<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14(a)-11(c) or Rule 14a-12
SECURITY CAPITAL PACIFIC TRUST
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transaction applies:
N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
N/A
---------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
---------------------------------------------------------------------------
(5) Total fee paid:
N/A
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
---------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
N/A
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(3) Filing Party:
N/A
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(4) Date Filed:
N/A
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Notes:
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
7670 SOUTH CHESTER STREET
ENGLEWOOD, COLORADO 80112
----------------
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 18, 1998
To the shareholders:
The 1998 annual meeting of shareholders of Security Capital Pacific Trust
("PTR") will be held on Thursday, June 18, 1998, at the Hyatt Regency Tech
Center, 7800 East Tufts Avenue, Denver, Colorado, at 10:00 a.m. (Mountain
time) for the following purposes:
1. To elect a Board of Trustees to serve until the next annual meeting of
shareholders and until their successors are duly elected and qualify; and
2. To transact such other business as properly may come before the
meeting and any adjournment or postponement thereof.
Further information regarding the business to be transacted at the meeting
is given in the accompanying Proxy Statement.
Shareholders of record at the close of business on April 22, 1998 are
entitled to notice of, and to vote at, the meeting.
Please help PTR by promptly marking, dating, signing and returning the
enclosed proxy card in the envelope provided for your convenience. If you
attend the meeting and decide to vote in person, you may revoke your proxy.
Jeffrey A. Klopf
Secretary
April 29, 1998
YOUR VOTE IS IMPORTANT.
PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE.
<PAGE>
SECURITY CAPITAL PACIFIC TRUST
7670 SOUTH CHESTER STREET
ENGLEWOOD, COLORADO 80112
----------------
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 18, 1998
----------------
GENERAL INFORMATION
The Board of Trustees (the "Board") of Security Capital Pacific Trust
("PTR") is soliciting the accompanying proxy for use at the 1998 annual
meeting of shareholders to be held on Thursday, June 18, 1998 and at any and
all adjournments or postponements thereof. Any shareholder giving a proxy has
the right to revoke it at any time before it is voted by giving written notice
to the Secretary of PTR, by delivering to the Secretary of PTR a duly executed
proxy bearing a later date or by attending and voting in person at the
meeting. The designated proxy holders will vote PTR's common shares of
beneficial interest, par value $1.00 per share ("Common Shares"), represented
by a proxy which is received and not revoked. If the shareholder specifies a
choice with respect to any matter to be acted upon and for which a ballot is
provided in the proxy, the Common Shares will be voted in accordance with his
or her specifications. If the shareholder signs and returns a proxy without
specifying choices, the Common Shares will be voted in accordance with the
recommendations of the Board.
This Proxy Statement and the accompanying proxy card are expected to first
be mailed to shareholders on or about April 29, 1998.
If you are a registered owner and plan to attend the meeting in person,
please detach and retain the admission ticket which is attached to your proxy
card. Beneficial owners who plan to attend the meeting in person may obtain
admission tickets in advance by sending written requests, along with proof of
ownership, such as a bank or brokerage firm account statement, to: Lucinda G.
Marker, Assistant Secretary, Security Capital Pacific Trust, 125 Lincoln
Avenue, Santa Fe, New Mexico 87501. Record owners and beneficial owners
(including the holders of valid proxies therefrom) who do not present
admission tickets at the meeting will be admitted upon verification of
ownership at the admissions counter at the annual meeting.
The cost of soliciting proxies will be borne by PTR. In addition to
solicitation by mail, and without additional compensation for those services,
proxies may be solicited personally, or by telephone or telegraph, by officers
or employees of PTR. PTR will also request banking institutions, brokerage
firms, custodians, trustees, nominees, fiduciaries and other like parties to
forward the solicitation material to the beneficial owners of Common Shares
held of record by those persons, and PTR will, upon request of those record
holders, reimburse forwarding charges and expenses.
SHARES OUTSTANDING AND VOTE REQUIRED
At the close of business on April 22, 1998, approximately 93,032,469 Common
Shares were outstanding. Each whole Common Share outstanding on April 22,
1998, the record date for determination of shareholders entitled to notice of,
and to vote at, the meeting, is entitled to one vote, and each fractional
Common Share is entitled to its fraction of one vote. There is no right to
cumulative voting. A majority of the outstanding Common Shares represented in
person or by proxy will constitute a quorum at the meeting.
<PAGE>
Assuming the existence of a quorum, the affirmative vote of a majority of
the Common Shares entitled to vote and represented in person or by proxy at
the meeting is required to elect each nominee for Trustee. Representatives of
PTR's transfer agent will assist PTR in the tabulation of the votes.
Abstentions and broker non-votes are counted as Common Shares represented at
the meeting for purposes of determining a quorum. An abstention has the effect
of a vote "withheld" with respect to the election of Trustees.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 22, 1998, the beneficial
ownership of Common Shares for (i) each person known to PTR to have been the
beneficial owner of more than five percent of the outstanding Common Shares on
such date, (ii) each Trustee of PTR, (iii) each Named Executive Officer (as
defined below) of PTR and (iv) all Trustees and executive officers of PTR as a
group. Unless otherwise indicated in the footnotes, all of such interests are
owned directly and the indicated person or entity has sole voting and
dispositive power. The following table assumes, for purposes of calculating
the number and percent of Common Shares beneficially owned by a person, that
(i) all Cumulative Convertible Series A Preferred Shares of Beneficial
Interest, par value $1.00 per share, of PTR ("Series A Preferred Shares"),
beneficially owned by that person have been converted into Common Shares and
(ii) all options held by that person which are exercisable within 60 days have
been exercised, but that no options or convertible securities held by other
persons have been exercised or converted. Fractional Common Shares have been
rounded to the nearest whole Common Share in the table below and elsewhere in
this Proxy Statement.
<TABLE>
<CAPTION>
NUMBER OF
COMMON
SHARES PERCENT OF ALL
BENEFICIALLY COMMON
NAME OF BENEFICIAL OWNER OWNED SHARES
------------------------ ------------ --------------
<S> <C> <C>
Security Capital Group Incorporated......................... 30,687,072(l) 33.0%
125 Lincoln Avenue
Santa Fe, New Mexico 87501
The Capital Group Companies, Inc............................ 5,089,370(2) 5.5%
333 South Hope Street
Los Angeles, CA 90071
C. Ronald Blankenship....................................... 35,529(3) *
James A. Cardwell........................................... 35,706(4) *
John T. Kelley, III......................................... 18,835(4) *
Calvin K. Kessler........................................... 34,285(4) *
William G. Myers............................................ 20,341(4)(5) *
James H. Polk, III.......................................... 51,028(6) *
John C. Schweitzer.......................................... 34,602(4)(7) *
R. Scot Sellers............................................. 108,972(8) *
Patrick R. Whelan........................................... 88,182 *
Jay S. Jacobson............................................. 45,325 *
John Jordano III............................................ 18,130 *
Bryan J. Flanagan........................................... 20,396 *
Richard A. Banks............................................ 38,526 *
All Trustees and executive officers as a group (15 persons). 563,454 *
</TABLE>
2
<PAGE>
- --------
*Less than 1%
(1) These Common Shares are owned of record by SC Realty Incorporated, a
wholly owned subsidiary of Security Capital Group Incorporated ("Security
Capital"), and are pledged to secure Security Capital's $700 million
revolving line of credit facility with a syndicate of banks. As of April
22, 1998, there were approximately $351 million of borrowings outstanding
under the line of credit. The line of credit is also secured by securities
owned by Security Capital of Security Capital Industrial Trust ("SCI"), a
publicly traded real estate investment trust ("REIT"), Security Capital
Atlantic Incorporated ("ATLANTIC"), a publicly traded REIT, Homestead
Village Incorporated ("Homestead"), a publicly traded extended-stay
lodging company, and Security Capital U.S. Realty, a publicly traded
entity based in Luxembourg which invests in real estate operating
companies in the United States. Security Capital estimates that the
aggregate market value of the pledged securities exceeded $3.6 billion as
of April 22, 1998. Security Capital was in compliance with all covenants
under the line of credit at December 31, 1997.
(2) Information regarding beneficial ownership of Common Shares by The Capital
Group Companies, Inc. is included herein in reliance on an amendment to
Schedule 13G dated February 10, 1998 filed with the Securities and
Exchange Commission. Capital Research and Management Company, a subsidiary
of The Capital Group Companies, Inc., may be deemed to be the beneficial
owner of the Common Shares reported, which are owned by various investment
companies. The Capital Group Companies, Inc. has sole dispositive power
with respect to all Common Shares reported, and such 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.
