purchaser Required
Statutory Approvals), and all consents, orders and approvals legally
required for the consummation of the Merger and the transactions
contemplated hereby shall have become final orders;
(f) The Company and the Purchaser shall each have received an opinion
from their respective counsel to the effect that (i) the Merger will
qualify as a reorganization under Section 368 of the Code, (ii) no income
or gain will be recognized by the Company or the Purchaser as a result of
the Merger and (iii) no gain or loss will be recognized by shareholders of
the Company and the Purchaser (except for cash received in lieu of
fractional shares and by dissenting shareholders); and
(g) Each of the parties shall have acquired all consents required from
third parties necessary to consummate the Merger.
Section 9.2 Conditions to Obligation of the Company to Effect the Merger.
Unless waived by the Company, the obligation of the Company to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the following additional conditions:
(a) The Company shall have received an opinion from King & Spalding,
counsel to the Purchaser, dated the Closing Date, substantially in the form
set forth in Exhibit II hereto;
(b) The Purchaser Common Shares to be issued in connection with the
Merger shall have been authorized for listing on the NYSE upon official
notice of issuance;
(c) No governmental consent, order or approval legally required for the
consummation of the Merger and the transactions contemplated hereby shall
have any terms which in the reasonable judgment of the Company, when taken
together with the terms of all such consents, orders or approvals, would
materially impair the value of the Purchaser Common Shares to be received
by shareholders of the Company as a result of the Merger, and no
governmental authority shall have promulgated any statement, rule or
regulation which, when taken together with all such promulgations, would
materially impair the value of the Purchaser Common Shares to be received
by shareholders of the Company as a result of the Merger; and
(d) The Company shall have received an opinion from Mayer, Brown & Platt
that the performance of this Agreement will not jeopardize the ability of
the status of the Company as a "real estate investment trust" under the
Code.
Section 9.3 Conditions to Obligation of the Purchaser to Effect the Merger.
Unless waived by the Purchaser, the obligation of the Purchaser to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the additional following conditions:
(a) The Purchaser shall have received an opinion from Mayer, Brown &
Platt, counsel to the Company dated the Closing Date, substantially in the
form set forth in Exhibit III hereto;
(b) The Purchaser's Board of Trustees and Special Committee shall have
received from an investment banking firm satisfactory to the Purchaser's
Board of Trustees and Special Committee, an opinion to the effect that, as
of the date hereof, the Exchange Ratio was fair, from a financial point of
view, to the Purchaser's shareholders, and such opinion shall not have been
withdrawn, revoked or modified;
(c) The Affiliate Agreements required to be delivered to the Purchaser
pursuant to Section 8.4 shall have been furnished as required by Section
8.4;
(d) No governmental consent, order or approval legally required for the
consummation of the Merger and the transactions contemplated hereby shall
have any terms which in the reasonable judgment
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of the Purchaser, when taken together with the terms of all such consents,
orders or approvals, would materially impair the value of the Company to
the Purchaser, and no governmental authority shall have promulgated any
statute, rule or regulation which, when taken together with all such
promulgations, would materially impair the value of the Company to the
Purchaser; and
(e) The Purchaser shall have received an opinion from King & Spalding
that the performance of this Agreement will not jeopardize the status of
the Purchaser as a "real estate investment trust" under the Code.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date, whether before or after approval by the shareholders of
the Purchaser and the Company:
(a) by mutual consent of the Purchaser and the Company;
(b) by either the Purchaser or the Company, so long as such party has not
breached any of its obligations hereunder (except for such breaches as are
immaterial), if the Merger shall not have been consummated on or before
April 30, 1995 (the "Termination Date");
(c) unilaterally by the Purchaser or the Company (i) if the other (A)
fails to perform any covenant or agreement in this Agreement in any
material respect, and does not cure the failure, in all material respects
within 15 business days after the terminating party delivers written notice
of the alleged failure or (B) fails to fulfill or complete a condition to
the obligations of that party (which condition is not waived) by reason of
a breach by that party of its obligations hereunder or (ii) if any
condition to the obligations of that party is not satisfied (other than by
reason of a breach by that party of its obligations hereunder), and it
reasonably appears that the condition cannot be satisfied prior to the
Termination Date;
(d) unilaterally by the Purchaser if the Company, through its Board of
Directors, either fails to recommend to the Company's shareholders the
approval of this Agreement and the transactions contemplated hereby or
withdraws such recommendation;
(e) unilaterally by the Company if the Purchaser, through its Board of
Trustees, either fails to recommend to the Purchaser's shareholders the
approval of this Agreement and the transactions contemplated hereby or
withdraws such recommendation; and
(f) unilaterally by the Purchaser at any time after the Company takes any
of the actions specified in Section 7.3.
Section 10.2 Effect of Termination. In the event of termination of this
Agreement by either the Purchaser or the Company, as provided in Section 10.1,
this Agreement shall forthwith become void and there shall be no further
obligation on the part of either the Purchaser, the Company, Security Capital
or their respective officers or directors or trustees (except as set forth in
this Section 10.2 and in Section 8.6 and Article XI, which shall survive such
termination). Nothing in this Section 10.2 shall relieve any party from
liability for any breach of this Agreement.
Section 10.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto and in
compliance with applicable law.
Section 10.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
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ARTICLE XI
SURVIVAL AND REMEDY; INDEMNIFICATION
Section 11.1 Indemnification by Security Capital. Security Capital agrees to
indemnify the Purchaser and each of its Affiliates against, and agrees to hold
it and them harmless from, any and all liabilities, losses, costs, damages,
penalties or expenses (including, without limitation, reasonable attorneys'
fees and expenses and costs of investigation and litigation) (collectively,
"Losses") incurred or suffered by the Purchaser or any of its Affiliates (or
any combination thereof) arising out of or in connection with any breach of, or
inaccuracy in, any of the representations and warranties or agreements of the
Company under this Agreement.
