-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KZWqUPa+WySJFQcOu2XjJNppu1tHa2yu5cCBYs8rWKWm0B12dDZaq1TEwnWOGBWi HnRdYq/SaZUkd7PBQAypqA== 0000950131-97-001782.txt : 19970317 0000950131-97-001782.hdr.sgml : 19970317 ACCESSION NUMBER: 0000950131-97-001782 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 25 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970314 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURITY CAPITAL PACIFIC TRUST CENTRAL INDEX KEY: 0000080737 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 746056896 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10272 FILM NUMBER: 97556348 BUSINESS ADDRESS: STREET 1: 7777 MARKET CENTER AVE CITY: EL PASO STATE: TX ZIP: 79912 BUSINESS PHONE: 9158773900 MAIL ADDRESS: STREET 1: 7777 MARKET CENTER AVE CITY: EL PASO STATE: TX ZIP: 79912 FORMER COMPANY: FORMER CONFORMED NAME: PROPERTY TRUST OF AMERICA DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: EL PASO REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19700108 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER 1-10272 SECURITY CAPITAL PACIFIC TRUST (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MARYLAND 74-6056896 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 7777 MARKET CENTER AVENUE EL PASO, TEXAS 79912 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) (915) 877-3900 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Shares of Beneficial Interest, par value New York Stock Exchange $1.00 per share Cumulative Convertible Series A Preferred Shares New York Stock Exchange of Beneficial Interest, par value $1.00 per share Series B Cumulative Redeemable Preferred Shares New York Stock Exchange of Beneficial Interest, par value $1.00 per share Preferred Share Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Based on the closing price of the registrant's common shares on March 10, 1997, the aggregate market value of the voting shares held by non-affiliates of the registrant was approximately $1,168,752,392. At March 10, 1997, there were outstanding approximately 76,042,168 of the registrant's common shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for the 1997 annual meeting of its shareholders are incorporated by reference in Part III of this report. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
ITEM DESCRIPTION PAGE ---- ------------------------------------------------------------------- ---- PART I 1. Business........................................................... 1 Security Capital Pacific Trust..................................... 1 PTR's Operating System and Business Strategy....................... 4 The REIT Manager................................................... 10 Trustees and Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates................................. 13 Employees.......................................................... 20 Insurance.......................................................... 21 Competition........................................................ 21 Americans with Disabilities Act.................................... 21 Environmental Matters.............................................. 21 2. Properties......................................................... 22 Geographic Distribution............................................ 22 Real Estate Portfolio.............................................. 23 3. Legal Proceedings.................................................. 30 4. Submission of Matters to a Vote of Security Holders................ 30 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters........................................................... 31 6. Selected Financial Data............................................ 34 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 35 Overview........................................................... 35 Results of Operations.............................................. 40 Environmental Matters.............................................. 45 Liquidity and Capital Resources.................................... 45 REIT Management Agreement.......................................... 52 8. Financial Statements and Supplementary Data........................ 53 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Matters...................................... 53 PART III 10. Directors and Executive Officers of the Registrant................. 53 11. Executive Compensation............................................. 53 12. Security Ownership of Certain Beneficial Owners and Management..... 53 13. Certain Relationships and Related Transactions..................... 53 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 54
PART I ITEM 1. BUSINESS SECURITY CAPITAL PACIFIC TRUST Security Capital Pacific Trust (New York Stock Exchange Symbol: "PTR") is an equity real estate investment trust ("REIT") which was formed in 1963. PTR's objective is to be the preeminent real estate operating company focusing on multifamily communities in its western United States target market. Through its REIT Management Agreement with Security Capital Pacific Incorporated (the "REIT Manager" or "REIT Management"), PTR has access to the extensive services provided by the REIT Manager and its specialized service affiliates, which provides PTR with access to the same resources as a fully integrated operating company. The REIT Manager and its specialized service affiliates have 129 professionals dedicated to implementing PTR's highly focused operating and investment strategy. PTR believes its investment discipline is unique because it is based on state-of-the-art research capabilities provided by Security Capital Investment Research Incorporated ("Security Capital Investment Research"), an affiliate of the REIT Manager. Security Capital Investment Research employs six full- time professionals focused on producing the best available research on the 289 submarkets in PTR's target market. Using its resources to identify superior growth opportunities, PTR focuses on the strategic development, acquisition and operation of multifamily communities. At January 31, 1997, PTR owned and operated or was developing 51,287 multifamily units with a total expected investment of $2.5 billion. In addition, as of the same date, PTR had land in planning and under control (as defined below) for the development of 3,507 units with a total budgeted development cost of $264.5 million. PTR's recent investment activity has been focused primarily on key metropolitan areas in California, the Pacific Northwest and Salt Lake City, which PTR feels will produce strong cash flow growth over the long term. As of January 31, 1997, PTR's properties were located in 23 metropolitan areas in 12 states. See "Item 2. Properties." The term "multifamily" as used herein refers to garden-style communities and excludes Homestead Village(R) extended-stay lodging assets, which were contributed to a new publicly traded company, Homestead Village Incorporated ("Homestead"), on October 17, 1996, in exchange for Homestead common stock. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Homestead Transaction." PTR seeks to achieve long-term sustainable growth in cash flow by maximizing the operating performance of its core portfolio through value-added operating systems and concentrating its highly experienced team of professionals on developing and acquiring industry-leading product in targeted submarkets identified by proprietary research as exhibiting strong job growth and favorable demographic trends. PTR believes that population and employment growth are the primary demand generators for multifamily product. Based on forecasts published by Woods & Poole Economics, Inc., the projected population growth in PTR's primary target market cities is 28.8% for the years 1997 through 2016, whereas the projected population growth of the United States as a whole for the same period is 16.8%. For the same period, job growth is projected to be 28.4% in PTR's primary target market cities, compared to 20.8% for the United States as a whole. PTR's investment strategy is focused on three principal components: (1) the development of state-of-the-art new communities targeted primarily at one of the largest segments of the renter market, moderate income households; (2) the acquisition of multifamily communities exhibiting high cash flow growth potential or attractive redevelopment opportunities; and (3) the execution of its asset optimization strategy, which involves the disposition of properties which no longer meet PTR's investment objectives and the redeployment of the proceeds, typically on a tax-deferred basis, into assets that in PTR's view offer better long-term cash flow growth prospects. The table below illustrates the growth in PTR's multifamily portfolio, based on total expected investment, resulting from the execution of this investment strategy since 1991 (the REIT Manager was retained in March 1991):
TOTAL EXPECTED INVESTMENT(1) ---------------------------------------------------------------- DECEMBER 31, JANUARY 31, ------------------------------------------------ 1997 1995 1994 1993 1992 1991 ----------- ---------- ---------- -------- -------- -------- (IN THOUSANDS) Operating Communities: Acquired(2)............ $1,557,164 $1,270,419 $ 937,683 $666,497 $205,600 $ 31,487 Developed(2)........... 394,289 244,848 171,505 66,893 54,852 24,416 ---------- ---------- ---------- -------- -------- -------- Total operating communities......... 1,951,453 1,515,267 1,109,188 733,390 260,452 55,903 Communities under construction........... 348,259 297,549 170,017 140,563 73,898 16,207 Communities in planning and owned(3)........... 209,156 118,347 194,001 73,578 -- -- ---------- ---------- ---------- -------- -------- -------- Total owned communities......... $2,508,868 $1,931,163 $1,473,206 $947,531 $334,350 $ 72,110 ========== ========== ========== ======== ======== ======== Communities in planning and under control(3)... $ 264,531 $ 100,714 $ 152,313 $136,687 $ -- $ -- ========== ========== ========== ======== ======== ========