(3) Includes 14,936 shares held by Zebec Data Systems, a corporation in which
Mr. Blankenship is the controlling shareholder.
(4) Includes for each of Messrs. Kessler and Cardwell beneficial ownership of
10,000 Common Shares, for Messrs. Schweitzer and Kelley beneficial
ownership of 6,000 Common Shares and for Mr. Myers beneficial ownership of
2,000 Common Shares, which are issuable upon exercise of options granted
under PTR's 1996 and 1987 Share Option Plans for Outside Trustees. See "--
Trustee Compensation" below.
(5) Includes 6,857 shares held by the Myers Family Trust; 3,491 shares held by
each of the Myers Family Foundation and Milagro de Ladera, L.P.; and 1,745
shares held by each of the William G. Myers IRA and the Ojai Land Company.
(6) Includes 1,028 shares held in trust for Mr. Polk's children.
(7) Includes 3,055 shares held by Mr. Schweitzer's spouse; 10,604 shares held
by Campbell Capital, Ltd., and 2,290 shares held by Mesa Investment
Company.
(8) Includes 421 shares held by Mr. Sellers' spouse as her separate property,
418 shares held in trust for Mr. Sellers' children and 449 shares held in
Mr. Sellers' IRA.
ELECTION OF TRUSTEES
NOMINEES
The Common Shares represented by the accompanying proxy will be voted to
elect the eight nominees named below as Trustees, unless otherwise indicated
on the proxy. Should any of the nominees named below become unavailable for
election, which is not anticipated, the Common Shares represented by the
accompanying proxy will be voted for the election of another person
recommended by the Board. Trustees are elected to serve until the next annual
meeting of shareholders. The Board recommends that shareholders vote FOR the
election of each nominee for Trustee.
<TABLE>
<CAPTION>
TRUSTEE
TRUSTEE AGE BUSINESS EXPERIENCE SINCE
------- --- --------------------------------------- -------
<S> <C> <C> <C>
Calvin K. Kessler.......... 66 President and principal shareholder, 1972
Kessler Industries, Inc., El Paso,
Texas (manufacturer of furniture and
aluminum castings), since 1960.
James H. Polk, III......... 55 Principal, SING Ltd. Co., Santa Fe, New 1976
Mexico, since January 1998; President,
Security Capital Markets Group
Incorporated from March 1997 to June
1997 and Managing
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
TRUSTEE
TRUSTEE AGE BUSINESS EXPERIENCE SINCE
------- --- --------------------------------------- -------
<S> <C> <C> <C>
Director from August 1992 to June 1997;
affiliated with Security Capital since
March 1991; prior thereto, President
and Chief Executive Officer of PTR for
sixteen years; registered with the
National Association of Securities
Dealers, Inc.; past President and
Trustee of the National Association of
Real Estate Investment Trusts, Inc.
("NAREIT").
John C. Schweitzer......... 53 Managing Partner, Continental 1976
Properties Company, Austin, Texas (real
estate and investments), since 1976;
General Partner, G.P. Campbell Capital
Ltd. (real estate and investments)
since 1976; Trustee, Pacific Retail
Trust and Texas Christian University;
Director, Homestead, Austin Smiles,
Westgate Corporation, Chase Bank of
Texas and Continental Transmissions.
James A. Cardwell.......... 66 Chief Executive Officer, Petro Stopping 1980
Centers, L.P., El Paso, Texas
(operation of full-service truck
stopping centers), the predecessor of
which he founded in 1975; Director, El
Paso Electric Company.
John T. Kelley, III........ 57 Director of Security Capital since 1988
1990; founding officer of SCI, a REIT
affiliated with Security Capital;
Advisory Trustee of SCI since December
1993; Chairman of the Board of Pacific
Retail Trust (ownership and development
of infill retail properties in the
Southwestern United States).
C. Ronald Blankenship...... 48 Non-Executive Chairman of PTR since 1991
June 1997; Chairman of PTR from June
1991 to June 1997; Managing Director of
Security Capital since March 1991;
Advisory Director of Homestead since
October 1996; Advisory Director of
ATLANTIC since September 1996 and
Director from April 1996 to September
1996; Director of Storage USA, Inc.
since December 1997; Director of
Strategic Hotel Capital Incorporated
since April 1997.
William G. Myers........... 70 Chief Executive Officer of Ojai Ranch 1994
and Investment Company, Inc., Santa
Barbara, California, which he founded
in 1963 (agri-business and other
investments); Director, Chalone Wine
Group, Napa, California; Trustee of
SCI.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
R. Scot Sellers................ 41 President and Chief Executive Officer --
of PTR since June 1997; Managing
Director of PTR from September 1994 to
June 1997; Senior Vice President of PTR
from May 1994 to September 1994; Senior
Vice President of Security Capital from
April 1993 to May 1994.
</TABLE>
Security Capital has the right to nominate up to three Trustees, depending
on its level of ownership of Common Shares. See "Certain Relationships and
Transactions--Security Capital Investor Agreement." Messrs. Blankenship,
Kelley and Sellers are the nominees of Security Capital. PTR's Restated
Declaration of Trust requires that a majority of the Trustees be independent
Trustees.
MEETINGS AND COMMITTEES
The Board held 26 meetings during 1997, including 21 telephonic meetings.
The Audit Committee of the Board, composed of Messrs. Cardwell and Kessler, is
responsible for recommending to the Board the appointment of independent
auditors, reviewing all recommendations of the auditors with respect to
accounting methods and internal controls of PTR, reviewing and approving non-
audit services and reviewing the scope of the audits conducted by the
auditors. The Audit Committee held one meeting during 1997.
The Board has established an Investment Committee consisting of Messrs.
Kessler, Myers, and Schweitzer. The Investment Committee is responsible for
reviewing and approving all asset acquisitions and other investment decisions
between meetings of the full Board. Any decisions made by the Investment
Committee are reported to the full Board at its next quarterly meeting. The
Investment Committee receives recommendations from PTR's management investment
committee. During 1997, the Investment Committee held 12 telephonic meetings.
Also, in January 1997, the Board established a Compensation Committee
consisting of Messrs. Blankenship, Kelley and Myers, which reviews and
approves PTR's compensation arrangements and plans. The Compensation Committee
held two meetings during 1997. PTR has no standing nominating committee.
During 1997, each Trustee attended at least 75 percent of the total number of
meetings of the Board and the committees on which he served (except that
Messrs. Polk, Kelley and Cardwell attended approximately 73%, 71% and 43%,
respectively).
TRUSTEE COMPENSATION
During 1997, Trustees received an annual retainer of $18,000 and meeting
fees of $1,000 for each Board meeting attended (other than telephonic
meetings). Effective January 1, 1998, members of the Investment, Compensation
and Audit Committees will received an additional $3,000, $2,000 and $1,000 per
year, respectively. Members of special committees will receive an additional
$2,000 per year; chairpersons of special committees will receive an additional
$4,000 per year. Both the retainers and meeting fees are paid quarterly.
Messrs. Blankenship and Sellers are not separately compensated for serving as
Trustees. Prior to his retirement from Security Capital in June 1997, Mr. Polk
was not separately compensated for serving as a Trustee. Trustees are
reimbursed for any out-of-town travel expenses incurred in connection with
attendance at Board meetings.
Effective April 1, 1998, PTR adopted a deferred fee plan for Outside
Trustees (the "Deferred Fee Plan"). Under the Deferred Fee Plan, PTR's Outside
Trustees may elect to defer receipt of all or any portion of annual retainers
and fees otherwise payable in cash for the performance of Trustee duties. Fees
deferred pursuant to the Deferred Fee Plan must be deferred for a minimum of
two years, and will be held in an account earning a return equivalent to the
total return on the Common Shares (share price appreciation and dividends).
Trustees deferring receipt of retainers and fees may elect to receive
distributions of deferred fees in the form of either a lump sum or annual or
quarterly installments payable over a period of time not to exceed ten years.
In addition, pursuant to PTR's 1996 Share Option Plan for Outside Trustees
(the "Outside Trustees Plan"), each Trustee who is not an employee or officer
of PTR or Security Capital or any of its affiliates (the "Outside Trustees")
is entitled to receive, on the date of each annual meeting of shareholders
held prior to January 1, 2007, an option to purchase 2,000 Common Shares at a
price per share equal to the closing price of a Common Share on the New York
Stock Exchange (the "NYSE") on that date. See "--Outside Trustees Plan". The
Outside Trustees of PTR received similar options under PTR's 1987 Share Option
Plan for Outside Trustees. That plan expired on December 31, 1996.