Section 11.2 Limitation of Indemnification. The Purchaser shall not be
entitled to indemnification under this Article XI until the aggregate of all
Losses with respect to which the Purchaser would otherwise be entitled to
indemnification under this Article XI exceed $1,500,000, in which event the
Purchaser shall be entitled to all such Losses including such $1,500,000;
provided, however, that Security Capital's indemnification obligation hereunder
shall not exceed the amount determined by multiplying the number of shares of
PACIFIC Common Stock owned by Security Capital immediately prior to the
Effective Time by the Exchange Ratio and multiplying the product thereof by
$16.375 (the price of Purchaser Common Shares upon which the Exchange Ratio is
based).
Section 11.3 Notice of Claims; Assumption of Defense. The Purchaser shall
give prompt notice to Security Capital, in accordance with the terms of Section
12.1, of the assertion of any claim, or the commencement of any suit, action or
proceeding by any party in respect of which indemnity may be sought hereunder,
specifying with reasonable particularity the basis therefor and giving Security
Capital such information with respect thereto as Security Capital may
reasonably request. Security Capital may, at its own expense, (a) participate
in and, (b) upon notice to the Purchaser and upon Security Capital's written
agreement that the Purchaser is entitled to indemnification pursuant to Section
11.1 for Losses arising out of such claim, suit, action or proceeding, at any
time during the course of any such claim, suit, action or proceeding, assume
the defense thereof; provided that (x) Security Capital's counsel is reasonably
satisfactory to the Purchaser; and (y) Security Capital shall thereafter
consult with the Purchaser upon its reasonable request from time to time with
respect to such claim, suit, action or proceeding. If Security Capital assumes
such defense, the Purchaser shall have the right (but not the duty) to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by Security Capital. Whether or not Security
Capital chooses to defend or prosecute any such claim, suit, action or
proceeding, all of the parties hereto shall cooperate in the defense or
prosecution thereof.
Section 11.4 Settlement or Compromise. Any settlement or compromise made or
caused to be made by the Purchaser or Security Capital, as the case may be, of
any claim, suit, action or proceeding of the kind referred to in Section 11.3
shall also be binding upon Security Capital or the Purchaser, as the case may
be, in the same manner as if a final judgment or decree had been entered by a
court of competent jurisdiction in the amount of such settlement or compromise.
No party shall settle or compromise any such claim, suit, action or proceeding
without the prior written consent of the other party, which shall not be
unreasonably withheld.
Section 11.5 Failure of Security Capital to Act. In the event that Security
Capital does not elect to assume the defense of any claim, suit, action or
proceeding within a reasonable time of being notified by the Purchaser, then
any failure of the Purchaser to defend or to participate in the defense of any
such claim, suit, action or proceeding or to cause the same to be done, shall
not relieve Security Capital of its obligations hereunder.
Section 11.6 Survival. The indemnification provided by this Article XI shall
be a continuing right to indemnification and shall survive the Closing and the
expiration or termination of this Agreement for a period of one year, and the
Purchaser shall be entitled to bring an action thereon only if the Purchaser
has given Security Capital written notice within such one-year period.
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ARTICLE XII
GENERAL PROVISIONS
Section 12.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent via a
recognized overnight courier with delivery confirmed in writing or sent via
facsimile to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a)If to the Purchaser to:
Property Trust of America
7777 Market Center Avenue
El Paso, Texas 79912
Attention: C. Ronald Blankenship
Fax: (915) 877-3301
with copies to:
King & Spalding
191 Peachtree Center
Atlanta, Georgia 30303
Attention: Randolph C. Coley
Fax: (404) 572-5100
(b)If to the Company, to:
Security Capital Pacific Incorporated
7777 Market Center Avenue
El Paso, Texas 79912
Attention: Paul E. Szurek
Fax: (915) 877-3301
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Edward J. Schneidman
Fax: (312) 701-7711
(c)If to Security Capital, to:
Security Capital Realty Incorporated
125 Lincoln Avenue, Suite 300
Santa Fe, New Mexico 87501
Attention: Paul E. Szurek
Fax: (505) 988-8920
with a copy to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Edward J. Schneidman
Fax: (312) 701-7711
Section 12.2 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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Section 12.3 Miscellaneous. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof and thereof; (b) shall not be assigned by operation of law or otherwise;
and (c) shall be governed in all respects, including validity, interpretation
and effect, by the laws of the State of Maryland (without giving effect to the
provisions thereof relating to conflicts of law).
Section 12.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 12.5 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 12.6 Limitation of Liability. Under the terms of the Purchaser's
Declaration of Trust, all persons dealing with the Purchaser shall look solely
to the Purchaser's property for satisfaction of claims of any nature, and no
trustee, officer, agent or shareholder of the Purchaser shall be held liable to
any person in tort, contract or otherwise as the result of the execution,
delivery and performance of this Agreement by the Purchaser.