- -------- (1) For operating communities, represents cost, including budgeted renovations. For communities under construction and in planning, represents total budgeted development cost, which includes the cost of land, fees, permits, payments to contractors, materials, architectural and engineering fees and interest and property taxes to be capitalized during the construction period. Does not include land held for future development, which is less than 2% of assets, based on cost. (2) Net of any dispositions. (3) The term "in planning" means that construction is anticipated to commence within 12 months. The term "under control" means that PTR has an exclusive right (through contingent contract or letter of intent) during a contractually agreed-upon time period to acquire land for future development of multifamily communities, subject to approval of contingencies during the due diligence process, but does not currently own the land. Highlights of PTR's strategic accomplishments since the beginning of 1996 include: . PTR's strong growth in 1996 was driven primarily by the successful implementation of its investment strategy, with development activity generating 47% of the growth in pro forma funds from operations and acquisition activity generating 42%. The remaining 11% of growth in pro forma funds from operations was produced by an increase in net operating income for PTR's same-store multifamily portfolio, which achieved net operating income growth of 3.31% compared with 1995. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation--Liquidity and Capital Resources--Funds from Operations." . On October 17, 1996, PTR contributed its Homestead Village(R) properties to a newly formed company, Homestead, in exchange for Homestead common stock and entered into a funding commitment agreement to fund the development of certain of such properties in exchange for warrants to purchase Homestead common stock. The Homestead common stock and warrants were subsequently distributed to PTR's common shareholders. On a fully funded and converted basis, PTR will own 34.7% of Homestead's common stock (assuming no further equity offerings by Homestead, conversion of all Homestead convertible mortgage notes by PTR and Security Capital Atlantic Incorporated ("ATLANTIC") and exercise of all outstanding warrants) as a result of its obligation to fund up to $198.8 million to Homestead in exchange for up to $221.3 million of Homestead convertible mortgage notes (the "Homestead Notes"). The Homestead Notes are expected to contribute significantly to PTR's future growth. The Homestead common stock and warrants trade on the American Stock Exchange (the "ASE") under the symbols "HSD" and "HSD.W," respectively. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Homestead Transaction." 2 . During 1996, the price of PTR's common shares of beneficial interest, par value $1.00 per share ("Common Shares"), increased from $19.750 to $22.875 (based on the closing prices on the New York Stock Exchange (the "NYSE") on December 31, 1995 and 1996, respectively). In addition, shareholders received total cash distributions of $1.24 per Common Share in 1996 and a special distribution of 0.125694 shares of Homestead common stock and warrants to purchase 0.084326 shares of Homestead common stock per PTR Common Share (the "Homestead Distribution"). The securities distributed in the Homestead Distribution had a market value of $3.032 per PTR Common Share, based on the closing prices of such securities on the ASE on November 11, 1996, the day prior to the distribution date. See "Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters." . The development of moderate income multifamily communities is an important component of PTR's long-term growth strategy. In 1996, PTR commenced construction on 3,875 multifamily units, representing a total expected investment of approximately $262.5 million. Of that total, 2,763 units, or 71.3%, were moderate income. At January 31, 1997, PTR had 5,479 units under construction, representing a total expected investment of $348.3 million. During 1996, 12 communities representing a total expected investment of $186.4 million achieved stabilization (defined below), adding 3,456 units to PTR's stabilized portfolio. . PTR continues to take advantage of attractive investment opportunities throughout its target market with a current focus on California, the Pacific Northwest and Salt Lake City. PTR has targeted certain submarkets in these areas because it believes that the market fundamentals together with the high barriers to entry for new supply will provide for significant growth in rental income and cash flow. During 1996, PTR completed the acquisition of 5,265 operating units in California, representing a total expected investment of $365.3 million. As of January 31, 1997, PTR had a total expected investment of $503.0 million in operating communities in California, of which 50.7% is in Northern California and 49.3% is in Southern California. . During 1996, PTR demonstrated its ability to dispose of existing assets and efficiently redeploy the proceeds into multifamily investments with more attractive long-term growth prospects. The success of this asset optimization strategy was evidenced by the disposition of 6,303 multifamily units and one industrial building, realizing an aggregate gain of $37.5 million on aggregate net proceeds of $291.1 million, which were redeployed, primarily through tax-deferred exchanges, into strategic acquisitions in targeted western submarkets. . PTR continues to focus on maintaining a strong balance sheet. This objective is accomplished in part by PTR's issuance of unsecured long- term debt that, in the aggregate, has a relatively level amortization schedule which PTR believes is unusual among multifamily REITs. As of December 31, 1996, PTR's $580 million in long-term unsecured debt had an effective average fixed interest rate of 7.62% and an original weighted- average life to maturity of 12.0 years. PTR's long-term debt as a percentage of total long-term undepreciated book capitalization (the sum of long-term debt and shareholders' equity after adding back accumulated depreciation) was 36.9% at December 31, 1996. In addition to the 1996 highlights summarized above, through its relationship with the REIT Manager, PTR has accomplished the following from the end of 1990 (the REIT Manager was retained in March 1991), through December 31, 1996. . As a result of PTR's strategic investment program, PTR's total multifamily assets increased from $23.1 million as of December 31, 1990 to $2.5 billion as of December 31, 1996, based on total expected investment. . PTR's total equity market capitalization increased from $35.5 million as of December 31, 1990 to $2.0 billion as of December 31, 1996. See "-- PTR's Operating System and Business Strategy--Capital Markets/Finance and Conservative Balance Sheet Strategy" for a summary of PTR's capital raising activities. 3 . Net earnings attributable to Common Shares have increased from $2.1 million for 1990 to $106.5 million for 1996 and the per share amount of net earnings attributable to Common Shares has increased from $0.41 to $1.46, an average annual increase of 42.7%, for the same period. . In order to achieve a higher level of customer service and superior property operating performance, SCG Realty Services Incorporated ("SCG Realty Services"), the REIT Manager's property management affiliate, was retained to replace third-party fee management firms as the property manager for most of PTR's multifamily communities. As of January 31, 1997, SCG Realty Services managed 91.3% of PTR's operating communities based on total expected investment. . PTR consummated a merger with Security Capital Pacific Incorporated ("PACIFIC") on March 23, 1995. PACIFIC was a private real estate investment trust controlled by Security Capital Group Incorporated ("Security Capital Group"), PTR's principal shareholder. The merger expanded PTR's target market to include a six-state region of the western United States that the REIT Manager believes has attractive growth prospects. Concurrent with the merger, PTR changed its name from Property Trust of America to Security Capital Pacific Trust to more accurately reflect its target market. PTR has elected to be taxed as a REIT for federal income tax purposes and was organized in 1963 as a real estate investment trust 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 Group, the sole owner of the REIT Manager, owned 36.0% of PTR's Common Shares as of March 10, 1997. PTR recently announced that it received a proposal from Security Capital Group to exchange the REIT Manager and SCG Realty Services for Common Shares. As a result of the proposed transaction, PTR would become an internally managed REIT and Security Capital Group would remain PTR's largest shareholder. PTR's Board of Trustees (the "Board") has formed a special committee comprised of independent Trustees to review the proposed transaction. The proposed transaction is subject to approval by the special committee and the full Board. If the Board approves the transaction, a proxy statement, subject to review by the Securities and Exchange Commission, will be mailed to PTR's common shareholders prior to a shareholder vote on the proposed transaction. PTR'S OPERATING SYSTEM AND BUSINESS STRATEGY The REIT Manager and its specialized service affiliates have 129 professionals dedicated to implementing PTR's highly focused, fully integrated business strategy using PTR's "Operating System." PTR's Operating System consists of seven functional areas: fundamental real estate research, opportunistic acquisitions, multifamily developments, comprehensive due diligence and investment analysis, asset optimization, customer-focused property management and an efficient capital markets/finance function. By focusing on a single discipline, professionals within each of these areas develop substantial expertise commensurate with their respective skills and responsibilities. All of these functional areas are integrated by senior management but the REIT Manager believes that the focus on separate disciplines by key personnel improves PTR's overall results. PTR utilizes the extensive capabilities of its Operating System to execute its business strategy in order to achieve PTR's primary objective of generating long-term, sustainable growth in per share cash flow. Commitment to Fundamental Real Estate Research PTR is dedicated to a continuing investment in leading edge research and development for markets, products and new business opportunities. PTR utilizes Security Capital Investment Research, an affiliate of the REIT Manager, to conduct comprehensive evaluations of its target market on a submarket-by- submarket basis to identify those submarkets that offer strong prospects for long-term cash flow growth. These evaluations, combined with PTR's extensive market experience throughout its target market, enable PTR to identify submarkets that will offer attractive growth opportunities. 4 For each submarket, PTR's research evaluates 24 key variables that PTR has identified as having the greatest impact on multifamily operating performance. This research provides PTR with the information needed to target specific resident profiles and identify the unit mix, density and amenities for each community which will provide the greatest opportunity for consistent rental increases and high occupancies. The REIT Manager and its affiliates also evaluate and continually refine PTR's multifamily product to incorporate technologies and designs that will enhance long-term resident satisfaction. In addition to dedicated market research and continuous refinement of the traditional multifamily product, considerable resources are devoted to researching new products and businesses. The Homestead Village(R) extended-stay lodging product is an example of PTR's research and development efforts which resulted in the creation of an exciting new growth company, Homestead, and resulted in the Homestead Distribution which occurred in November 1996. Another innovative product concept developed by the REIT Manager is PTR's master-planned apartment neighborhood, or "village," concept. These "village" communities offer residents an extraordinary level of amenities, including greenbelt areas, soccer and baseball fields, sports courts and large clubhouses with features such as theaters, business centers and community resource centers. PTR believes the "village" concept will generate consistent, long-term growth by providing a large segment of the renter population with amenities far beyond those which are available in traditional multifamily developments. PTR currently has two "village" communities in operation and two additional communities in planning. Opportunistic Acquisitions PTR opportunistically acquires multifamily communities where demographic and market trends indicate a high likelihood of achieving attractive, sustainable operating results. This strategy has resulted in multifamily community acquisitions which have produced attractive returns. Since inception and through January 31, 