5
<PAGE>
OUTSIDE TRUSTEES PLAN
At the 1997 annual meeting, the shareholders approved the issuance of up to
100,000 Common Shares under the Outside Trustees Plan. The purpose of the
Outside Trustees Plan is to enable the Outside Trustees of PTR to increase
their ownership of PTR and thereby increase the alignment of their interests
with those of PTR's other shareholders.
To achieve the foregoing objective, the Outside Trustees Plan provides for
grants of options to purchase Common Shares. The Secretary of PTR (the
"Administrator") administers the Outside Trustees Plan with a view to PTR's
best interests and the Outside Trustees Plan's objectives. The Administrator
has authority to adopt administrative guidelines, rules and regulations
relating to the Outside Trustees Plan and to make all determinations necessary
or advisable for the implementation and administration of the Outside Trustees
Plan.
The number of Common Shares reserved for issuance upon exercise of options
granted under the Outside Trustees Plan is 100,000. Common Shares which are
forfeited will again become available for awards under the Outside Trustees
Plan.
In the event of changes in the outstanding Common Shares by reason of any
increase or decrease in the number of issued Common Shares resulting from a
subdivision or consolidation of Common Shares or the payment of a dividend in
Common Shares, or any other increase or decrease in the number of Common
Shares, or merger or consolidation, or recapitalization, reorganization,
spinoff, exchange or other distribution or other similar event, the
Administrator will make appropriate adjustments to the aggregate number of
Common Shares available under the Outside Trustees Plan and the type and
number of Common Shares subject to options under the Outside Trustees Plan and
the terms of those options (including the exercise price thereof).
On the date of each annual meeting of shareholders of PTR through and
including 2006, each Outside Trustee serving on that date (after the election
of Trustees in the meeting) will be granted an option to purchase 2,000 Common
Shares at an exercise price equal to the closing price of the Common Shares on
the NYSE on that date. Options for 2,000 Common Shares were awarded under the
Outside Trustees Plan to each of Messrs. Schweitzer, Kelley, Cardwell, Myers
and Kessler in 1997.
Each option will be immediately exercisable, but must be exercised before
the earliest of the following events to occur: the date which is three months
after the date on which the option holder's position as a Trustee terminates,
the date which is twelve months after the date the Trustee becomes disabled or
dies or the date which is five years after the date the option is granted.
If fifty percent or more of the outstanding Common Shares are acquired in a
cash tender offer or exchange offer, each option holder will have the right to
exercise his or her option in full or surrender his or her outstanding option
in exchange for a cash payment from PTR in an amount equal to the excess of
the offer price or value over the option price. If PTR dissolves, each option
holder will have the right to exercise his or her option in full before the
date of the dissolution.
The Outside Trustees Plan may be amended or terminated at any time by the
Board. The provisions relating to the amount, price and timing of grants under
the Outside Trustees Plan may not be amended more than once every six months,
other than to comply with changes in the Internal Revenue Code of 1986, as
amended, or the rules thereunder, unless the amendment would not affect the
exemption provided by Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act").
6
<PAGE>
EXECUTIVE COMPENSATION
The following table presents the compensation for 1997 and 1996 paid to the
President and Chief Executive Officer and the four other most highly
compensated executive officers of PTR (the "Named Executive Officers"). All
compensation for 1996 was paid by Security Capital. For 1997, each Named
Executive Officer was an employee of Security Capital Pacific Incorporated,
PTR's REIT manager (the "REIT Manager"), which was a wholly owned subsidiary
of Security Capital, and was compensated by Security Capital until the closing
of the 1997 Merger on September 9, 1997. See "Certain Relationships and
Transactions--The 1997 Merger Transaction".
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
----------------------- ----------------------------------------
SHARES OF
COMMON SECURITY CAPITAL
SHARES CLASS A COMMON
NAME AND PRINCIPAL RESTRICTED UNDERLYING STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) STOCK AWARDS OPTIONS(#) OPTIONS(#)(1) COMPENSATION($)
------------------ ---- --------- -------- ------------ ---------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
R. Scot Sellers......... 1997 250,000 350,000 (2) 194,899 1,108 --
President and Chief 1996 214,000 236,000 -- -- 658 --
Executive Officer
Patrick R. Whelan....... 1997 200,000 270,000 (2) 183,567 281 --
Managing Director-- 1996 190,000 150,000 -- -- 395 --
Operations
Jay S. Jacobson......... 1997 198,000 127,000 (2) 100,666 175 --
Managing Director-- 1996 165,000 80,000 -- -- 351 --
Central/Northwest
Region
John Jordano, III....... 1997 165,000 110,000 (2) 44,273 118 --
Senior Vice President 1996 145,000 83,250 -- -- 237 --
Bryan J. Flanagan....... 1997 190,000 82,500 (2) 47,568 131 --
Senior Vice President 1996 180,000 60,750 -- -- 263 --
Richard A. Banks........ 1997 74,667 65,000 (2) 95,182 -- --
Managing Director--West 1996 -- -- -- -- -- --
Region (3)
</TABLE>
- --------
(1) These options to acquire shares of Security Capital's Class A common
stock, par value $.01 per share (the "Class A Common Stock") were awarded
by Security Capital under Security Capital's 1995 Option Plan. At the time
of the award of these options, each of the Named Executive Officers was an
employee of the REIT Manager.
(2) Under the share purchase program of the 1997 Long-Term Incentive Plan (the
"Incentive Plan"), the Named Executive Officers purchased Common Shares as
follows in 1997: Mr. Sellers, 90,651 Common Shares; Mr. Whelan, 86,118
Common Shares; Mr. Jacobson, 45,325 Common Shares; Mr. Jordano, 18,130
Common Shares; Mr. Flanagan, 20,396 Common Shares; and Mr. Banks, 38,526
Common Shares. All of these purchases were at the price and upon the other
terms, conditions and restrictions described under
"--Long-Term Incentive Plan--Share Purchase Program."
(3) Mr. Banks was hired by PTR on September 18, 1997 and the compensation
information reflects the portion of 1997 he was an officer of PTR. If Mr.
Banks' compensation for 1997 were annualized, he would be one of PTR's
five most highly compensated executive officers.
LONG-TERM INCENTIVE PLAN
General
In 1997, the Board adopted, and the shareholders approved, the Incentive
Plan, which authorizes the establishment of one or more option programs and
share purchase programs and the award of share grants. No more than 5,650,000
Common Shares in the aggregate may be awarded under the Incentive Plan and no
7
<PAGE>
individual may be granted awards with respect to more than 500,000 Common
Shares in any one-year period. The Compensation Committee administers the
Incentive Plan. Subject to the terms of the Incentive Plan, the Compensation
Committee determines which employees will be eligible to receive awards under
the Incentive Plan, and the amount, price, timing and other terms and
conditions applicable to those awards. Non-employee Trustees are not eligible
to participate in the Incentive Plan. All employees of PTR or any of its
subsidiaries are eligible to participate in the Incentive Plan.
Options awarded under the Incentive Plan may be either incentive share
options or non-qualified share options. Options become exercisable and expire
in accordance with the terms established by the Compensation Committee. Common
Shares transferred to a participant pursuant to the exercise of an option may
be subject to such additional restrictions or limitations as the Compensation
Committee may determine. The Incentive Plan provides generally that
participants who are awarded options will also receive dividend equivalent
units with respect to the options. The dividend equivalent units will be
subject to the same vesting schedule as the options and will be payable when
the options are exercised, unless the participant elects to defer receipt, or
will expire. Each dividend equivalent unit also accumulates additional
dividend equivalent units on an annual basis. All dividend equivalent units
are paid in the form of Common Shares at the rate of one Common Share per
dividend equivalent unit.
The Incentive Plan provides that the Compensation Committee may award
participants performance stock, subject to achievement of performance
objectives. The number of Common Shares and the performance measures and
periods will be established by the Compensation Committee at the time the
award is made, provided that any performance period will be at least one year.