In Witness Whereof, the Purchaser, the Company and Security Capital have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
Property Trust of America
/s/ C. Ronald Blankenship
By: _________________________________
C. Ronald Blankenship
Chairman
Security Capital Pacific
Incorporated
/s/ Paul E. Szurek
By: _________________________________
Paul E. Szurek
Secretary
Security Capital Realty Incorporated
/s/ Paul E. Szurek
By: _________________________________
Paul E. Szurek
Secretary
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ANNEX II
January 4, 1995
PRIVILEGED AND CONFIDENTIAL
Board of Trustees
Property Trust of America
7777 Market Center Avenue
El Paso, TX 79912
Gentlemen:
You have asked for our opinion with respect to the fairness to the
shareholders of Property Trust of America ("PTR"), from a financial point of
view and as of the date hereof, of the exchange ratio (the "Exchange Ratio") of
0.611 common shares of PTR for each issued and outstanding share of common
stock of Security Capital Pacific Incorporated ("PACIFIC"). Under the terms of
that certain Agreement and Plan of Merger, dated as of December 6, 1994 (the
"Agreement"), PACIFIC will merge with and into PTR, PACIFIC will cease to exist
as a corporation, the stockholders of PACIFIC will become shareholders of PTR,
and PTR will be the surviving entity and change its name to "Security Capital
Pacific Trust" (the "Merger"). Outstanding rights to acquire shares of PACIFIC
common stock will be converted into rights to acquire PTR common shares.
PACIFIC and its affiliates are prohibited under the Agreement from soliciting
competing bids. The affirmative vote of holders of two-thirds of the
outstanding common shares of PTR is necessary for approval of the Merger. PTR
common shares issued in the Merger will be registered under the Securities Act
of 1933 as a condition to the Merger. The terms and conditions of the Merger
are set out more fully in the Agreement.
Concurrent with the consummation of the Merger, PTR expects to close a pro
rata subscription offering of up to 17.7 million PTR common shares (the
"Subscription Offering") to all PTR shareholders other than Security Capital
Group. Security Capital Group has agreed to purchase up to $50 million of PTR
shares in the Subscription Offering, subject to a reduction based on the extent
subscriptions are received from other parties.
For purposes of this opinion we have, among other things: (i) reviewed
financial information relating to PACIFIC and PTR furnished to us by both
companies, including management's financial forecasts; (ii) reviewed publicly
available information; (iii) held discussions with the management of PACIFIC
and PTR concerning the businesses, operations and prospects of both companies,
independently and combined; (iv) reviewed the Agreement and a draft in
substantially final form of the joint proxy statement/prospectus filed on
December 7, 1994 by PTR with the Securities and Exchange Commission on a Form
S-4 Registration Statement; (v) physically inspected substantially all of the
properties comprising PACIFIC's portfolio; (vi) compared the relative economic
and demographic conditions of the markets in which PACIFIC and PTR own
properties; (vii) reviewed the terms of sale of properties comparable to those
owned by PACIFIC and PTR; (viii) reviewed the stock price and trading history
of PTR; (ix) reviewed the contribution by each company to pro forma combined
number of units, gross revenue, net operating income, net income and funds from
operations; (x) reviewed the valuations of publicly traded companies which we
deemed comparable to PACIFIC and PTR; (xi) compared the financial terms of the
Merger with other transactions which we deemed relevant; (xii) prepared
discounted cash flow analyses of both companies; (xiii) analyzed the pro forma
funds from operations per share of the combined company; and (xiv) made such
other studies and inquiries, and reviewed such other data, as we deemed
relevant.
In the course of this engagement, we have completed an investigation of both
companies. We have not however independently verified any of the foregoing
information and have relied on all such information being complete and accurate
in all material respects. Furthermore, we did not obtain any independent
appraisal of
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the properties or assets of PACIFIC or PTR. With respect to the financial
forecasts of PACIFIC and PTR which we have reviewed, we have assumed that such
forecasts have been reasonably prepared in good faith and represent the best
currently available estimates and judgment of management of PTR and PACIFIC,
and we have relied upon such estimates and judgments of PACIFIC and PTR
management as to the future financial performance of both companies. While we
believe that our review, as described within, is an adequate basis for the
opinion that we express, this opinion is necessarily based upon market,
economic, and other conditions that exist and can be evaluated as of the date
of this letter, and on information available to us as of the date hereof.
Based upon and subject to the foregoing considerations, it is our opinion, as
investment bankers, that, as of the date hereof, the Exchange Ratio is fair to
the shareholders of PTR from a financial point of view. RS & Co. has not been
asked to render, and is not rendering, any opinion on or related to the
Subscription Offering.
Very truly yours,
Robertson, Stephens & Company, L.P.
By: Robertson, Stephens & Company,
Inc.
/s/ Robert L. Emig
-------------------------------------
Authorized Signatory
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ANNEX III
TITLE 3, SUBTITLE 2 OF THE
CORPORATIONS AND ASSOCIATIONS ARTICLE OF
THE ANNOTATED CODE OF MARYLAND
RIGHTS OF OBJECTING STOCKHOLDERS.
(S) 3-201. "SUCCESSOR" DEFINED.
(a) Corporation amending charter.--In this subtitle, except as provided in
subsection (b) of this section, "successor" includes a corporation which amends
its charter in a way which alters the contract rights, as expressly set forth
in the charter, of any outstanding stock, unless the right to do so is reserved
by the charter of the corporation.
(b) Corporation whose stock is acquired.--When used with reference to a share
exchange, "successor" means the corporation the stock of which was acquired in
the share exchange.
(S) 3-202. RIGHT TO FAIR VALUE OF STOCK.
(a) General Rule.--Except as provided in subsection (c) of this section, a
stockholder of a Maryland corporation has the right to demand and receive
payment of the fair value of the stockholder's stock from the successor if:
(1) The corporation consolidates or merges with another corporation;
(2) The stockholder's stock is to be acquired in a share exchange;
(3) The corporation transfers its assets in a manner requiring corporate
action under (S)3-105 of this title;
(4) The corporation amends its charter in a way which alters the contract
rights, as expressly set forth in the charter, of any outstanding stock and
substantially adversely affects the stockholder's rights, unless the right
to do so is reserved by the charter of the corporation; or
(5) The transaction is governed by (S)3-602 of this title or exempted by
(S)3-603(b) of this title.