1997, PTR had acquired 42,038 operating units representing a total expected investment of $1.8 billion. During 1996, PTR specifically focused its acquisition efforts on California, because its research identified the opportunity for very strong growth in operating performance there. PTR acquired a total of 5,265 operating multifamily units, representing a total expected investment of $365.3 million, in targeted California submarkets during 1996. Additionally, at January 31, 1997, PTR had letters of intent or contingent contracts, subject to PTR's final due diligence, for the acquisition of 964 units in California, representing a total expected investment of $77.2 million. This significant acquisition activity in California is expected to be an important source of PTR's future growth. PTR categorizes operating multifamily communities (which include all communities not in development) as either "stabilized" or "pre-stabilized." The term "stabilized" means that renovation, repositioning, new management and new marketing programs (or development and marketing in the case of newly developed communities) have been completed and in effect for a sufficient period of time (but in no event longer than 12 months, except for major rehabilitations) to achieve 93% occupancy at market rents. Prior to being "stabilized," a community is considered "pre-stabilized." Due to its active investment program, 24% of PTR's multifamily operating portfolio, based on total expected investment, was classified by PTR as pre-stabilized as of January 31, 1997. At January 31, 1997, PTR's operating multifamily communities (excluding communities in lease-up) were 94.0% leased. For operating communities which PTR has acquired, stabilized operations generally have been achieved six to 12 months after acquisition. For communities which it is developing, PTR expects stabilized operations generally to be achieved 18 to 24 months after construction commences. Multifamily Developments PTR selectively develops multifamily communities where land costs, demographics and market trends indicate a high likelihood of achieving sustainable operating results and consistent cash flow growth. This 5 disciplined approach to development has produced multifamily property developments with desired characteristics including state-of-the-art product, protected locations and attractive returns. Through January 31, 1997, completed development communities, communities under construction and communities in planning and owned represented 37.9% of PTR's multifamily portfolio, based on total expected investment. As of January 31, 1997, PTR's multifamily development portfolio consisted of the following:
NUMBER OF TOTAL EXPECTED UNITS INVESTMENT (1) --------- -------------- (DOLLARS IN THOUSANDS) Communities completed (since inception).......... 7,868 $394,289 Communities under construction................... 5,479 348,259 Communities in planning and owned................ 3,351 209,156 ------ -------- Total owned development communities.......... 16,698 $951,704 ====== ======== Communities in planning and under control........ 3,507 $264,531 ====== ========
- -------- (1) Represents total budgeted development cost, which includes the cost of land, fees, permits, payments to contractors, materials, architectural and engineering fees and interest and property taxes to be capitalized during the construction period. Does not include land held for future development, which is less than 2% of assets, based on cost. PTR focuses its development efforts primarily on moderate income communities, which target households with incomes that range from 65-90% of the median household income in the submarket. These households represent one of the largest segments of the multifamily renter market. Residents in this category are value-driven and focus on unit livability and practical amenities such as washer/dryer hookups, storage space and lower density communities with attractive landscaping. PTR's moderate income product comprised 71.3% of PTR's development starts during 1996, based on number of units. Few other REITs currently focus on the moderate income segment within PTR's primary target market. Moreover, PTR believes that less than 15% of the 1995 and 1996 multifamily development starts in PTR's primary target market cities were moderate income product. Consequently, PTR believes that the moderate income segment is a significantly underserved market with limited competition. PTR believes that focusing on this segment will allow PTR to achieve more consistent rental increases and higher occupancies over the long-term and, thereby, realize above average, sustainable cash flow growth and appreciation in value. Moderate income residents are typically longer-term residents because they often lack the financial resources required to purchase single-family homes. As a result, resident turnover is often significantly lower in moderate income communities than in upper middle income communities (which target households with incomes that range from 115-140% of the median household income in the submarket) or middle income communities (which target households with incomes that range from 90-115% of the median household income in the submarket). PTR estimates that the total cost of refurbishing and re-leasing a unit ranges from $700 to $1,500; therefore, reducing resident turnover can have a material impact on a community's cash flow. Due to market fundamentals and the operating characteristics of moderate income communities, PTR believes that this product category offers greater sustainable cash flow growth. PTR's research-driven development strategy is to focus on developing state- of-the-art communities in attractive submarkets to meet renter preferences and demographic trends. Development opportunities also permit PTR to incorporate into its multifamily communities proprietary technologies and designs aimed at enhancing long-term rental growth while reducing ongoing maintenance costs. PTR has had the opportunity to evaluate and refine its multifamily product through its long history of development (PTR has developed multifamily communities since 1970). PTR, unlike a typical merchant builder, intends to be a long-term owner of the communities that it develops. Hence, PTR emphasizes durability by using materials and designs with an added view toward minimizing ongoing operating and maintenance costs. 6 PTR carefully manages development risks by obtaining zoning and discretionary municipal approvals prior to purchasing land. PTR does not assume construction risk, but instead uses qualified third-party general contractors to build its communities, using guaranteed maximum price contracts. PTR cannot eliminate all development risk, but believes that the opportunities to better control product and realize higher returns from development communities compensate for the limited risk. PTR traditionally has commenced development immediately after acquiring a tract of land. However, in certain cases where land prices are favorable and zoned land is very limited, PTR has acquired and will acquire, on an unleveraged basis, prudent amounts of land zoned for multifamily use. In addition, to allow for entitlements to be finalized prior to purchasing the land, PTR often utilizes options and rights of first refusal in order to control land for future developments with minimal cash investments. The land that PTR owns or controls provides a foundation for future growth by providing a pipeline of future developments at attractive prices. To enhance its flexibility in developing and acquiring communities, PTR may also from time to time enter into presale agreements with third-party owner/developers to acquire development communities which meet PTR's investment criteria. PTR has and will fund such developments through development loans to these owner/developers. In addition, to provide greater flexibility for the use of land acquired for development and to facilitate disposition of excess parcels, PTR has and will make mortgage loans to PTR Development Services Incorporated ("PTR Development Services") to purchase land for development. PTR may also fund developments of multifamily communities by PTR Development Services where the particular community or submarket does not meet PTR's objectives for long-term ownership but presents an attractive investment opportunity. PTR owns all of the preferred stock of PTR Development Services, which entitles PTR to substantially all of the net operating cash flow (95%) of PTR Development Services. All of the common stock of PTR Development Services is owned by an unaffiliated trust. The common stock is entitled to receive the remaining 5% of net operating cash flow. As of December 31, 1996, the outstanding balance of development and mortgage loans made by PTR to third- party owner/developers and PTR Development Services aggregated $127.3 million and $18.8 million, respectively. The activities of PTR Development Services and third-party owner/developers are consolidated with PTR's activities and all intercompany transactions have been eliminated in consolidation. Comprehensive Due Diligence and Investment Analysis PTR believes that comprehensive due diligence is essential prior to investing in acquisitions or developments. The REIT Manager employs six full-time professionals who perform due diligence for PTR. This due diligence team is an important resource which allows PTR to effectively and efficiently close a large volume of investment transactions, while thoroughly evaluating all potential aspects of risk in each transaction. This capability provides PTR with a competitive advantage in acquiring both operating communities and land. Prior to purchasing an asset, the due diligence team works in tandem with the REIT Manager's development and operations professionals to thoroughly investigate the following factors: market conditions; competitive communities and developments; comparable sales and rents; existing and projected income and expenses; current and targeted resident profiles; present and projected capital requirements for community acquisitions; development costs for land purchases; and potential liability issues such as environmental and title conditions, tax increases, special assessments and code compliance. In addition, for land acquisitions, all discretionary development approvals are obtained prior to closing, thus ensuring that projected development costs are quantified with a high degree of accuracy and the risk of construction delay is minimized. With the comprehensive data available from research, development and operating professionals, standard financial underwriting is completed on an unleveraged basis in order to evaluate each investment's yield and its prospects for long-term growth in cash flow. The REIT Manager's investment committee, which consists of five members having a combined 77 years of experience in the real estate industry, evaluates all prospective investments prior to submission of investment recommendations to the Board. 