Non-Qualified Options
Concurrently with the consummation of the 1997 Merger transaction, the Named
Executive Officers and other officers and employees of PTR were granted
options to purchase a total of 220,325 Common Shares at an exercise price of
$22.0625 per share, the average of the high and low sales prices of the Common
Shares on September 8, 1997, the date the Incentive Plan was approved by
shareholders. Also, on October 24, 1997 six employees of PTR were granted
options to purchase a total of 14,988 Common Shares at an exercise price of
$23.34375, the average of the high and low sales prices of the Common Shares
on such date. The participants have no rights as shareholders with respect to
the Common Shares subject to their options until the option is exercised. PTR
ordinarily will be entitled to claim a federal income tax deduction on account
of the exercise of a non-qualified option and payment of dividend equivalent
units. The amount of the deduction is equal to the ordinary income recognized
by a participant.
Share Purchase Program
Concurrently with the consummation of the 1997 Merger transaction, PTR
permitted the Named Executive Officers and other officers and employees to
purchase a total of 813,430 Common Shares at a price of $22.0625 per share,
the average of the high and low sales price of the Common Shares on September
8, 1997, the date the Incentive Plan was approved by shareholders, with two
matching options for each Common Share purchased. Also, on October 24, 1997,
PTR permitted one employee to purchase 17,134 Common Shares at a price of
$23.34375 per share, the average of the high and low sales prices of the
Common Shares on such date, and on November 21, 1997, PTR permitted one
employee to purchase 1,680 Common Shares at a price of $23.78125 per share,
the average of the high and low sales prices of the Common Shares on such
date, in each case with two matching options for each Common Share purchased.
Each matching option has an exercise price equal to the purchase price per
share of the corresponding Common Shares. No dividend equivalent units were
issued with respect to those matching options. The Common Share purchases
provide for a one-year restricted period during which the participants may
not, while employed, sell the Common Shares. If a participant leaves the
employment of PTR prior to the end of the restricted period, PTR has the right
to repurchase the Common Shares at their fair market value at the time the
participant's employment is terminated. At the end of the restricted
8
<PAGE>
period, the participant will own the Common Shares without further
restriction. However, if the participant sells the Common Shares after the end
of the restricted period, the participant's matching options may be adversely
affected. PTR made loans for up to 95% of the purchase price available to
participants, as described under "--Loans to Executive Officers." Each loan is
full recourse to the participant and is secured by the purchased Common
Shares.
Option Grants in 1997
The following table sets forth certain information with respect to
individual grants of options during 1997 to each of the Named Executive
Officers.
<TABLE>
<CAPTION>
COMMON SHARES
---------------------------------------------------------
INDIVIDUAL GRANTS
---------------------------------------------
PERCENT OF
TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) IN 1997 ($/SHARE) DATE VALUE($)(2)
- ---- ------------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
R. Scot Sellers. 194,899 10.6% 22.0625 9/8/07 584,522
Patrick R.
Whelan......... 183,567 9.9% 22.0625 9/8/07 550,536
Jay S. Jacobson. 100,666 5.5% 22.0625 9/8/07 301,907
John Jordano,
III............ 44,273 2.4% 22.0625 9/8/07 132,779
Bryan J.
Flanagan....... 47,568 2.6% 22.0625 9/8/07 142,661
Richard A.
Banks.......... 95,182 5.2% 22.0625 9/8/07 285,460
<CAPTION>
SHARES OF SECURITY CAPITAL CLASS A COMMON STOCK
---------------------------------------------------------
INDIVIDUAL GRANTS
---------------------------------------------
PERCENT OF
TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE GRANT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT
NAME GRANTED(#)(3) IN 1997 ($/SHARE) DATE VALUE($)(4)
- ---- ------------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
R. Scot Sellers. 1,108 2.09% (5) (6) 602,953
Patrick R.
Whelan......... 281 0.53% 1,600 12/04/07 175,051
Jay S. Jacobson. 175 0.33% 1,600 12/04/07 108,921
John Jordano,
III............ 118 0.22% 1,600 12/04/07 73,521
Bryan J.
Flanagan....... 131 0.25% 1,600 12/04/07 81,690
Richard A.
Banks.......... -- -- -- -- --
</TABLE>
- -------
(1) The options generally vest 25% on the second anniversary of the date of
grant and an additional 25% on each of the third, fourth and fifth
anniversaries of the date of grant. As described under "--General," the
following number of these options granted to the Named Executive Officers
in 1997 have dividend equivalent units: Mr. Sellers, 13,597 options; Mr.
Whelan, 11,331 options; Mr. Jacobson, 10,016 options; Mr. Jordano, 8,013
options; Mr. Flanagan, 6,776 options; and Mr. Banks, 18,130 options. The
remaining options granted to the Named Executive Officers in 1997 were
matching options granted pursuant to the Share Purchase Program and do not
have matching dividend equivalent units, as described under "--Share
Purchase Program."
(2) The amounts shown are based on the Black-Scholes option pricing model. The
material assumptions incorporated in the Black-Scholes model in estimating
the value of the options include the following: an expected option life of
6.74 years; a risk-free interest rate of 6.08%; an expected dividend yield
of 5.60%; and expected volatility of 18.35%. The actual value, if any, an
optionee will realize upon exercise of an option will depend on the excess
of the market value of the Common Shares over the exercise price on the
date the option is exercised. There can be no assurance that the value
realized by an optionee will be at or near the value estimated by using
the Black-Scholes model.
(3) The options vest 25% on the second anniversary of the date of grant and an
additional 25% on each of the third, fourth and fifth anniversaries of the
date of grant.
(4) The amounts shown are based on the Black-Scholes option pricing model. The
material assumptions incorporated in the Black-Scholes model in estimating
the value of the options include the following: an expected option life of
6.75 years; a risk-free interest rate of 5.87%; no expected dividend
yield; and expected volatility of 22.09%. The actual value, if any, an
optionee will realize upon exercise of an option will depend on the excess
of the market value of the shares over the exercise price on the date the
option is exercised. There can be no assurance that the value realized by
an optionee will be at or near the value estimated by using the Black-
Scholes model.
(5) For Mr. Sellers, the option price ranges from $1,251 to $1,600.
(6) For Mr. Sellers, the expiration date ranges from 06/18/2007 to 12/04/2007.
9
<PAGE>
Aggregated Option Exercises in 1997 and Year-End Option Values
The following table sets forth certain information concerning exercises of
options during 1997 by each of the Named Executive Officers and the year-end
value of unexercised options owned by those executive officers.
<TABLE>
<CAPTION>
COMMON SHARES SHARES OF SECURITY CAPITAL CLASS A COMMON STOCK
--------------------------------------------------- ---------------------------------------------------
SECURITIES UNDERLYING VALUE OF UNEXERCISED IN- SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-
UNEXERCISED OPTIONS AT THE-MONEY OPTIONS AT UNEXERCISED OPTIONS AT THE-MONEY OPTIONS AT
YEAR-END(#) YEAR-END($) YEAR-END(#) YEAR-END($)
------------------------- ------------------------- ------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. Scot Sellers.. -- 194,899 -- 450,704 1,782 2,991 1,969,122 1,532,478
Patrick R.
Whelan.......... -- 183,567 -- 424,499 912 1,537 912,210 864,864
Jay S. Jacobson.. -- 100,666 -- 232,790 -- 942 -- 433,528
John Jordano,
III............. -- 44,273 -- 102,381 231 672 230,936 336,665
Bryan J.
Flanagan........ -- 47,568 -- 110,001 -- 887 -- 440,904
Richard A. Banks. -- 95,182 -- 220,108 -- -- -- --
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
PTR has not entered into any employment contracts with any Named Executive
Officer and there are no plans or arrangements by which any of those executive
officers will be compensated as a result of his resignation or retirement or
any other termination of his employment with PTR or in connection with a
change in control of PTR, except that if a "Change in Control," as that term
is defined in the Incentive Plans occurs, options to purchase Common Shares
granted under the Incentive Plan will become immediately exercisable and
restrictions on purchased Common Shares will lapse.
LOANS TO EXECUTIVE OFFICERS
PTR made loans to the Named Executive Officers as follows during 1997 for
the purchase price of Common Shares pursuant to the Share Purchase Program:
Mr. Sellers, $1,900,000; Mr. Whelan, $1,805,000; Mr. Jacobson, $1,000,000; Mr.