(b) Basis of fair value.--
(1) Fair value is determined as of the close of business:
(i) With respect to a merger under (S)3-106 of this title of a 90
percent or more owned subsidiary into its parent, on the day notice is
given or waived under (S)3-106; or
(ii) With respect to any other transaction, on the day the
stockholders voted on the transaction objected to.
(2) Except as provided in paragraph (3) of this subsection, fair value
may not include any appreciation or depreciation which directly or
indirectly results from the transaction objected to or from its proposal.
(3) In any transaction governed by (S)3-602 of this title or exempted by
(S)3-603(b) of this title, fair value shall be value determined in
accordance with the requirements of (S)3-603(b) of this title.
(c) When right to fair value does not apply.--Unless the transaction is
governed by (S)3-602 of this title or is exempted by (S)3-603(b) of this title,
a stockholder may not demand the fair value of his stock and is bound by the
terms of the transaction if:
(1) The stock is listed on a national securities exchange or is
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.:
(i) With respect to a merger under (S)3-106 of this title of a 90
percent or more owned subsidiary into its parent, on the date notice is
given or waived under (S)3-106; or
(ii) With respect to any other transaction, on the record date for
determining stockholders entitled to vote on the transaction objected
to;
III-1
<PAGE>
(2) The stock is that of the successor in a merger, unless:
(i) The merger alters the contract rights of the stock as expressly
set forth in the charter, and the charter does not reserve the right to
do so; or
(ii) The stock is to be changed or converted in whole or in part in
the merger into something other than either stock in the successor or
cash, scrip, or other rights or interests arising out of provisions for
the treatment of fractional shares of stock in the successor; or
(3) The stock is that of an open-end investment company registered with
the Securities and Exchange Commission under the Investment Company Act of
1940 and the value placed on the stock in the transaction is its net asset
value.
(S) 3-203. PROCEDURE BY STOCKHOLDER.
(a) Specific duties.--A stockholder of a corporation who desires to receive
payment of the fair value of his stock under this subtitle:
(1) Shall file with the corporation a written objection to the proposed
transaction:
(i) With respect to a merger under (S)3-106 of this title of a 90
percent or more owned subsidiary into its parent, within 30 days after
notice is given or waived under (S)3-106; or
(ii) With respect to any other transaction, at or before the
stockholders' meeting at which the transaction will be considered;
(2) May not vote in favor of the transaction; and
(3) Within 20 days after the Department accepts the articles for record,
shall make a written demand on the successor for payment of his stock,
stating the number and class of shares for which he demands payment.
(b) Failure to comply with section.--A stockholder who fails to comply with
this section is bound by the terms of the consolidation, merger, share
exchange, transfer of assets, or charter amendment.
(S) 3-204. EFFECT OF DEMAND ON DIVIDEND AND OTHER RIGHTS.
A stockholder who demands payment for his stock under this subtitle:
(1) Has no right to receive any dividends or distributions payable to
holders of record of that stock on a record date after the close of
business on the day as at which fair value is to be determined under (S)3-
202 of this subtitle; and
(2) Ceases to have any rights of a stockholder with respect to that
stock, except the right to receive payment of its fair value.
(S) 3-205. WITHDRAWAL OF DEMAND.
A demand for payment may be withdrawn only with the consent of the successor.
(S) 3-206. RESTORATION OF DIVIDEND AND OTHER RIGHTS.
(a) When rights restored.--The rights of a stockholder who demands payment
are restored in full, if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the time required by
this subtitle;
(3) A court determines that the stockholder is not entitled to relief; or
(4) The transaction objected to is abandoned or rescinded.
(b) Effect of restoration.--The restoration of a stockholder's rights
entitles him to receive the dividends, distributions, and other rights he would
have received if he had not demanded payment for his stock. However, the
restoration does not prejudice any corporate proceedings taken before the
restoration.
III-2
<PAGE>
(S) 3-207. NOTICE AND OFFER TO STOCKHOLDERS.
(a) Duty of successor.--
(1) The successor promptly shall notify each objecting stockholder in
writing of the date the articles are accepted for record by the Department.
(2) The successor also may send a written offer to pay the objecting
stockholder what it considers to be the fair value of his stock. Each offer
shall be accompanied by the following information relating to the
corporation which issued the stock:
(i) A balance sheet as of a date not more than six months before the
date of the offer;
(ii) A profit and loss statement for the 12 months ending on the date
of the balance sheet; and
(iii) Any other information the successor considers pertinent.
(b) Manner of sending notice.--The successor shall deliver the notice and
offer to each objecting stockholder personally or mail them to him by certified
mail, return receipt requested, bearing a postmark from the United States
Postal Service, at the address he gives the successor in writing, or, if none,
at his address as it appears on the records of the corporation which issued the
stock.
(S) 3-208. PETITION FOR APPRAISAL; CONSOLIDATION OF PROCEEDINGS; JOINDER OF
OBJECTORS.
(a) Petition for appraisal.--Within 50 days after the Department accepts the
articles for record, the successor or an objecting stockholder who has not
received payment for his stock may petition a court of equity in the county
where the principal office of the successor is located or, if it does not have
a principal office in this State, where the resident agent of the successor is
located, for an appraisal to determine the fair value of the stock.