7 Asset Optimization Strategy The ability to dispose of existing assets and efficiently redeploy the proceeds into communities and submarkets having more attractive long-term growth prospects is an important component of PTR's investment strategy. Each year, REIT Management formulates operating and capital plans based on an ongoing active review of PTR's portfolio. Based in part upon the market research provided by Security Capital Investment Research and in an effort to optimize its portfolio composition, PTR may from time to time seek to dispose of assets that in management's view no longer meet PTR's long-term investment objectives. The proceeds from these selected dispositions will be redeployed, typically through tax-deferred exchanges, into assets that in PTR's view offer better long-term cash flow growth prospects. This allows PTR to continually reposition its portfolio by redeploying capital into communities and markets with superior growth characteristics. PTR's asset optimization strategy is based on the premise that it has a finite amount of investment capital and that this capital should be deployed where it can produce the highest levels of cash flow growth. PTR has demonstrated the ability to enter and exit submarkets based on future growth expectations and the supply/demand fundamentals of the submarkets in which it operates. Since PTR's asset optimization program commenced in December 1995 and through January 31, 1997, PTR had completed the disposition of 7,403 multifamily units, realizing aggregate gains of $48.9 million on aggregate net proceeds of $322.5 million. The proceeds were redeployed into targeted submarkets in California, the Pacific Northwest and Salt Lake City to allow PTR to take advantage of the strong economic recovery which is underway in these markets. PTR's expected investment in these markets grew from 16.8% of PTR's total portfolio as of December 31, 1995, to 41.5% of PTR's total portfolio as of January 31, 1997, based on total expected investment. Customer-Focused Property Management PTR believes that its communities must be actively managed in order to maximize cash flow and enhance long-term economic performance. Therefore, PTR has retained SCG Realty Services, its affiliated multifamily property management and customer service firm wholly owned by Security Capital Group, to manage most of PTR's communities. As of January 31, 1997, approximately 91.3% of PTR's operating multifamily communities were managed by SCG Realty Services, based on total expected investment, with the balance of the communities in various stages of transition to SCG Realty Services' management. SCG Realty Services has over 1,100 employees and emphasizes locally-based management of PTR's multifamily communities. SCG Realty Services has 15 local offices to serve PTR's target market. This network improves SCG Realty Services' ability to anticipate and respond to changes in local market conditions and resident needs. PTR believes that SCG Realty Services has developed superior operating procedures, financial controls, information systems and training programs, which it expects will positively affect growth in rental and occupancy rates. The REIT Manager and SCG Realty Services develop systems and procedures which facilitate effective management of PTR's communities. PTR recognizes that a highly focused customer service approach to day-to-day management is essential to maximize short and long-term cash flow growth from each of its multifamily communities. As a result, SCG Realty Services is dedicated to maximizing the performance of PTR's communities by providing consistent, high quality residential services to its customers. SCG Realty Services and the REIT Manager work closely together to develop innovative ideas to enhance customer service and resident satisfaction while maximizing cash flow growth. See "--Security Capital Pacific Trust" for a description of a proposal that PTR has received from Security Capital Group to exchange the REIT Manager and SCG Realty Services for Common Shares, which would result in PTR becoming internally managed. A few of the programs which have been developed recently and are currently in the process of being implemented are summarized below: . During 1996, SCG Realty Services established 5 Regional Information Management ("RIM") Centers and expects to establish several additional centers during 1997. The RIM Center concept is designed to enable property-level management personnel to focus on PTR's customers, the residents, while moving 8 certain accounting and administrative functions to the regionally located RIM Center. Each RIM Center is designed to carry out these functions for several area communities and thus benefit from economies of scale, better accounting control and enhanced cash management capabilities. . SCG Realty Services and the REIT Manager had also initiated resident utility billing programs at approximately 70% of PTR's multifamily operating communities as of December 31, 1996 and expect to increase this to approximately 85% of PTR's multifamily operating communities by December 31, 1997. Under this arrangement, water and sewer usage are metered and billed to individual residents, thereby enabling PTR to better control operating expenses, while providing residents with the incentive to minimize usage. . In late 1996, PTR entered into revenue sharing agreements with certain cable television and telephone service providers. The arrangements require the telecommunication providers to continually upgrade service to ensure state-of-the-art offerings in this rapidly changing industry. The agreements also allow PTR to receive a percentage of the service providers' revenues generated from subscribing residents while increasing the quality and accessibility of these services to residents. These creative initiatives coupled with highly focused day-to-day management are expected to contribute to the growth in net operating income generated by PTR's multifamily operating communities. Capital Markets/Finance and Conservative Balance Sheet Strategy PTR believes that a successful REIT must maintain a strong balance sheet and have the ability to access the equity and debt markets efficiently, expeditiously and cost effectively. PTR's ability to efficiently access the capital markets permits it to capitalize on development and acquisition opportunities that PTR identifies in its target market. In order to maximize the effectiveness of this activity and enhance relationships with major institutional investors, Security Capital Group formed Security Capital Markets Group Incorporated ("Capital Markets Group"), a registered broker-dealer affiliate. Capital Markets Group's services are included in the REIT Manager's fee and do not result in a separate charge to PTR. Capital Markets Group and the REIT Manager have arranged securities offerings and credit facilities for PTR including: . From June 1991 through March 1995, PTR raised $822.4 million of net proceeds from various Common Share offerings. PTR's underwriting commissions on these offerings (all of which were paid to unaffiliated underwriters) aggregated $8.8 million, representing 1.05% of the $835.1 million in gross proceeds. . In November 1993, PTR raised $219.7 million of net proceeds from an underwritten public offering of Cumulative Convertible Series A Preferred Shares, par value $1.00 per share ("Series A Preferred Shares"). PTR raised $101.3 million of net proceeds from an underwritten public offering of Series B Cumulative Redeemable Preferred Shares, par value $1.00 per share ("Series B Preferred Shares"), in May 1995. . From February 1994 through December 1996, PTR has raised $572.6 million in net proceeds from underwritten public offerings of unsecured, long- term, fixed rate, debt securities which in the aggregate, have a relatively level amortization schedule. . Since the beginning of 1991, the REIT Manager has arranged for increases in PTR's borrowing capacity under its variable rate line of credit from $14.3 million to $350 million. The REIT Manager was also successful in converting the line of credit to an unsecured facility in August 1994. As of March 10, 1997, there were approximately $151.5 million of borrowings outstanding on this line of credit, which currently bears interest at an interest rate of LIBOR plus 1.125%. . On September 9, 1996, PTR entered into a short-term borrowing agreement with Texas Commerce Bank, National Association ("TCB"). The loan matures on September 9, 1997 and bears interest at an overnight rate, which has ranged from 5.80% to 7.50%. At March 10, 1997, there were approximately $6.6 million of borrowings outstanding under this agreement. 9 PTR continues to focus on maintaining its strong balance sheet which has resulted from a conservative balance sheet strategy. PTR has a significant equity base with a total equity market capitalization of $2.03 billion at December 31, 1996. A key component of PTR's conservative balance sheet strategy is the issuance of fixed rate, unsecured, long-term debt. In order to minimize refinancing risk, PTR's long-term debt offerings are carefully structured to create a relatively level principal maturity schedule, without large repayment obligations in any future year. As of December 31, 1996, PTR's $580 million in unsecured long-term debt had an effective average fixed interest rate of 7.62% and an original weighted-average life to maturity of 12.0 years. PTR's long- term debt as a percentage of total long-term undepreciated book capitalization (the sum of long-term debt and shareholders' equity after adding back accumulated depreciation) was 36.9% at December 31, 1996. PTR's credit facilities provide PTR with the financial flexibility to take advantage of attractive investment opportunities prior to raising capital through securities offerings. Additionally, such facilities minimize the amount of cash which must be invested in short-term investments at low yields prior to the deployment of the capital. PTR's conservative balance sheet strategy is expected to provide significant incremental debt capacity and allow PTR to take advantage of future investment opportunities which will contribute to PTR's objective of long-term growth in cash flow per share. Non-Multifamily Properties In addition to multifamily investment activity, PTR had developed and operated extended-stay lodging facilities under the Homestead Village(R) name since 1992. On October 17, 1996, PTR contributed its Homestead Village(R) properties to Homestead, a newly formed company, in exchange for Homestead common stock. As of such date, the Homestead Village(R) properties constituted approximately 7.1% of PTR's total assets, at cost. Additionally, the Homestead Village(R) properties generated approximately 8.2% of PTR's net operating income from January 1, 1996 to October 17, 1996 and approximately 5.9% and 3.5% of PTR's 1995 and 1994 net operating income, respectively. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations" and "--Liquidity and Capital Resources-- Homestead Transaction" for further information. PTR will continue to aggressively manage its non-multifamily properties in order to maximize cash flow, and may sell its remaining non-multifamily properties as opportunities arise. As of January 31, 1997, PTR owned two non- multifamily properties, including a 338-room, five-story hotel located in the Fisherman's Wharf area of San Francisco, California, which is leased to Holiday Inns of America, Inc. Excluding the Homestead Village(R) properties, approximately 1% of PTR's total 1996 rental income and less than 2% of 1995 and 1994 rental income was generated by non-multifamily properties. THE REIT MANAGER General The REIT Manager and its specialized service affiliates provide PTR with strategic and day-to-day management, research, investment analysis, acquisition, development, marketing, disposition of assets, asset management, due diligence, capital markets, legal and accounting services and a number of administrative services, all of which are included in the REIT Management fee. Hence, PTR depends upon the quality of the management provided by the REIT Manager. PTR believes that its relationship with the REIT Manager provides PTR with access to high quality and depth of management, savings from a dedicated capital markets group, and access to centralized research, accounting, legal and administrative support. The REIT Manager and its specialized service affiliates have 129 professionals dedicated to implementing PTR's highly focused operating and investment strategy. The REIT Manager also provides office and other facilities for PTR's needs. The REIT Manager is wholly owned by Security Capital Group and Security Capital Group maintains a significant ownership position in PTR, thereby creating an important alignment of interest with PTR's 10 shareholders. As of March 10, 1997, Security Capital Group owned 36.0% of PTR's total outstanding Common Shares. Furthermore, the REIT Manager provides all its services for one fee, and does not receive additional fees for investment banking, financing, asset sales or similar services. SCG Realty Services, which is also owned by Security Capital Group, provides property management services at market rates in a competitive environment and management believes they are consistent with rates prevailing in the markets in which PTR operates. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--REIT Management Agreement." The REIT Manager has organized itself such that each operating professional specializes in a particular discipline (such as research, marketing, development, acquisition, due diligence, dispositions, property management, capital markets or financial operations) rather than being responsible for all functions on a project-by project basis. All investments are approved by the REIT Manager's investment committee, using uniform criteria, prior to being submitted to the Board. Additionally, regional operating professionals focus on specific target markets to ensure high levels of attention to resident services. PTR believes that the quality of management should be assessed in light of the factors discussed below. PTR recently announced that it received a proposal from Security Capital Group to exchange the REIT Manager and SCG Realty Services for Common Shares. As a result of the proposed transaction, PTR would become an internally managed REIT and Security Capital Group would remain PTR's largest shareholder. The Board has formed a special committee comprised of independent Trustees to review the proposed transaction. The proposed transaction is subject to approval by both the special committee and the full Board. If the Board approves the transaction, a proxy statement, subject to review by the Securities and Exchange Commission, will be mailed to PTR's common shareholders prior to a shareholder vote on the proposed transaction. Management Depth/Succession PTR believes that management should have several senior executives with the leadership, operational, investment and financial skills and experience to oversee the entire operations of the REIT. PTR believes that several of its senior officers could serve as the principal executive officer and continue PTR's performance. See "--Trustees and Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates." Strategic Vision and Research Capability PTR believes that management should have the strategic vision to determine an investment focus which provides favorable initial yields and long-term growth prospects. To identify favorable investment opportunities, PTR relies heavily on the strong research capabilities of Security Capital Investment Research. The REIT Manager and its affiliates have several persons, who work closely with the senior officers of the REIT Manager, devoting substantial time to research on a submarket-by-submarket basis. This research is dedicated to new multifamily investment opportunities as well as new products such as the Homestead Village(R) extended-stay lodging product, which resulted in the Homestead Distribution in November 1996. Investment Committee Process PTR believes that an investment committee should provide discipline and guidance to the investment activities of the REIT in order to achieve its investment goals. The five members of the REIT Manager's investment committee have a combined 77 years experience in the real estate industry. The investment committee receives detailed written analyses and research, in a standardized format, from the REIT Manager's personnel and evaluates all prospective investments pursuant to uniform underwriting criteria prior to submission of investment recommendations to the Board. The quality of the REIT Manager's investment committee process is demonstrated by PTR's ability to achieve its investment goals and generally exceed its projected initial returns and cash flow growth from PTR's multifamily investments. Development/Redevelopment and Acquisition Capability PTR believes that by internally developing projects and redeveloping well located existing communities, management can create value for the REIT that normally escapes through sales premiums paid to successful 11 developers. The REIT Manager's personnel have substantial development and redevelopment experience, as described in "--Trustees and Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates." The REIT Manager has 35 full-time professionals committed to development and acquisition activities and has arranged for over $1.8 billion of successful acquisitions for PTR since March 1991, based on total expected investment. As of January 31, 1997, the REIT Manager had 8,830 multifamily units under construction or in planning and owned for PTR, with a total budgeted development cost of $557.4 million. In addition, as of the same date, PTR had land in planning and under control for the development of 3,507 units with a total expected investment of $264.5 million. See "--PTR's Multifamily Operating System and Business Strategy." Disposition Capability The ability to identify and effectively complete the cost-effective disposition of targeted communities is essential to the successful execution of PTR's investment strategy. Since PTR's asset optimization program began in December 1995 and through January 31, 1997, PTR had completed the disposition of 7,403 multifamily units, realizing aggregate gains of $48.9 million on aggregate net proceeds of $322.5 million, which were redeployed, typically on a tax-deferred basis, into strategic acquisitions. Due Diligence Process PTR believes that management should have experienced senior personnel dedicated to performing comprehensive due diligence. The REIT Manager has six full-time due diligence professionals and has developed uniform systems and procedures for due diligence. The REIT Manager's due diligence personnel have analyzed and screened over $3.1 billion of investments for PTR. See "--PTR's Multifamily Operating System and Business Strategy--Comprehensive Due Diligence and Investment Analysis" for a description of the due diligence process. Operating Capability PTR believes that management can substantially improve funds from operations by actively and effectively managing its multifamily communities. As described under "--PTR's Multifamily Operating System and Business Strategy--Customer- Focused Property Management," the REIT Manager and its affiliates have devoted substantial personnel and financial resources to develop value-added operating systems, which control and effectively administer the management of PTR's multifamily portfolio. Capital Markets Capability PTR believes that management must be able to effectively raise capital for the REIT in order for the REIT to achieve growth through investment. As set forth under "--PTR's Multifamily Operating System and Business Strategy-- Capital Markets/Finance and Conservative Balance Sheet Strategy," REIT Management has successfully arranged funding for PTR's investment activities. Communications/Shareholder Relations Capability PTR believes that a REIT's success in capital markets and investment activities can be enhanced by management's ability to effectively communicate the REIT's strategy and performance to investors, sellers of property and the financial media. The REIT Manager provides at its expense full-time personnel who prepare informational materials for and conduct periodic meetings with the investment community and analysts. PTR believes that successfully combining the foregoing attributes significantly enhances a REIT's ability to increase cash flow and the market valuation of the REIT's portfolio. REIT Manager Compensation The REIT Management Agreement requires PTR to pay a base annual fee of $855,000 plus 16% of cash flow, as defined in the REIT Management Agreement, in excess of $4,837,000, payable monthly (see "Item 7. 12 Management's Discussion and Analysis of Financial Condition and Results of Operations--REIT Management Agreement"). PTR is also obligated to reimburse the REIT Manager for certain expenses incurred by the REIT Manager on behalf of PTR relating to PTR's operations, consisting primarily of external professional fees, third-party offering costs and travel expenses. Since the REIT Management fee fluctuates with the level of PTR's pre-REIT Management fee cash flow, the fee has increased for each of the years ended December 31, 1996, 1995 and 1994, because cash flow increased substantially throughout the same periods. As PTR arranges additional amortizing long-term debt and nonconvertible preferred share financing and as additional funding of Homestead convertible mortgage notes occurs, the REIT Management fee will effectively decline in proportion to PTR's earnings from operations. This decline will result from the fact that actual or assumed regularly scheduled principal payments associated with long-term debt and distributions actually paid with respect to nonconvertible preferred shares are deducted from the cash flow amount on which the REIT Management fee is based. Similarly, interest income from the Homestead Notes is not included in the cash flow amount in determining the REIT Management fee. The REIT Management fee aggregated $22,191,000, $20,354,000 and $13,182,000 for the years ended December 31, 1996, 1995 and 1994, respectively. See "--Security Capital Pacific Trust" for a description of a proposal PTR has received from Security Capital Group to exchange the REIT Manager and SCG Realty Services for Common Shares. TRUSTEES AND OFFICERS OF PTR AND DIRECTORS AND OFFICERS OF THE REIT MANAGER AND RELEVANT AFFILIATES Trustees of PTR C. RONALD BLANKENSHIP--47--Chairman and Trustee of PTR; Chairman of the REIT Manager and Managing Director of Security Capital Group since March 1991; from June 1988 to March 1991, Regional Partner, Trammell Crow Residential, Chicago, Illinois (multifamily real estate development and property management); prior thereto, Executive Vice President and Chief Financial Officer, The Mischer Corporation, Houston, Texas (multi-business holding company with investments primarily in real estate). While with Trammell Crow Residential, Mr. Blankenship was on the Management Board for Trammell Crow Residential Services, a property management company that managed approximately 90,000 multifamily units nationwide, and was chief executive officer of Trammell Crow Residential Services-North, which managed 10,000 multifamily units in the Midwest and Northeast. In his various positions prior to his affiliation with the REIT Manager, Mr. Blankenship supervised the development of approximately 9,300 multifamily units. Mr. Blankenship supervises the overall operations of PTR and the REIT Manager. JAMES A. CARDWELL--65--Trustee