Jordano, $380,000; Mr. Flanagan, $427,500; and Mr. Banks, $807,500. Each loan
is full recourse to the executive officer and is secured by the purchased
Common Shares. The loans bear interest at the lower of 6.0% per annum or the
dividend yield of a Common Share determined based on the fair market value of
a Common Share on the purchase date and have a ten-year term. The loans will
become due and payable (i) immediately upon the sale of the purchased Common
Shares or PTR's termination of the executive officer's employment for cause,
(ii) 180 days after PTR's termination of the executive officer's employment
following a change in control, (iii) 365 days after termination of the
executive officer's employment by reason of death, disability or retirement or
(iv) 90 days after termination of the executive officer's employment for any
other reason.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee consists entirely of non-employee directors and
is responsible for acting on behalf of the Board with respect to (i) PTR's
compensation practices, (ii) PTR's benefits programs, (iii) review and
approval of salaries and other compensation of PTR's senior executive officers
and (iv) adopting, administering and approving awards under incentive
compensation and stock plans. The Compensation Committee determines the Chief
Executive Officer's compensation and the compensation of the Named Executive
Officers and other executive officers of PTR based on the recommendations of
senior management. Payment of cash compensation and option grants by PTR to
its executive officers began on September 9, 1997, the date the 1997 Merger
occurred. See "Certain Relationships and Transactions--The 1997 Merger
Transaction." Grants of options to purchase Security Capital Class A Common
Stock were made by Security Capital to the Chief Executive Officer and to
certain Named Executive Officers while they were employed by the REIT Manager.
10
<PAGE>
COMPENSATION PHILOSOPHY
PTR's compensation program is designed to:
. Attract, reward and retain highly qualified executives.
. Align shareholder and employee interests.
. Reward long-term career contributions to PTR.
. Emphasize the variable portion of total compensation (cash bonuses and
stock appreciation through the Long-Term Incentive Program) as an
individual's level of responsibility increases.
The Compensation Committee is committed to a compensation philosophy which
rewards employees on the basis of PTR's success in attaining corporate
financial objectives as well as on the basis of the employee's success in
attaining financial and qualitative performance objectives.
COMPENSATION PRACTICES
PTR's compensation practices regarding its executive officers have the
following components:
. Individual performance reviews every 12 months.
. Base salary which is paid annually and reviewed every 24 months.
. A target bonus which is set after review every 24 months (at the same
time the base salary is reviewed) with an actual bonus being paid in
varying percentages of the target bonus (based on individual and company
performance) every 12 months.
. Option awards at fair market value which are annual awards based on the
responsibility band of the executive and an individual performance
assessment.
Executive Officers of PTR who had been employed by the REIT Manager were
paid by Security Capital prior to the 1997 Merger. Security Capital
established base salaries and target bonuses for 1997, which remained in
effect after the 1997 Merger.
PERFORMANCE REVIEWS
With respect to 1997 bonus and option compensation for individual executive
officers, the Compensation Committee reviewed PTR's financial performance, as
well as objective factors and a subjective assessment of the executive's
performance. In the case of particular individuals, circumstances unique to
such individual, such as increased responsibilities or extraordinary effort,
were also considered.
BASE SALARY
Security Capital set the base salary for PTR's executive officers for 1997
prior to the 1997 Merger. In the future, base salary will be established when
an executive officer joins PTR and will be reviewed in December of even
numbered years. The next salary review will occur in late 1998, and will
become effective in January 1999. With respect to the executive officers of
PTR, the Compensation Committee will base its salary compensation decisions
primarily on its overall assessment of the executive's potential contribution
to PTR on both a short-term and long-term basis and competitive market
perspectives for the executive officer's compensation.
ANNUAL BONUS
Security Capital set the target bonus for PTR's executive officers for 1997
prior to the 1997 Merger. In the future, the Compensation Committee will
establish target bonuses for each executive officer every 24 months (at the
same time that base salary is established). The actual percentage of target
bonus for each year is up to the discretion of the Compensation Committee. The
actual amount of a bonus is based primarily upon the individual's performance
and the Company's performance during the prior year. The Compensation
Committee made the determination for actual bonuses paid for 1997.
OPTION AWARDS AND SHARE PURCHASE AWARDS
The Compensation Committee believed it was appropriate in 1997 to make long-
term incentive awards to PTR's executive officers. Option awards to purchase
shares of Security Capital Class A Common Stock had been awarded annually to
the officers and employees of the REIT Manager and PTR's property manager
since Security
11
<PAGE>
Capital acquired a substantial interest in PTR and constituted an important
component of senior executive compensation. In connection with the 1997
Merger, the Compensation Committee granted option awards and share purchase
awards for PTR Common Shares. In arriving at the 1997 award levels, the
Compensation Committee gave consideration to the executive's relative
position, responsibilities and performance, the change from being employees of
Security Capital to being employees of PTR, as well as option awards for
shares of Security Capital Class A Common Stock granted in 1997. After the
1997 Merger, employees of PTR will no longer receive option awards from
Security Capital.
The purpose of the awards is to furnish long-term incentives to executive
officers to build shareholder value and to motivate and retain the personnel
critical to PTR's long-term success. Awards vest over a five-year period, with
no awards vested until the end of the second anniversary of the grant. It is
the intention of the Compensation Committee to continue to emphasize long-term
incentives as an important component of the compensation provided to PTR's
executive officers.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee met this year and plans to meet annually without
the Chief Executive Officer present to evaluate his individual performance and
to determine his compensation. In considering Mr. Sellers' compensation, the
Compensation Committee considers his principal responsibilities, which are to
provide the overall vision and strategic direction for PTR, to attract and
retain highly qualified employees and to develop and maintain key capital
relationships for PTR.
In reviewing and determining Mr. Sellers' compensation for 1997, the
Compensation Committee reviewed the overall performance of PTR and his
performance. During 1997, PTR had a variety of financial and operational
achievements for which the Compensation Committee believed Mr. Sellers was
instrumental. In 1997, PTR generated funds from operations of $151.0 million,
an increase of $21.4 million over 1996 (as adjusted for 1996 to give effect to
the Homestead spin off) and generated net cash flow provided by operating
activities in 1997 of $159.7 million, an increase of $15.8 million over 1996.
Additionally, during 1997, PTR redeployed over $300 million in gross proceeds
from dispositions in markets which management believed had less attractive
long-term growth prospects to well-located communities primarily in PTR's West
Coast markets. During the year PTR put together a development pipeline
totalling over $1.4 billion which is expected to make a significant
contribution to the growth of PTR. In addition, on September 9, 1997, PTR
became an internally managed REIT when it acquired the operations and business
of its REIT management and property management companies. Each of these
developments was considered by the Compensation Committee in determining Mr.
Sellers' compensation.
Based on his individual contributions as well as PTR's performance, during
1997, Mr. Sellers received a base salary of $250,000 and a bonus of $350,000.
Of those amounts, $171,000 and $241,000, respectively, were paid by Security
Capital. The Compensation Committee determined to award Mr. Sellers options to
acquire 194,899 Common Shares and share purchase awards of 90,651 Common
Shares and to lend Mr. Sellers $1,900,000 to assist in the purchase of those
Common Shares. In addition, Mr. Sellers received options to purchase 1,108
shares of Security Capital Class A Common Stock. The long-term incentives
received by Mr. Sellers from PTR are in the form of share options and Share
Purchase awards which are identical in structure to those which are offered to
PTR's other officers and key employees.
The Compensation Committee expects to conduct a complete review of PTR's
compensation practices during 1998 to determine whether the compensation
philosophy, general amounts and combination of base salary, target bonus and
options should be materially changed.
SECTION 162(M)
The Committee is aware of the limitations imposed by Section 162(m) of the
Internal Revenue Code of 1986, as amended, on the deductibility of
compensation paid to certain senior executives to the extent it exceeds $1
million per executive. The law exempts compensation paid under plans which
relate compensation to performance. Although PTR's plans are designed to
relate compensation to performance, certain elements of the plans do not meet
the tax law's requirements because they allow the Compensation Committee to
exercise discretion in setting compensation. It may be appropriate in the
future to recommend changes in PTR's compensation program to take account of
the tax law. However, the Compensation Committee is of the opinion that it is
better to retain discretion than to give it up in exchange for the tax
deduction.