(b) Consolidation of suits; joinder of objectors.--
(1) If more than one appraisal proceeding is instituted, the court shall
direct the consolidation of all the proceedings on terms and conditions it
considers proper.
(2) Two or more objecting stockholders may join or be joined in an
appraisal proceeding.
(S) 3-209. NOTATION ON STOCK CERTIFICATE.
(a) Submission of certificate.--At any time after a petition for appraisal is
filed, the court may require the objecting stockholders parties to the
proceeding to submit their stock certificates to the clerk of the court for
notation on them that the appraisal proceeding is pending. If a stockholder
fails to comply with the order, the court may dismiss the proceeding as to him
or grant other appropriate relief.
(b) Transfer of stock bearing notation.--If any stock represented by a
certificate which bears a notation is subsequently transferred, the new
certificate issued for the stock shall bear a similar notation and the name of
the original objecting stockholder. The transferee of this stock does not
acquire rights of any character with respect to the stock other than the rights
of the original objecting stockholder.
(S) 3-210. APPRAISAL OF FAIR VALUE.
(a) Court to appoint appraisers.--If the court finds that the objecting
stockholder is entitled to an appraisal of his stock, it shall appoint three
disinterested appraisers to determine the fair value of the stock on terms and
conditions the court considers proper. Each appraiser shall take an oath to
discharge his duties honestly and faithfully.
(b) Report of appraisers--Filing.--Within 60 days after their appointment,
unless the court sets a longer time, the appraisers shall determine the fair
value of the stock as of the appropriate date and file a report stating the
conclusion of the majority as to the fair value of the stock.
(c) Same--Contents.--The report shall state the reasons for the conclusion
and shall include a transcript of all testimony and exhibits offered.
III-3
<PAGE>
(d) Same--Service; objection.--
(1) On the same day that the report is filed, the appraisers shall mail a
copy of it to each party to the proceedings.
(2) Within 15 days after the report is filed, any party may object to it
and request a hearing.
(S) 3-211. ACTION BY A COURT ON APPRAISERS' REPORT.
(a) Order of court.--The court shall consider the report and, on motion of
any party to the proceeding, enter an order which:
(1) Confirms, modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the stockholder.
(b) Procedure after order.--
(1) If the appraisers' report is confirmed or modified by the order,
judgment shall be entered against the successor and in favor of each
objecting stockholder party to the proceeding for the appraised fair value
of his stock.
(2) If the appraisers' report is rejected, the court may:
(i) Determine the fair value of the stock and enter judgment for the
stockholder; or
(ii) Remit the proceedings to the same or other appraisers on terms
and conditions it considers proper.
(c) Judgment includes interest.--
(1) Except as provided in paragraph (2) of this subsection, a judgment
for the stockholder shall award the value of the stock and interest from
the date as at which fair value is to be determined under (S)3-202 of this
subtitle.
(2) The court may not allow interest if it finds that the failure of the
stockholder to accept an offer for the stock made under (S)3-207 of this
subtitle was arbitrary and vexatious or not in good faith. In making this
finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to the
stockholder; and
(iii) Any other circumstances it considers relevant.
(d) Costs of proceedings.--
(1) The costs of the proceedings, including reasonable compensation and
expenses of appraisers, shall be set by the court and assessed against the
successor. However, the court may direct the costs to be apportioned and
assessed against any objecting stockholder if the court finds that the
failure of the stockholder to accept an offer for the stock made under
(S)3-207 of this subtitle was arbitrary and vexatious or not in good faith.
In making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to the
stockholder; and
(iii) Any other circumstances it considers relevant.
(2) Costs may not include attorney's fees or expenses. The reasonable
fees and expenses of experts may be included only if:
(i) The successor did not make an offer for the stock under (S)3-207
of this subtitle; or
(ii) The value of the stock determined in the proceeding materially
exceeds the amount offered by the successor.
(e) Effect of judgment.--The judgment is final and conclusive on all parties
and has the same force and effect as other decrees in equity. The judgment
constitutes a lien on the assets of the successor with priority over any
mortgage or other lien attaching on or after the effective date of the
consolidation, merger, transfer, or charter amendment.
III-4
<PAGE>
(S) 3-212. SURRENDER OF STOCK.
The successor is not required to pay for the stock of an objecting
stockholder or to pay a judgment rendered against it in a proceeding for an
appraisal unless, simultaneously with payment:
(1) The certificates representing the stock are surrendered to it,
indorsed in blank, and in proper form for transfer; or
(2) Satisfactory evidence of the loss or destruction of the certificates
and sufficient indemnity bond are furnished.
(S) 3-213. RIGHTS OF SUCCESSOR WITH RESPECT TO STOCK.
(a) General Rule.--A successor which acquires the stock of an objecting
stockholder is entitled to any dividends or distributions payable to holders of
record of that stock on a record date after the close of business on the day as
at which fair value is to be determined under (S)3-202 of this subtitle.
(b) Successor in transfer of assets.--After acquiring the stock of an
objecting stockholder, a successor in a transfer of assets may exercise all of
the rights of an owner of the stock.
(c) Successor in consolidation, merger, or share exchange.--Unless the
articles provide otherwise, stock in the successor of a consolidation, merger,
or share exchange otherwise deliverable in exchange for the stock of an
objecting stockholder has the status of authorized but unissued stock of the
successor. However, a proceeding for reduction of the capital of the successor
is not necessary to retire the stock or to reduce the capital of the successor
represented by the stock.