of PTR; Chairman and Chief Executive Officer, Petro Shopping Centers, L.P., El Paso, Texas (operation of full-service truck stopping centers) since 1974; Director, El Paso Electric Company. JOHN T. KELLEY, III--56--Trustee of PTR; advisory Trustee of Security Capital Industrial Trust, Aurora, Colorado (ownership and development of industrial parks in the United States), an affiliate of the REIT Manager; from 1987 to 1991, Chairman of the Board, Kelley-Harris Company, Inc., El Paso, Texas (real estate investment company); from 1968 to 1987, Managing Director, LaSalle Partners Limited, Chicago, Illinois (corporate real estate services). Mr. Kelley is also a Director of Security Capital Group and Tri State Media and a Trustee of Pacific Retail Trust (ownership and development of infill retail properties in the southwestern United States). CALVIN K. KESSLER--65--Trustee of PTR; President and principal shareholder, Kessler Industries, Inc., El Paso, Texas (manufacturer of furniture and aluminum castings) since 1960. WILLIAM G. MYERS--69--Trustee of PTR; Trustee of Security Capital Industrial Trust; Chief Executive Officer of Ojai Ranch and Investment Company, Inc., Santa Barbara, California, which he founded in 1963 (agri-business and other investments); Director, Chalone Wine Group, Napa, California. JAMES H. POLK, III--54--Trustee of PTR; Managing Director of Capital Markets Group since August 1992. Mr. Polk has been affiliated with the REIT Manager since March 1991; prior thereto, he was President and Chief Executive Officer of PTR for sixteen years. Mr. Polk is registered with the National Association of Securities Dealers, Inc. and is past President and Trustee of the National Association of Real Estate Investment Trusts, Inc. 13 JOHN C. SCHWEITZER--52--Trustee of PTR; Managing Partner, Continental Properties Company, Austin, Texas (real estate and investments) since 1976; General Partner, G.P. Campbell Capital Ltd. (real estate and investments) since 1976; Trustee, Texas Christian University; Director, Austin Smiles. Senior Officers All executive functions of PTR are performed by the REIT Manager. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--REIT Management Agreement." The executive officers of the REIT Manager are:
NAME AGE TITLE ---- --- ----- C. Ronald Blankenship............. 47 Chairman R. Scot Sellers................... 40 Managing Director Patrick R. Whelan................. 40 Managing Director Jeffrey B. Allen.................. 48 Senior Vice President Bryan J. Flanagan................. 44 Senior Vice President John H. Gardner, Jr............... 43 Senior Vice President Jay S. Jacobson................... 44 Senior Vice President Jeffrey A. Klopf.................. 48 Senior Vice President and Secretary Mark N. Tennison.................. 36 Senior Vice President
Directors and Senior Officers of the REIT Manager C. RONALD BLANKENSHIP--47--See "--Trustees of PTR" above. R. SCOT SELLERS--40--Managing Director of PTR and Director and Managing Director of the REIT Manager since September 1994, where he has overall responsibility for PTR's investment program, and from May 1994 to September 1994, Senior Vice President of PTR; from April 1993 to May 1994, Senior Vice President of Security Capital Group, where he was responsible for national multifamily acquisitions; from September 1981 to April 1993, an operating partner and Vice President of Lincoln Property Company (development, acquisition and management of multifamily communities), where he was responsible, among other things, for the development of more than 6,500 multifamily units in a number of different markets. PATRICK R. WHELAN--40--Managing Director of PTR and the REIT Manager since December 1995 and Director of the REIT Manager since February 1995, where he has responsibility for PTR's operations; since October 1994, President of SCG Realty Services, where he has overall responsibility for property management; from February 1994 to October 1994, Senior Vice President and Co-Manager of Multifamily Acquisitions of Security Capital Group; from July 1986 to January 1994, Senior Vice President of Trammell Crow Company (development, acquisition and management of commercial properties). JEFFREY B. ALLEN--48--Senior Vice President of PTR since September 1995 and the REIT Manager since July 1995, where he has overall responsibility for investments and operations in the Western Region; from October 1981 to July 1995, Managing Director of Paragon Group, where he was responsible for commercial and residential development and management operations in the western region; prior thereto, Vice President of Cabot, Cabot and Forbes Co., where he was responsible for commercial development in the Los Angeles area. BRYAN J. FLANAGAN--44--Senior Vice President of PTR and the REIT Manager since November 1996, where he has responsibility for financial operations; from June 1995 to November 1996, Senior Vice President of Security Capital Group, where he was responsible for financial operations; from September 1987 to June 1995, Vice President-Financial Analysis for Marriott Hotels, Resorts & Suites. 14 JOHN H. GARDNER, JR.--43--Director of the REIT Manager since February 1995 and Senior Vice President of PTR and the REIT Manager since September 1994, where he has overall responsibility for multifamily dispositions; Senior Vice President of ATLANTIC and its REIT manager since September 1994, where he has overall responsibility for multifamily dispositions; from December 1984 to January 1993, Vice President of Asset Management and through September 1994, Managing Director and Principal of Copley Real Estate Advisors in Boston, where he had overall responsibility for the portfolio management function for eight accounts valued at $7.5 billion; prior thereto, Real Estate Manager of Equity Real Estate at John Hancock Companies. JAY S. JACOBSON--44--Senior Vice President of PTR and the REIT Manager since June 1996, and from July 1993 to June 1996, Vice President of PTR, where he has overall responsibility for investments and operations in the Central Region; from 1988 to June 1993, Vice President-Residential Development for Michael Swerdlow Companies, Inc. and Hollywood Inc., South Florida real estate development/management companies under common control, where he was responsible for the planning and development of over 2,200 multifamily units as well as other development projects. JEFFREY A. KLOPF--48--Senior Vice President and Secretary of PTR, the REIT Manager and Security Capital Group since January 1996, where he provides securities offerings and corporate acquisition services and oversees the provision of legal services for affiliates of Security Capital Group; from January 1988 to December 1995, partner of Mayer, Brown & Platt where he practiced corporate and securities law. MARK N. TENNISON--36--Senior Vice President of PTR and the REIT Manager since November 1996, and from July 1992 to November 1996, Vice President of PTR, where he has overall responsibility for investment and operations in the Northwest Region; from May 1991 to July 1992, Executive Vice President/Chief Operating Officer of Metro Concap, Inc., an operator of over 7,100 multifamily units; from January 1991 to May 1991, attorney for the Federal Deposit Insurance Corporation. PAMELA D. PORTER--36--Vice President of PTR and the REIT Manager since September 1996 and Director of the REIT Manager since January 1997, where she has overall responsibility for the six-person due diligence group and is responsible for contract negotiations for acquisitions, due diligence, approval and oversight of land entitlements and management and implementation of tax-free exchanges; from November 1994 to September 1996, Vice President of Security Capital Industrial Trust and Security Capital Industrial Incorporated, where she had overall responsibility for due diligence and was a member of the due diligence team since November 1993; from May 1992 to November 1993, Partner with Lantana Properties, Inc., a commercial real estate brokerage company in San Antonio, Texas; from July 1991 to April 1992, Broker and Analyst with Wilsonschanzer, Inc. in San Antonio, Texas, where she sold investment properties, performed financial analyses and coordinated market reports. DARCY B. BORIS--34--Vice President of Security Capital Investment Research since June 1995, where she conducts strategic market analysis for PTR and affiliated companies; Director of the REIT Manager since January 1997; from August 1993 to November 1994, Ms. Boris worked for Capital Markets Group; from January 1987 to September 1991, she was with Marcus & Millichap Incorporated as Project Manager for Summerhill Development Company, the multifamily development subsidiary of Marcus & Millichap Incorporated, where she managed the development of multifamily housing, and prior thereto, she was an analyst for its property investment subsidiary. Other Officers FRANK R. ANDERSON--38--Vice President of PTR and the REIT Manager since June 1995, where he is a Project Manager in the Northwest Region; prior thereto Vice President, Acquisitions and Land Development of Shea Homes, a single family and multifamily developer in San Diego, California. ARIEL AMIR--37--Vice President of Security Capital Group since June 1994; from September 1985 to April 1994, an attorney with the law firm of Weil, Gotshal & Manges, New York, New York where he practiced securities and corporate law. Mr. Amir provides securities offerings and corporate acquisition services to PTR. 15 ASH K. ATWOOD--33--Vice President of PTR and the REIT Manager since November 1996, where he is responsible for PTR's corporate accounting and external financial reporting; prior thereto, Senior Manager in the assurance practice of KPMG Peat Marwick LLP, where he had extensive involvement in PTR's annual audit and securities offerings since joining the firm in June 1986. MICHAEL P. BISSELL--46--Vice President of PTR and the REIT Manager since February 1997; Vice President of SCG Realty Services since August 1996, where he is responsible for community operations in the Northwest Region; from September 1991 to August 1996, President of Michael P. Bissell & Associates, where he was involved in a variety of consulting assignments with clients in the multifamily industry. MICHAEL A. BRITTI--37--Vice President of PTR and the REIT Manager since September 1996 and with the REIT Manager since September 1995, where he is responsible for new product development and revenue enhancement through portfolio-wide initiatives; from November 1993 to September 1995, Vice President-Asset Management with the National Corporation for Housing Partnerships in Washington, D.C., where he led acquisitions and restructuring of large apartment portfolios; from July 1987 to November 1993, Vice President-Investment Management with Oxford Realty Services Corporation in Bethesda, Maryland. JAMES C. BORMANN--44--Vice President of PTR since December 1995 and the REIT Manager since June 1995, where he is responsible for production and construction activities in the Central Region; from August 1992 to May 1995, Vice President of construction with Roseland Property Company (formerly Lincoln Property Company Northeast); prior thereto, Construction Superintendent with Toll Brothers, Inc. MARK J. CHAPMAN--39--Vice President of Security Capital Investment Research since November 1995, where he is the director of the group and conducts strategic market analysis for PTR and affiliated companies; from March 1995 to November 1995, Vice President of PTR, with asset management responsibilities in five major markets; from November 1994 to March 1995, Vice President of PACIFIC; from July 1989 to November 1994, Vice President of 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--40--Vice President of PTR and the REIT Manager since March 1995, where he has overall responsibility for PTR's investment activity in the Northwest Region; from December 1993 to March 1995, Vice President of PACIFIC; from July 1992 to September 1993, President of 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 4,000 unit 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. DI CRISTINA--37--Vice President of PTR and the REIT Manager since March 1995, where he has overall responsibility for PTR's investment activity in the Central Region; from August 1994 to March 1995, Vice President of PACIFIC; prior thereto, Vice President of Forward Planning at Robertson Homes, where he was responsible for the development of eight multifamily projects totalling 2,845 units throughout California. KERRY E. ENDSLEY--48--Vice President of PTR and the REIT Manager since December 1996, where he is Project Manager in the Central Region; from January 1994 to July 1995, President of Construction for MTI Construction, Inc. in Houston, Texas, where he managed construction of over 1,100 multifamily units in Texas and Colorado; from October 1988 to December 1993, Vice President of General Contracting for Bradley Construction Co., Inc., where he was responsible for over 2,000 multifamily units, schools, dormitories and warehouses and where he recruited personnel. 