12
<PAGE>
* * * * *
This report is submitted by the members of the Compensation Committee: John
T. Kelley III, C. Ronald Blankenship and William G. Myers.
The Compensation Committee Report on Executive Compensation and related
disclosure, including the Performance Graph, shall not be deemed incorporated
by reference by any general statement incorporating this Proxy Statement into
any filing under the Securities Act of 1933, as amended (the "Securities
Act"), or under the Exchange Act, except to the extent PTR specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under those Acts.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on Common Shares against the
cumulative total return of the Standard & Poor's Composite-500 Stock Index and
the NAREIT Equity REIT Index for the five-year period commencing January 1,
1993 and ended December 31, 1997. The Common Share price performance shown on
the graph is not necessarily indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)
PTR COMMON SHARES, S&P COMPOSITE-500 STOCK INDEX
& NAREIT EQUITY REIT INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
1/1/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PTR................. $100.00 $149.43 $141.98 $166.00 $236.87 $271.77
S&P 500............. 100.00 110.04 111.54 153.33 188.47 251.27
NAREIT.............. 100.00 118.70 122.25 139.62 190.44 229.52
</TABLE>
- --------
(1) Assumes that the value of the investment in Common Shares and each index
was $100.00 on January 1, 1993 and that all dividends were reinvested. For
purposes of calculating total return on the Common Shares, (i) the
Homestead Distribution described below in "Certain Relationships and
Transactions--Homestead Transaction" was valued based on the closing
prices of the securities distributed on the American Stock Exchange on
November 12, 1996, the date of the distribution; and (ii) the Warrant
Issuance described below in "Certain Relationships and Transactions--The
1997 Merger Transaction" was valued based on the closing price of the
warrants distributed on the NYSE on September 18, 1997, the date the
warrants were issued to the distribution agent.
13
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
REIT MANAGEMENT AGREEMENT
Prior to the Merger, PTR had a REIT management agreement pursuant to which
the REIT Manager, a wholly owned subsidiary of Security Capital, provided
management services to PTR. The REIT Manager provided both strategic and day-
to-day management to PTR, including research, investment analysis,
acquisition, development, marketing, disposition of assets, asset management,
due diligence, capital markets, legal and accounting services. The REIT
management agreement required PTR to pay a basic annual fee of $855,000 plus
16% of cash flow as defined in the agreement, payable monthly. The REIT
Manager also received a fee of 0.25% per year on the average daily balance of
cash equivalent investments. For the year ended December 31, 1997, the REIT
Manager earned REIT management fees totaling approximately $13.0 million. The
REIT management agreement was terminated effective September 9, 1997 in
connection with the 1997 Merger. See "--The 1997 Merger Transaction," and "--
Administrative Services Agreement."
PROPERTY MANAGEMENT COMPANY
Prior to the 1997 Merger, SCG Realty Services Incorporated (the "Property
Manager"), a wholly owned subsidiary of Security Capital, provided property
management services for approximately 94% of PTR's operating multifamily
units. Rates for services performed by the Property Manager were between 3.0%
and 3.75% per annum of community revenues and were subject to annual approval
by PTR's independent Trustees (who received an annual review of fees paid for
similar services from an independent third party). During the year ended
December 31, 1997, PTR paid aggregate fees of approximately $7.6 million to
the Property Manager.
HOMESTEAD TRANSACTION
In October 1996, PTR, ATLANTIC, and Security Capital sold, through a series
of merger transactions, all of their respective assets relating to Homestead
Village(R) properties to Homestead, and PTR and ATLANTIC entered into funding
commitment agreements (see "--Funding Commitment Agreement"). The Homestead
transaction resulted in PTR (a) owning 9,485,727 shares of Homestead common
stock, (b) owning 6,363,789 warrants to purchase one share of Homestead common
stock at $10.00 per share and (c) owning approximately $84.5 million in
convertible mortgage notes as described below (see "--Funding Commitment
Agreement"). PTR distributed the Homestead common stock and warrants which it
received to its shareholders pro rata on November 12, 1996 (the "Homestead
Distribution"). Each holder of record of a Common Share on October 29, 1996
received 0.125694 shares of Homestead common stock and warrants to purchase
0.084326 shares of Homestead common stock plus cash for fractional shares and
warrants. The Homestead common stock trades on the NYSE under the symbol
"HSD".
FUNDING COMMITMENT AGREEMENT
Pursuant to a funding commitment agreement entered into at the closing of
the Homestead transaction, PTR agreed to make mortgage loans to Homestead of
up to $198.8 million, including $75.9 which was funded prior to the closing of
the transaction, which amount was anticipated to be sufficient to complete the
development of the Homestead Village(R) properties contributed by PTR. PTR
received 6,363,789 warrants, each to purchase one share of Homestead common
stock, in exchange for its entering into the funding commitment agreement,
which PTR subsequently distributed pro rata to its shareholders in the
Homestead Distribution. Each Homestead warrant was exercisable at $10.00 per
share and expired October 27, 1997. PTR receives convertible mortgage notes in
respect of fundings under the funding commitment agreement in stated amounts
of up to $221.3 million, including the $84.5 million of notes which were
outstanding at the closing of the Homestead transaction. The effect of these
provisions of the funding commitment agreement is that PTR funds approximately
$900,000 for each $1,000,000 principal amount of convertible mortgage loans.
Each mortgage note issued by Homestead pursuant to the funding commitment
agreement is convertible into shares of Homestead common stock on the basis of
one share of Homestead common stock for every $11.50 of principal outstanding
on the mortgage loan.
14
<PAGE>
The obligation of PTR is limited to a specific dollar amount for each
property identified in the funding commitment agreement. Upon any
determination by Homestead to commence development of a property identified in
the funding commitment agreement, Homestead is required to notify PTR and PTR
is required to fund up to the full amount of its obligation with respect to
such property. Homestead is required to endeavor in good faith to complete the
development of that property consistent with the development plans for that
property. The obligation of Homestead to call for funding of, and the
obligation of PTR to provide funding for, the mortgage loans expired on March
31, 1998, except with respect to properties for which Homestead has given
notice that it intends to develop. Interest on the mortgage notes accrues at
the rate of 9% per annum on the unpaid principal balance, payable every six
months. The mortgage notes are scheduled to mature on October 31, 2006, and
are not callable until October 27, 2001. Homestead has pledged the assets that
were contributed by PTR as collateral for the mortgage loans being made by
PTR. At December 31, 1997, PTR had advanced $186.9 million under the funding
commitment agreement and the face amount of the mortgage notes outstanding was
$208.1 million.
PROTECTION OF BUSINESS AGREEMENT
PTR entered into a protection of business agreement with Homestead at the
closing of the Homestead transaction which prohibits PTR and its affiliates
from engaging, directly or indirectly, in the extended-stay lodging business
except through Homestead and its subsidiaries. The agreement also prohibits
Homestead from, directly or indirectly, engaging in the ownership, operation,
development, management or leasing of multifamily properties. The agreement
does not prohibit PTR from: (i) owning securities of Homestead; (ii) owning up
to 5% of the outstanding securities of another person engaged in owning,
operating, developing, managing or leasing extended-stay lodging properties,
so long as it does not actively participate in the business of that person;
(iii) owning the outstanding securities of another person, a majority-owned
subsidiary, division, group, franchise or segment of which is engaged in
owning, operating, developing, managing or leasing extended-stay lodging
properties, so long as not more than 5% of that person's consolidated revenues
are derived from those properties; and (iv) owning securities of another
person primarily engaged in a business other than owning, operating,
developing, managing or leasing extended-stay lodging properties, including a
person primarily engaged in business as an owner, operator or developer of
hotel properties, whether or not that person owns, operates, develops, manages
or leases extended-stay lodging properties. The agreement does not prohibit
Homestead from: (i) owning securities of PTR, ATLANTIC, or Security Capital;
(ii) owning up to 5% of the outstanding securities of another person engaged
in owning, operating, developing, managing or leasing garden-style multifamily
properties; and (iii) owning the outstanding securities of another person, a
majority-owned subsidiary, division, group, franchise or segment of which is
engaged in owning, operating, developing, managing or leasing garden-style
multifamily properties, so long as not more than 5% of that person's
consolidated revenues are derived from those properties. The agreement will
terminate in the event of an acquisition, directly or indirectly (other than
by purchase from PTR, ATLANTIC, or Security Capital or any of their respective
affiliates), by any person (or group of associated persons acting in concert),
other than PTR, ATLANTIC, or Security Capital or their respective affiliates,
of 25% or more of the outstanding voting stock of Homestead, without the prior
written consent of Homestead's board of directors. Subject to earlier
termination pursuant to the preceding sentence, the protection of business
agreement will terminate on October 17, 2006.