III-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 4, Section 12 of the Registrant's Restated Declaration of Trust
provides as follows with respect to indemnification of Trustees:
"The Trust shall indemnify and hold harmless each Trustee from and
against all claims and liabilities, whether they proceed to judgment or are
settled, to which such Trustee may become subject by reason of his being or
having been a Trustee, or by reason of any action alleged to have been
taken or omitted by him as Trustee, and shall reimburse him for all legal
and other expenses reasonably incurred by him in connection with any such
claim or liability, including any claim or liability arising under the
provisions of federal or state securities laws; provided, however, that no
Trustee shall be indemnified or reimbursed under the foregoing provisions
in relation to any matter unless it shall have been adjudicated that his
action or omission did not constitute willful misfeasance, bad faith or
gross negligence in the conduct of his duties, or, unless, in the absence
of such an adjudication, the Trust shall have received a written opinion
from independent counsel, approved by the Trustees, to the effect that if
the matter of willful misfeasance, bad faith or gross negligence in the
conduct of duties had been adjudicated, it would have been adjudicated in
favor of such Trustee. The rights accruing to a Trustee under these
provisions shall not exclude any other right to which he may be lawfully
entitled, nor shall anything herein contained restrict the right of the
Trust to indemnify or reimburse such Trustee in any proper cause even
though not specifically provided for herein."
Article 8, Section 1 of the Registrant's Restated Declaration of Trust
provides as follows with respect to the limitation of liability for Trustees
and officers:
"A Trustee or officer of the Trust shall not be liable for monetary
damages to the Trust or its shareholders for any act or omission in the
performance of his duties unless:
(1) The Trustee or officer actually received an improper benefit in
money, property or services (in which case, such liability shall be for
the amount of the benefit in money, property or services actually
received);
(2) the Trustee's or officer's action or failure to act was the
result of active and deliberate dishonesty and was material to the
cause of action being adjudicated;
(3) the Trustee's or officer's action or failure to act constitutes
willful misconduct or deliberate recklessness; or
(4) such liability to the Trust is specifically imposed upon Trustees
or officers by statute."
Article 8, Section 6 of the Registrant's Restated Declaration of Trust
provides as follows with respect to the indemnification of Trustees and
officers:
"Notwithstanding any other provisions of this Restated Declaration of
Trust, the Trust, for the purpose of providing indemnification for its
Trustees and officers, shall have the authority, without specific
shareholder approval, to enter into insurance or other arrangements, with
persons or entities which are not regularly engaged in the business of
providing insurance coverage, to indemnify all Trustees and officers of the
Trust against any and all liabilities and expenses incurred by them by
reason of their being Trustees or officers of the Trust, whether or not the
Trust would otherwise have the power under this Restated Declaration of
Trust or under Maryland law to indemnify such persons against such
liability. Without limiting the power of the Trust to procure or maintain
any kind of insurance or other arrangement, the Trust may, for the benefit
of persons indemnified by it, (i) create a trust fund, (ii) establish any
form of self-insurance, (iii) secure its indemnity obligation by grant of
any security interest or other lien on the assets of the corporation, or
(iv) establish a letter of credit, guaranty or surety arrangement. Any such
insurance or other arrangement may be procured, maintained or established
II-1
<PAGE>
within the Trust or with any insurer or other person deemed appropriate by
the Board of Trustees regardless of whether all or part of the shares or
other securities thereof are owned in whole or in part by the Trust. In the
absence of fraud, the judgment of the Board of Trustees as to the terms and
conditions of insurance or other arrangement and the identity of the
insurer or other person participating in any arrangement shall be
conclusive, and such insurance or other arrangement shall not be subject to
voidability, nor subject the Trustees approving such insurance or other
arrangement to liability, on any ground, regardless of whether Trustees
participating and approving such insurance or other arrangement shall be
beneficiaries thereof."
The Registrant has entered into indemnity agreements with each of its
officers and Trustees which provide for reimbursement of all expenses and
liabilities of such officer or Trustee, arising out of any lawsuit or claim
against such officer or Trustee due to the fact that he was or is serving as an
officer or Trustee, except for such liabilities and expenses (a) the payment of
which is judicially determined to be unlawful, (b) relating to claims under
Section 16(b) of the Securities Exchange Act of 1934, or (c) relating to
judicially determined criminal violations.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS.
(a) Refer to Index to Exhibits.
(b) Refer to Index to Financial Statements included as part of the Joint
Proxy/Information Statement and Prospectus.
(c) Refer to Annex II to the Joint Proxy/Information Statement and
Prospectus.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes: (1) to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement: (i) to include any prospectus required by section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereto) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement; (2) that, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; and (3) to remove from registration by
means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities being offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
II-2
<PAGE>
The registrant undertakes that every prospectus: (1) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a trustee, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF EL
PASO, STATE OF TEXAS ON THE 9TH DAY OF FEBRUARY, 1995.
Property Trust of America
/s/ Paul E. Szurek
By: _________________________________
Paul E. Szurek
Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ C. Ronald Blankenship* Chairman (Principal
____________________________________ Executive Officer) and
C. Ronald Blankenship Trustee
/s/ William Kell* Vice President (Principal
____________________________________ Financial and Accounting
William Kell Officer)
/s/ Calvin K. Kessler* Trustee
____________________________________
Calvin K. Kessler
/s/ James H. Polk, III* Trustee February 9, 1995
____________________________________
James H. Polk, III
/s/ John C. Schweitzer* Trustee
____________________________________
John C. Schweitzer
/s/ William G. Myers* Trustee
____________________________________
William G. Myers
/s/ John T. Kelley, III* Trustee
____________________________________
John T. Kelley, III
/s/ James A. Cardwell* Trustee
____________________________________
James A. Cardwell
</TABLE>
/s/ Paul E. Szurek
*By: __________________________
Paul E. Szurek
Attorney-in-fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DOCUMENT DESCRIPTION PAGE NUMBER
------- -------------------- -----------
<C> <S> <C>
2.1* Agreement and Plan of Merger, dated as of December 6,
1994, by and among PTR, Security Capital Pacific
Incorporated and Security Capital Realty Incorporated.