16 KATHY B. FARR--42--Vice President of PTR and the REIT Manager since June 1995, where she is responsible for multifamily dispositions; Vice President of ATLANTIC and its REIT manager since June 1995, where she is responsible for multifamily dispositions; from January 1994 to April 1995, Vice President of Corporate Finance with Irvine Apartment Communities, where she was responsible for all aspects of financing, including that company's working capital line of credit and construction financings for all new development activity; prior thereto, Senior Director Project Finance with The Irvine Company, where she was responsible for negotiating and closing construction and permanent financings on residential and commercial properties. SUE P. FREEDMAN--49--Vice President of PTR and the REIT Manager since February 1997 where she has overall responsibility for SCG Realty Services' Education and Organizational Development activities; from August 1995 to October 1996, Creator and Manager of Knowledge Work Associates, where she worked with clients on organizational improvement; from January 1994 to July 1995, Manager of Organization Effectiveness for Texas Instruments, where she advised and assisted senior executives in the implementation of change from a traditional to an entrepreneurial culture; from January 1984 to December 1993, with Texas Instruments Systems Group, where her most recent position was manager of organizational effectiveness and where she selected and managed delivery of management and organizational effectiveness programs. PETER M. GRIMM--54--Vice President of PTR since 1975 and the REIT Manager since March 1991, where he is a Project Manager in the Central Region. DANA K. HAMILTON--28--Vice President of PTR and the REIT Manager since December 1996, where she is responsible for new product development and revenue enhancement through portfolio-wide initiatives; from April 1996 to December 1996, Vice President of Operations for SCG Realty Services, where she focused on national operations; from August 1994 to April 1995, in the Management Development Program of Security Capital Group; from June 1993 to October 1993, Consultant to Rouse and Associates in San Francisco, where she was responsible for evaluating the quality of property management at five properties, and Consultant to Construction Specialties International in Jakarta, Indonesia. KEVIN M. HAMPTON--33--Vice President of PTR and the REIT Manager since December 1996, where he is responsible for land acquisition and product development throughout Southern California; from August 1995 to December 1996, Vice President of Land Acquisitions for The Akins Companies in Irvine, California, where he was responsible for coordination of land acquisition activities and purchase and sale negotiations; from June 1993 to August 1995, Vice President of New Business Development for J. M. Peters Company in Newport Beach, California, where he managed land acquisitions throughout Southern California; from October 1989 to March 1993, Director of Business Development for Lincoln Property Company in Irvine, California. CHRISTOPHER C. HARNESS--44--Vice President of PTR and the REIT Manager since December 1995, where he is responsible for community operations in Houston, Dallas and El Paso, Texas; from August 1993 to June 1994, Senior Analyst for Due Diligence at SCG Realty Services; prior thereto, Mr. Harness was responsible for development of commercial properties in eight Texas markets for Affiliated Builders. NELSON L. HENRY--61--Vice President of PTR since December 1994 and the REIT Manager since January 1995, where he is responsible for production and construction activities in the Western Region; from January 1983 to September 1993, Construction Vice President for Lincoln Property Company N.C. Inc., where he was responsible for the construction of over 8,000 units in Colorado and California; prior thereto, President of Royal Investment Corporation, a regional multifamily and single family developer. RICHARD A. JUAREZ--49--Vice President of PTR and the REIT Manager since December 1996, where he is Project Manager for the Western Region; from February 1978 to December 1996, Partner and Vice President with Lincoln Property Company in Northern California and Las Vegas, Nevada, where he was responsible for the development of more than 6,000 multifamily units. 17 JOHN JORDANO III--40--Vice President of PTR and the REIT Manager since March 1995, where he has overall responsibility for PTR's investment activity in the Western Region; from August 1994 to March 1995, Vice President of PACIFIC; 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. LAWRENCE S. LEVITT--40--Vice President of PTR since September 1995 and the REIT Manager since December 1995, where he is responsible for all acquisition activity in Southern California; from May 1992 to August 1995, Vice President- Director of Residential Acquisitions of Sares-Regis Group, where he managed the residential acquisitions division; from August 1991 to May 1992, Principal of Integrated Mortgage Resources, a commercial and residential mortgage banking firm; prior thereto, Vice President of Con Am Management Corporation, where he directed acquisition transactions. TONI L. LOPEZ--39--Vice President of PTR and the REIT Manager since February 1997; Vice President of SCG Realty Services since August 1996, where she has overall responsibility for community operations in Denver, Austin and San Antonio; since July 1993, Ms. Lopez was responsible for community operations in San Antonio and Austin; from December 1985 to January 1993, Vice President of Beacon Hill Investments, Inc., where she was responsible for new account generation and property and asset management. SCOTT V. MONROE--36--Vice President of PTR and REIT Manager since February 1997; since August 1996, Vice President of SCG Realty Services, where he has overall responsibility for community operations in California; from March 1987 to July 1996, Vice President, Maxim Property Management, where he had direct management responsibility for a residential portfolio consisting of over 11,000 units located throughout California and Arizona. CHARLES E. MUELLER, JR.--33--Vice President of PTR and the REIT Manager since September 1996, where he is responsible for corporate finance and capital markets activities; prior thereto, he was with Capital Markets Group, where he provided financial services to Security Capital Group and its affiliates; from April 1994 through April 1995, in the Management Development Program of Security Capital Group. DANIEL W. OGDEN--36--Vice President of PTR and the REIT Manager since December 1995 and SCG Realty Services since March 1995, where he is responsible for community operations in Phoenix and Tucson, Arizona, Albuquerque, New Mexico and Reno and Las Vegas, Nevada; from June 1994 to February 1995, Executive Vice President of Mutual Real Estate Corporation in Dallas, where he was responsible for the management of a portfolio located in seven states; prior thereto, Regional Vice President of Lincoln Property Company where he was responsible for the management of over 16,000 multifamily units located in twelve mid-Atlantic/Midwest states. MARK P. PEPPERCORN--34--Vice President of PTR and the REIT Manager since February 1995, where he is responsible for the acquisition of land and existing communities in Northern California; from September 1994 to February 1995, a member of the acquisitions group for ATLANTIC and previously, for PTR; from March 1991 to June 1993, Mr. Peppercorn was responsible for the multifamily brokerage division of Transwestern Property Company in Houston; and prior thereto, an Associate Vice President of Eastdil Realty Incorporated. THOMAS L. POE--39--Vice President of PTR since June 1994 and the REIT Manager since April 1992, where he is responsible for the accounting and financial reporting for each of PTR's three geographic regions; from 1988 to 1992, Vice President of Finance and from 1981 to 1992, Real Estate Controller for the Mischer Corporation, Houston, Texas, prior thereto, staff accountant with Arthur Andersen & Company. HAROLD D. RILEY--60--Vice President of PTR since 1974 and the REIT Manager since March 1991, where he provides accounting and financial reporting services. 18 DAVID K. ROBBINS--44--Vice President of PTR and the REIT Manager since March 1995, where he is a Project Manager in the Western Region; from June 1994 to January 1995, Vice President of ATLANTIC, where he was a member of the development group; from December 1992 to May 1994, Vice President of PTR, where he had overall responsibility for the due diligence group; from January 1988 to December 1992, partner in the law firm of Hill, Farrer & Burrill in Los Angeles, where his practice focused on real estate acquisitions and development. He also served as general counsel to Hollywood Park Racetrack, where he was involved in forming Hollywood Park's public REIT. W. ROBERT SMITH--37--Vice President of PTR and the REIT Manager since November 1996, where he is a Project Manager in the Central Region; from July 1989 to November 1996, Senior Vice President of IBG Development in Washington, D.C., where he was responsible for the development of high-rise commercial, mixed-use, and residential projects in the central business district. SHYAM R. TAGGARSI--41--Vice President of PTR and the REIT Manager since September 1996, where he is responsible for development activity in Northern California; from January 1993 to September 1996, Real Estate Consultant in Foster City, California; from December 1987 to January 1993, Development Partner with Lincoln Property Company; from December 1987 to January 1993, Development Partner of Trammell Crow Residential in Foster City, California, where he was responsible for all aspects of multifamily residential project management and development in the South Bay area. GARY L. TRUITT--46--Vice President of PTR and the REIT Manager since December 1995, where he has overall responsibility for production and construction activities