HOMESTEAD INVESTOR AGREEMENT
PTR entered into an investor and registration rights agreement with
Homestead at the closing of the Homestead transaction pursuant to which PTR is
entitled to designate one person for nomination to the Homestead board of
directors, and Homestead will use its best efforts to cause the election of
that nominee for so long as PTR has the right to convert in excess of $20
million in principal amount of loans made pursuant to its funding commitment
agreement. PTR's nominee may, but need not, include the same person(s)
nominated by Security Capital pursuant to Security Capital's investor
agreement with Homestead. In addition, Homestead has granted to PTR
registration rights with respect to the distribution of all of the shares of
Homestead common stock issuable upon conversion of the convertible mortgage
notes. PTR may request three registrations pursuant to Rule 415 promulgated
under the Securities Act, of all shares of Homestead common stock issued or
issuable
15
<PAGE>
upon conversion of the convertible mortgage notes. That registration, except
for the fees and disbursements of counsel to PTR, will be at the expense of
Homestead.
THE 1997 MERGER TRANSACTION
In January 1997, Security Capital made a proposal to the Board that Security
Capital exchange the REIT Manager and the Property Manager for Common Shares,
with the result that PTR would become an internally managed REIT. On March 24,
1997, Security Capital and PTR entered into a Merger and Issuance Agreement,
as amended, pursuant to which Security Capital caused the REIT Manager and the
Property Manager to be merged into a newly formed subsidiary of PTR (the "1997
Merger"). On September 8, 1997, PTR's shareholders voted to approve the 1997
Merger, which closed on September 9, 1997. The employees of the REIT Manager
and the Property Manager became employees of PTR as a result of the 1997
Merger. In exchange for the transfer of those businesses, PTR issued to
Security Capital 3,295,533 Common Shares valued at approximately $75.8
million. The number of Common Shares issued to Security Capital was based on
the average closing price of the Common Shares over the five-day period prior
to the record date for determining PTR's shareholders entitled to vote at the
meeting in connection with the 1997 Merger, subject to a maximum and minimum
number of Common Shares. The average closing price of the Common Shares over
the five-day period prior to that record date was $23.0125 per Common Share.
In order to allow holders of Common Shares (other than Security Capital) the
opportunity to maintain their relative ownership in PTR, concurrently with the
proxy solicitation seeking approval of the 1997 Merger, PTR conducted a rights
offering entitling holders of Common Shares (other than Security Capital) to
purchase up to 7,433,433 additional Common Shares. Simultaneously with the
offering of Common Shares to the rights holders, Security Capital Markets
Group Incorporated, which is owned by Security Capital, sought investors on a
best efforts basis, to oversubscribe and acquire unsubscribed shares. Due to
investor demand, PTR sold and issued an additional 1,486,686 Common Shares for
a total of 8,920,119 Common Shares sold. The subscription price for Common
Shares in the rights offering was $21.8125 per Common Share, which was equal
to 94.8% of the price at which Common Shares were issued to Security Capital
in the 1997 Merger. In addition, as part of the 1997 Merger transaction,
Security Capital issued warrants to purchase 3,644,430 shares of Security
Capital's Class B common stock, par value $.01 per share (the "Class B Common
Stock"), pro rata directly to holders of Common Shares (the "Warrant
Issuance"), other than Security Capital. The Warrant Issuance was made by
Security Capital in order to induce holders of Common Shares to vote in favor
of the 1997 Merger transaction, to broaden Security Capital's shareholder
base, to enable Security Capital to raise additional equity capital at a
relatively low cost through exercises of warrants and to enable Security
Capital to raise additional equity capital in the long run by preserving and
enhancing its goodwill with the shareholders of PTR. The number of shares of
Class B Common Stock subject to the warrants was based on the closing price of
the Class B Common Stock on September 18, 1997, the date the warrants were
issued to the agent for the Warrant Issuance for subsequent distribution to
holders of Common Shares, other than Security Capital. The warrants will
expire on September 18, 1998 and contain customary provisions to protect
shareholders from dilution in certain events, including certain distributions
and sales of shares of Class B Common Stock at less than market price.
SECURITY CAPITAL INVESTOR AGREEMENT
As part of the 1997 Merger transaction, PTR and Security Capital amended and
restated an investor agreement. The investor agreement provides that, without
first having consulted with the nominees of Security Capital designated in
writing, PTR may not seek Board approval of (i) PTR's annual budget; (ii)
incurring expenses in any year exceeding (a) any line item in the annual
budget by the greater of $500,000 or 20% and (b) the total expenses set forth
in the annual budget by 15%; (iii) the acquisition or sale of any assets in
any single transaction or series of related transactions in the ordinary
course of PTR's business where the aggregate purchase price paid or received
by PTR exceeds $25.0 million; and (iv) entering into any new contract with a
service provider (a) for investment management, property management or leasing
services or (b) which reasonably contemplates annual contract payments by PTR
in excess of $1.0 million. PTR is under no obligation to accept or comply with
any advice offered by Security Capital with respect to the foregoing matters.
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Additionally, so long as Security Capital beneficially owns at least 25% of
the Common Shares, Security Capital has the right to approve the following
matters proposed by PTR: (i) the issuance or sale of any Common Shares
(including the grant of any rights, options or warrants to subscribe for or
purchase Common Shares or any security convertible into or exchangeable for
Common Shares or the issuance or sale of any security convertible into or
exchangeable for Common Shares), at a price per share less than the fair
market value of a Common Share on the date of that issuance or sale; (ii) the
issuance and sale of any disqualified shares (as defined) if, as a result
thereof, PTR's Fixed Charge Coverage Ratio (as defined) would be less than 1.4
to 1.0; (iii) the adoption of any employee benefit plan pursuant to which
shares of PTR or any securities convertible into shares of PTR may be issued
and any action with respect to the compensation of the senior officers of PTR
(including the granting or award of any bonuses or share-based incentive
awards); and (iv) the incurrence of any additional indebtedness (including
guarantees and including renegotiations and restructurings of existing
indebtedness) if, as a result thereof, PTR's Interest Expense Coverage Ratio
(as defined) would be less than 2.0 to 1.0. The restriction referred to in
clause (i) above does not apply to (A) the sale or grant of any options to
purchase shares of PTR pursuant to the provisions of any benefit plan approved
by the shareholders of PTR, (B) the issuance or sale of shares of PTR upon the
exercise of any rights, options or warrants granted, or upon the conversion or
exchange of any convertible or exchangeable security issued or sold, prior to
the closing date of the 1997 Merger or in accordance with the provisions of
the investor agreement, (C) the issuance and sale of any shares of PTR
pursuant to any dividend reinvestment and share purchase plan approved by the
Board or (D) the issuance, grant or distribution of rights, options or
warrants to all holders of Common Shares entitling them to subscribe for or
purchase shares of PTR or securities convertible into or exercisable for
shares of PTR.
The agreement also provides that, so long as Security Capital owns at least
10% of the outstanding Common Shares, PTR may not increase the number of
persons serving on the Board to more than eight. Security Capital also is
entitled to designate one or more persons to be nominated for election to the
Board, as follows: (i) so long as Security Capital owns at least 10% but less
than 25% of the outstanding Common Shares, it is entitled to nominate one
person; and (ii) so long as Security Capital owns at least 25% of the
outstanding Common Shares, it is entitled to nominate that number of persons
as bears approximately the same ratio to the total number of members of the
Board as the number of Common Shares beneficially owned by Security Capital
bears to the total number of outstanding Common Shares, provided that Security
Capital is entitled to designate no more than three persons so long as the
Board consists of no more than eight members.
As part of the investor agreement, Security Capital is permitted to make
employment opportunities with Security Capital or its affiliates available to
the officers and employees of PTR. Prior to commencing discussions with a
senior officer of PTR about any such opportunity, Security Capital is required
to give the Board 14 days' prior written notice.
In addition, the agreement provides Security Capital with registration
rights pursuant to which, in certain specified circumstances, Security Capital
is permitted to request, at any time, registration of all of Security
Capital's Common Shares pursuant to Rule 415 under the Securities Act.
Security Capital is permitted to request one registration for every $100
million (based on market value) of Common Shares it owns.
In addition to the above provisions, the agreement restricts the ability of
Security Capital (or a group of which it is a member) from acquiring in excess
of 49% of the Common Shares subject to certain exceptions.