2.2* Form of Articles of Merger to be filed with the
Department of Assessments and Taxation of the State of
Maryland.
4.1 Restated Declaration of Trust of PTR (Incorporated by
reference to Exhibit 4 to PTR's Form 10-Q for the
quarter ended June 30, 1991).
4.2 First Certificate of Amendment of Restated Declaration
of Trust of PTR (Incorporated by reference to Exhibit 4
to PTR's Form 10-Q for the quarter ended June 30,
1992).
4.3 Second Certificate of Amendment of Restated Declaration
of Trust of PTR (Incorporated by reference to Exhibit
3.1 to PTR's Form 8-K dated May 3, 1994).
4.4 Third Articles of Amendment of Restated Declaration of
Trust of PTR (Incorporated by reference to Exhibit 4.4
to PTR's Registration Statement No. 33-86444).
4.5 Articles Supplementary relating to the Cumulative
Convertible Series A Preferred Shares of Beneficial
Interest of PTR (Incorporated by reference to Exhibit
3.1 to PTR's Form 8-K dated November 22, 1993).
4.6 Bylaws of PTR, as amended through July 11, 1994
(Incorporated by reference to Exhibit 4.1 to PTR's Form
8-K dated July 11, 1994).
4.7 Indenture, dated as of February 1, 1994, between PTR and
Morgan Guaranty Trust Company of New York, as Trustee,
relating to PTR's unsecured senior debt securities
(Incorporated by reference to Exhibit 4.2 to PTR's Form
10-K for the year ended December 31, 1993).
4.8 First Supplemental Indenture, dated as of February 2,
1994, by and among PTR, Morgan Guaranty Trust Company
of New York and State Street Bank and Trust Company, as
successor Trustee (Incorporated by reference to Exhibit
4.3 to PTR's Form 10-K for the year ended December 31,
1993).
4.9 6 7/8% Senior Note due February 15, 2008 of PTR
(Incorporated by reference to Exhibit 4.4 to PTR's Form
10-K for the year ended December 31, 1993).
4.10 7 1/2% Senior Note due February 15, 2014 of PTR
(Incorporated by reference to Exhibit 4.5 to PTR's Form
10-K for the year ended December 31, 1994).
4.11 Rights Agreement (the "Rights Agreement") dated as of
July 21, 1994 between PTR and State Street Bank and
Trust Company, including form of Rights Certificate
(Incorporated by reference to Exhibit 4.2 to PTR's Form
8-K dated July 19, 1994).
5 Opinion of King & Spalding as to the validity of the PTR
Common Shares.
15 Letter from KPMG Peat Marwick LLP dated February 9, 1995
regarding unaudited financial information.
23.1 Consent of King & Spalding (included in the opinion
filed as Exhibit 5 to this Registration Statement).
23.2 Consent of KPMG Peat Marwick LLP.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DOCUMENT DESCRIPTION PAGE NUMBER
------- -------------------- -----------
<C> <S> <C>
23.3 Consent of KPMG Peat Marwick LLP.
23.4* Consent of Robertson, Stephens & Company, L.P.
24.1* Power of Attorney pursuant to which amendments to this
Registration Statement may be filed.
99.1 Form of Proxy to be used by PTR.
</TABLE>
- --------
* Previously filed.
II-6
<PAGE>
EXHIBIT 5
[LETTERHEAD OF KING & SPALDING]
February 9, 1995
PROPERTY TRUST OF AMERICA
7777 Market Center Avenue
El Paso, Texas 79912
Re: Form S-4 Registration Statement (the "Registration
Statement"), relating to the Common Shares of
Beneficial Interest, par value $1.00 per share, of
Property Trust of America
--------------------------------------------------
Gentlemen:
We have acted as counsel to Property Trust of America, a Maryland real
estate investment trust (the "Trust"), in connection with the transactions
described in the Agreement and Plan of Merger, dated as of December 6, 1994 (the
"Merger Agreement"), by and among the Trust, Security Capital Pacific
Incorporated, a Maryland corporation, and Security Capital Realty Incorporated,
a Maryland corporation. In so acting, we have examined and relied upon the
accuracy of original, certified, conformed or photographic copies of such
records, agreements, certificates and other documents as we have deemed
necessary or appropriate to enable us to render the opinions set forth below.
In all such examinations, we have assumed the legal capacity of natural persons,
the genuineness of signatures on original documents, the authenticity of all
original documents and the conformity to such original documents of all copies
submitted to us as certified, conformed or photographic copies and, as to
certificates of public officials, we have assumed the same to have been properly
given and to be accurate. We also have relied, as to various matters of fact
relating to the opinions set forth below, on a certificate of certain public
officials.
Based upon the foregoing, we are of the opinion that:
(i) The Trust is validly existing and in good standing under the laws of
the State of Maryland; and
<PAGE>
Property Trust of America
February 9, 1995
Page 2
- --------------------------
(ii) The Common Shares of Beneficial Interest, par value $1.00 per
share, of the Trust, issuable in connection with the Merger have been duly
authorized, and when issued in accordance with the terms set forth in the
Merger Agreement, will be validly issued, fully paid and nonassessable.