ADMINISTRATIVE SERVICES AGREEMENT
Upon consummation of the 1997 Merger, PTR and Security Capital entered into
an administrative services agreement, pursuant to which Security Capital
provides PTR with certain administrative and other services with respect to
certain aspects of PTR's business, as selected from time to time by PTR at its
option. These services include, but are not limited to, payroll and tax
administration services, cash management and accounts payable services, data
processing and other computer services, human resources, research, investor
relations, insurance administration and legal administration. The fees payable
to Security Capital are equal to Security Capital's
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direct cost of providing those services, plus 20%, subject to a maximum amount
of approximately $7.7 million during the initial term of the agreement, of
which approximately $2.2 million applied to the period between closing of the
1997 Merger and December 31, 1997 and $5.5 million applies to 1998. Cost
savings by Security Capital under the agreement will accrue to PTR. For the
period from September 9, 1997 through December 31, 1997, PTR expensed $1.3
million of costs under the agreement. The agreement is for an initial term
expiring on December 31, 1998 and will be automatically renewed for
consecutive one-year terms, subject to approval by a majority of the
independent members of the Board.
LICENSE AGREEMENT
PTR and Security Capital entered into a license agreement on the closing
date of the 1997 Merger pursuant to which Security Capital granted PTR a non-
exclusive license to use Security Capital's registered logo and the non-
exclusive right to use the name "Security Capital". The term of the license is
for a period of 15 years, subject to PTR's right to extend the license for up
to two additional five-year periods.
PROTECTION OF BUSINESS AGREEMENT
PTR and Security Capital entered into a protection of business agreement on
the closing date of the 1997 Merger, which prohibited Security Capital and its
affiliates from providing, anywhere within the United States, directly or
indirectly, substantially the same services as those previously provided by
the REIT Manager and the Property Manager to any entity which owns or operates
multifamily properties. The agreement does not prohibit Security Capital or
its affiliates from owning the securities of any class of PTR or ATLANTIC. The
agreement will terminate in the event of an acquisition, directly or
indirectly, (other than by purchase from Security Capital or any of its
affiliates), by any person (or group of persons acting in concert), other than
Security Capital or any of its affiliates, of the greater of (i) 25% or more
of the outstanding shares of voting securities of PTR and (ii) the percentage
of outstanding voting securities of PTR owned directly or indirectly by
Security Capital and its affiliates, in either case without the prior written
consent of the Board. Subject to earlier termination pursuant to the preceding
sentence, the agreement will terminate on September 9, 2000, the third
anniversary of the closing date of the 1997 Merger.
PROPOSED MERGER OF ATLANTIC AND PTR
On April 2, 1998, ATLANTIC and PTR announced that they have agreed to merge
and have entered into a merger agreement (the "Merger Agreement"). The
combined company would operate under the name Archstone Communities Trust. The
merger is expected to be completed in August 1998, subject to the approval of
the shareholders of both companies and certain other conditions. Under the
terms of the Merger Agreement, for each ATLANTIC common share held, a
shareholder would receive one PTR Common Share and ATLANTIC's preferred
shareholders would receive comparable preferred shares of PTR. In addition,
PTR would assume ATLANTIC's debt (approximately $547 million on March 31,
1998) and other liabilities. The transaction has been structured as a tax-free
merger and would be accounted for as a purchase. Subject to certain terms and
conditions, Security Capital has agreed to vote its ATLANTIC common shares and
PTR Common Shares in favor of the merger.
OTHER TRANSACTIONS WITH AFFILIATES
On March 31, 1995, Security Capital entered into an unsecured, full recourse
promissory note with R. Scot Sellers, then a Managing Director of PTR and
PTR's REIT Manager. Under the terms of the promissory note, Security Capital
lent Mr. Sellers $249,997, which amount is due on the earlier of January 4,
2005 or 120 days after Mr. Sellers is no longer an officer of PTR. Interest on
the unpaid balance accrues at a floating rate per annum equal to the lowest
rate charged by Morgan Guaranty Trust Company of New York to its most
creditworthy corporate customers for unsecured loans having a maturity of 90
days or less, in effect from time to time, plus .25%, and is payable
semiannually on each July 4 and January 4. The proceeds of the promissory note
were used by Mr. Sellers to purchase Common Shares of PTR.
On September 8, 1997, Security Capital entered into a promissory note with
R. Scot Sellers, President and Chief Executive Officer of PTR. Under the terms
of the promissory note, Security Capital lent Mr. Sellers
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$100,000, which amount is due on the earlier of January 10, 2005 or 120 days
after Mr. Sellers is no longer an officer of PTR. Interest on the unpaid
balance accrues at a floating rate per annum equal to the lowest rate charged
by Morgan Guaranty Trust Company of New York to its most creditworthy
corporate customers for unsecured loans having a maturity of ninety days or
less, in effect from time to time, plus 0.25% and is payable semi-annually on
each January 10 and July 10. The proceeds of the promissory note were used by
Mr. Sellers to purchase Common Shares of PTR under the Share Purchase Program.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires PTR's Trustees, officers and
beneficial owners of more than ten percent of the outstanding Common Shares to
file reports of ownership and changes in ownership of the Common Shares with
the Securities and Exchange Commission and to send copies of those reports to
PTR. Based solely on a review of those reports and amendments thereto
furnished to PTR and on written representations of certain of those persons
that they were not required to file certain of those reports, PTR believes
that no such person failed to file any such report on a timely basis during
1997.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected KPMG Peat Marwick LLP, certified public accountants,
who have served as auditors for PTR since 1980, to serve again as the auditors
of PTR's books and records for the coming year. A representative of KPMG Peat
Marwick LLP is expected to be present at the annual meeting, and will be given
an opportunity to make a statement if that representative desires to do so and
will be available to respond to appropriate questions.
ANNUAL REPORT
PTR's 1997 Annual Report, which includes financial statements, has
previously been mailed to shareholders or is being mailed to shareholders
together with this Proxy Statement. The Annual Report does not constitute a
part of the proxy solicitation material.
SHAREHOLDER PROPOSALS
Any proposal by a shareholder of PTR intended to be presented at the 1999
annual meeting of shareholders must be received by PTR at its principal
executive offices not later than December 30, 1998, for inclusion in PTR's
proxy statement and form of proxy relating to that meeting.
OTHER MATTERS
PTR is not aware of any business or matter other than those indicated above
which may properly be presented at the meeting. If, however, any other matter
properly comes before the meeting, the proxy holders will, in their
discretion, vote thereon in accordance with their best judgment.
Jeffrey A. Klopf
Secretary
April 29, 1998
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P R O X Y
SECURITY CAPITAL PACIFIC TRUST
THIS PROXY IS SOLICITATED BY AND ON BEHALF
OF THE BOARD OF TRUSTEES
1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 18, 1998
The undersigned hereby appoints each of R. Scot Sellers, Patrick R. Whelan,
Richard A. Banks, Jay S. Jacobson and Jeffrey A. Klopf, as proxies with full
power of substitution, to represent the undersigned at the annual meeting of
shareholders of Security Capital Pacific Trust to be held on June 18, 1998,
and at any and all adjournments or postponements thereof, and to vote at such
meeting the common shares of beneficial interest which the undersigned would be
entitled to vote if present at such meeting, in accordance with the
instructions indicated on the other side of this card; if no instructions are
indicated, the shares represented by this proxy will be voted for the election
of all listed nominees for Trustee and, at the direction of the proxies named
above, on any other matter which may properly come before the meeting.
The undersigned acknowledges receipt of the Notice of Annual Meeting and the
Proxy Statement together with this Proxy.
_________________________________
COMMENTS/ADDRESS CHANGE
(continued and to be signed and dated on the other side)
- -------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
<PAGE>
Please mark your vote as indicated in this example. [X]
1. The election of the following persons as Trustees:
FOR WITHHOLD
all vote from
nominees all nominees
Calvin K. Kessler,
James H. Polk, III, [_] [_]
John C. Schweitzer,
James A. Cardwell,
John T. Kelley, III,
C. Ronald Blankenship,
William G. Myers,
and
R. Scot Sellers
FOR ALL NOMINEES, except
the following nominees:
2. To vote upon any other matters which may properly be presented at the meeting
according to their best judgment and in their discretion.
Please sign exactly as name(s) appears to the left. If shares are held jointly,
each joint tenant should sign. If signing as attorney, executor, administrator,
trustee or guardian or as officer of a corporation or other entity, please give
full title and capacity in which you are signing.
- ----------------------------------------
Signature
- ----------------------------------------
Signature, if held jointly
Dated: ___________________________, 1998
Please sign, date and return this proxy card promptly using the enclosed
postage-paid envelope whether or not you plan to attend the meeting.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
[Insert PTR Logo]
Annual Meeting
of Shareholders
Admission Ticket
Thursday, June 18, 1998
10:00 a.m. (Mountain time)
Hyatt Regency Tech Center
7800 East Tufts Ave.
Denver, Colorado 80237