With respect to the opinions set forth in paragraphs (i) and (ii), we have
relied as to all matters of the laws of the State of Maryland on the opinion of
Piper & Marbury.
We consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters" in the
Joint Proxy/Information Statement and Prospectus that forms a part of the
Registration Statement.
Very truly yours,
KING & SPALDING
<PAGE>
EXHIBIT 15
Property Trust of America
El Paso, Texas
Ladies and Gentlemen:
Re: Registration Statement No. 33-87184
With respect to the subject registration statement, we acknowledge our
awareness of the use therein of our reports dated October 24, 1994, July 27,
1994, and April 22, 1994 related to our reviews of interim financial
information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such reports are
not considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
El Paso, Texas
February 9, 1995
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
Board of Trustees and Shareholders
Property Trust of America:
We consent to (i) the use of our audit report dated January 18, 1994 (except
as to note 10, which is as of February 8, 1994) on the financial statements of
Property Trust of America as of December 31, 1993 and 1992 and for each of the
years in the three-year period ended December 31, 1993, and related schedule,
incorporated by reference herein; (ii) the use of our audit report dated August
11, 1993 on the combined statement of revenues and certain expenses for
properties acquired incorporated by reference herein; (iii) the use of our
audit report dated September 30, 1993 on the combined statement of revenues and
certain expenses for certain multifamily properties incorporated by reference
herein; (iv) the use of our audit report dated September 30, 1993 except as to
the last paragraph of note 1, which is as of October 29, 1993, on the combined
statement of revenues and certain expenses for certain multifamily properties
incorporated by reference herein; (v) the use of our audit report dated October
28, 1993 on the combined statement of revenues and certain expenses for certain
multifamily properties incorporated by reference herein; (vi) the use of our
audit report dated December 10, 1993, except as to the first sentence of note
1, which is as of December 21, 1993 on the combined statement of revenues and
certain expenses for certain multifamily properties, incorporated by reference
herein; (vii) the use of our audit report dated December 16, 1993, except as to
the first sentence of note 1, which is as of December 27, 1993, on the combined
statement of revenues and certain expenses for certain multifamily properties,
incorporated by reference herein; (viii) the use of our audit reports dated
April 25, 1994 on the combined statements of revenues and certain expenses for
certain multifamily properties incorporated by reference herein; (ix) the use
of our audit report dated June 15, 1994 on the statement of revenues and
certain expenses of Brompton Court Apartments, incorporated by reference
herein; (x) the use of our audit report dated September 8, 1994 on the combined
statement of revenues and certain expenses for certain multifamily properties,
incorporated by reference herein; and (xi) the reference to our firm under the
heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
El Paso, Texas
February 9, 1995
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Stockholders
Security Capital Pacific Incorporated:
We consent to the use of our audit report dated November 22, 1994 (except as
to note 8, which is as of December 6, 1994) on the financial statements of
Security Capital Pacific Incorporated as of September 30, 1994 and December 31,
1993 and for the nine-month period ended September 30, 1994 and the period from
inception (October 22, 1993) through December 31, 1993, and related schedule
included herein; the use of our audit reports dated December 6, 1994 on the
combined statements of revenues and certain expenses for certain multifamily
properties included herein; and the reference to our firm under the heading
"Experts" in the prospectus.
KPMG Peat Marwick LLP
El Paso, Texas
February 9, 1995
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EXHIBIT 99.1
PROPERTY TRUST OF AMERICA
FORM OF PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned shareholder of Property Trust of America, a Maryland real
estate investment trust ("PTR"), hereby appoints C. Ronald Blankenship and
Paul E. Szurek, and each of them, as proxy for the undersigned, with full
power of substitution to attend the Special Meeting of Shareholders of PTR to
be held on March 23, 1995, at 10:00 a.m., local time, at the Old El Paso Room,
Seventh Floor, State National Bank Plaza, El Paso, Texas, and at any
adjournment(s) or postponement(s) thereof, and to vote and otherwise represent
all the shares that the undersigned is entitled to vote with the same effect
as if the undersigned were present and voting such shares, on the following
matters and in the following manner as further described in the accompanying
Joint Proxy/Information Statement and Prospectus. The undersigned hereby
revokes any proxy previously given with respect to such shares.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders and the accompanying Joint Proxy/Information Statement and
Prospectus.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF THIS PROXY IS EXECUTED BUT NO SPECIFICATION IS MADE,
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE APPROVAL OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, AS DESCRIBED IN
THE JOINT PROXY/ INFORMATION STATEMENT AND PROSPECTUS DELIVERED HEREWITH, AND
IN THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTERS THAT MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF.
P R O X Y
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COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
(Continued and to be signed on other side)
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Please mark
[X] your votes
as this
-------- ---------------------
Common Dividend Reinvestment
1. The approval of the Agreement and Plan of Merger, dated as of December 6,
1994, among PTR, Security Capital Pacific Incorporated and Security Capital
Realty Incorporated.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. To vote and otherwise represent the shares on any other matters which may
properly come before the meeting or any adjournment(s) or postponement(s)
thereof in their discretion.
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [_]
COMMENTS/ADDRESS CHANGE [_]
Please mark this box if you have written
comments/address change on the
reverse side.
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|
|
Please sign exactly as name appears hereon and date. If the shares are held
jointly, each holder should sign. When signing as an attorney, executor, ad-
ministrator, trustee, guardian or as an officer signing for a corporation,
please give the full title under signature.
_______________________________________________________________________________
Signature
_______________________________________________________________________________
Signature, if held jointly
Dated: __________________________________________________________________, 1995
Please sign, date and return this proxy card promptly using the enclosed
postage-paid envelope.