in the Northwest Region; from July 1994 to January 1995, Project Manager with C.F. Jordan Inc.; prior thereto, Superintendent of Benchmark Contractors, where he had supervision and code and specifications compliance responsibilities. TIMOTHY R. WELSH--41--Vice President of PTR and the REIT Manager since September 1996, where he is a Project Manager of Development in the Central Region; from February 1993 to September 1996, Regional Vice President and Project Manager for C.F. Jordan Residential, a multifamily general contracting company in Dallas and El Paso, Texas; from 1986 to February 1993, Project Manager and Senior Project Engineer with the Weitz Company, a commercial real estate development company in Des Moines, Iowa. DAVID B. WOODWARD--30--Vice President of PTR and the REIT Manager since November 1993 and SCG Realty Services since January 1995, where he is responsible for community operations in Northern California; from June 1993 to October 1993, Mr. Woodward was with PTR, where he was responsible for property management; prior thereto, asset manager with USF&G's Real Estate Division. K. DOUGLAS WRIGHT--50--Vice President of PTR and the REIT Manager since July 1995, where he is a Project Manager in the Western Region; from December 1991 to June 1995, Mr. Wright was a real estate consultant, developer and asset manager; prior thereto, President of Summit Development Company. In addition, an affiliate of the REIT Manager employs a number of accounting professionals who provide centralized accounting services for PTR. Shareholder Relations and Capital Markets. The following persons provide shareholder relations and capital markets services to PTR: K. SCOTT CANON--35--President of Capital Markets Group since January 1996, Vice President of Capital Markets Group since August 1993 and a member of Capital Markets Group since March 1992, where he participates in capital markets and institutional investor relations; from September 1991 to March 1992, a personal account director for Chase Manhattan Investment Services; from August 1987 to September 1991, a member of private client services for Goldman, Sachs & Co. Mr. Canon is registered with the National Association of Securities Dealers, Inc. 19 ROBERT H. FIPPINGER--53--Vice President of Capital Markets Group since June 1995 and with Security Capital Group since October 1994, where he directs corporate communications services for affiliates of Security Capital Group; from November 1991 to October 1994, he was with Grubb & Ellis, where he represented corporate clients and provided tenant advisory services; prior thereto, Executive Director of Techmart, where he was responsible for management, marketing, operations, leasing and program development of commercial properties. GERARD DE GUNZBURG--49--Senior Vice President of Capital Markets Group in its New York office since January 1997, where he provides capital markets services for affiliates of Security Capital Group; prior thereto, Vice President with Capital Markets Group since 1993; from June 1988 to December 1992, a consultant to American and European companies; prior thereto, Director and Partner of Lincoln Property Company, Europe, where he arranged real estate financing from 1976 to 1988. Mr. de Gunzburg is registered with the National Association of Securities Dealers, Inc. ALISON C. HEFELE--37--Vice President of Capital Markets Group since February 1994, where she provides capital markets services for affiliates of Security Capital Group; from January 1990 to February 1994, Vice President with Prudential Real Estate Investors (strategic planning and business development for institutional real estate investment management services); from September 1985 to January 1990, a management consultant with McKinsey & Company; prior thereto, a financial analyst with Morgan Stanley Realty Inc. Ms. Hefele is registered with the National Association of Securities Dealers, Inc. GARRETT C. HOUSE--32--Vice President of Capital Markets group since September 1996, where he provides capital markets services for affiliates of Security Capital Group; from May 1994 to August 1996, he assisted with financing activities for affiliates of Security Capital Group, and prior thereto, he was a member of the Management Development Program from May 1993 to May 1994; in May 1993, he obtained his M.B.A. from Harvard Graduate School of Business Administration; from July 1989 to July 1991, Project Manager for Nansay Corporation in Los Angeles, California; from July 1987 to July 1989, Analyst with Merrill Lynch Capital Markets in New York. Mr. House is registered with the National Association of Securities Dealers, Inc. BRADFORD W. HOWE--32--Vice President of Capital Markets Group since January 1996, where he provides capital markets services for affiliates of Security Capital Group and where he has been an associate since December 1994; from March 1993 to December 1994, Assistant Vice President in the real estate investment banking group of Kidder Peabody & Co., Incorporated; prior thereto, real estate consultant at Coopers & Lybrand. Mr. Howe is registered with the National Association of Securities Dealers, Inc. JAMES H. POLK III--54--See "--Trustees of PTR" above. DONALD E. SUTER--40--Senior Vice President of Capital Markets Group since May 1996; from October 1995 to April 1996, President and Chief Operating Officer for Cullinan Properties Limited in Peoria, Illinois; from July 1984 to October 1995, Mr. Suter was with LaSalle Partners in Chicago, Illinois, where his last position held was Senior Vice President, Corporate Finance Group. EMPLOYEES PTR currently has no employees. The REIT Manager, whose sole activity is advising PTR, manages the day-to-day operations of PTR. The REIT Manager and its specialized service affiliates have assembled a team of 129 operating professionals in the REIT Manager and its affiliates, collectively possessing extensive experience in multifamily real estate. The majority of these persons are employed directly by the REIT Manager and are focused entirely on the services provided by the REIT Manager. The balance of the professionals provide centralized research, capital markets, legal, accounting and other administrative services. 20 INSURANCE PTR carries comprehensive general liability coverage on its owned communities, with limits of liability customary within the industry, to insure against liability claims and related defense costs. Similarly, PTR is insured against the risk of direct physical damage in amounts necessary to reimburse PTR on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period (up to a six-month period). PTR's blanket property policy for all operating and development communities includes coverage for loss due to earthquake. COMPETITION There are numerous commercial developers, real estate companies and other owners of real estate that compete with PTR in seeking land for development, communities for acquisition and disposition and residents for communities. All of PTR's multifamily communities are located in developed areas that include other multifamily communities. The number of competitive multifamily communities in a particular area could have a material adverse effect on PTR's ability to lease units and on the rents charged. In addition, other forms of single family and multifamily residential communities provide housing alternatives to residents and potential residents of PTR's multifamily communities. AMERICANS WITH DISABILITIES ACT PTR's communities must comply with Title III of the Americans with Disabilities Act (the "ADA") to the extent that such communities are "public accommodations" and/or "commercial facilities" as defined by the ADA. The ADA does not consider multifamily communities to be public accommodations or commercial facilities, except portions of such facilities open to the public, such as the leasing office. Noncompliance could result in imposition of fines or an award of damages to private litigants. PTR believes that the mandated portions of its communities comply with all present requirements under the ADA and applicable state laws. ENVIRONMENTAL MATTERS 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 removal or remediation of such substances could be substantial. Such laws often impose such liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of such hazardous or toxic substances. The presence of such substances may adversely affect the owner's ability to sell or rent such real estate or to borrow using such real estate as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances also may be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws impose liability for the release of asbestos-containing materials into the air, pursuant to which third parties may seek recovery from owners or operators of real properties for personal injuries associated with such materials, and prescribe specific methods for the removal and disposal of such materials, which may result in increased costs in connection with renovations at PTR's properties. PTR has not been notified by any governmental authority of any non- compliance, liability or other claim in connection with any of its properties owned or being acquired at January 31, 1997, and PTR is not aware of any environmental condition with respect to any of its properties that is likely to be material. PTR 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 PTR aware of, any environmental liability (including asbestos-related liability) that the REIT Manager believes would have a material adverse effect on PTR'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 PTR or the independent consultants or that future uses and conditions (including, without limitation, resident actions or changes in applicable environmental laws and regulations) will not result in unreimbursed costs relating to environmental liabilities. 21 ITEM 2. PROPERTIES GEOGRAPHIC DISTRIBUTION To effectively manage its multifamily communities, PTR has organized its operations into three regions (Central, Northwest and West). Within these regions, PTR's multifamily communities are located in 23 metropolitan areas in 12 states. The table below summarizes the geographic distribution of PTR's multifamily communities which are operating or under construction, based on total expected investment.
DECEMBER 31, ------------------------- 1996(1) 1995(1) 1994(1) ------- ------- ------- CENTRAL REGION: Austin, Texas.................................. 4.65% 7.26% 9.92% Dallas, Texas.................................. 3.86 5.22 7.36 Denver, Colorado............................... 4.61 5.62 7.91 El Paso, Texas................................. 4.45 5.68 7.84 Houston, Texas................................. 7.29 8.65 10.74 San Antonio, Texas............................. 6.37 9.16 13.06 ------ ------ ------ Central Region Total......................... 31.23% 41.59% 56.83% ------ ------ ------ NORTHWEST REGION: Portland, Oregon............................... 6.71% 4.95% -- % Salt Lake City, Utah........................... 4.94 2.86 -- Seattle, Washington............................ 5.82 4.41 -- ------ ------ ------ Northwest Region Total....................... 17.47% 12.22% -- % ------ ------ ------ WEST REGION: Albuquerque, New Mexico........................ 5.80% 6.60% 7.45% Las Vegas, Nevada.............................. 5.34 6.52 -- Northern California............................ 8.99 2.15 -- Phoenix, Arizona............................... 12.95 17.70 21.15 Southern California............................ 12.82 2.47 2.24 Tucson, Arizona................................ 2.73 6.46 7.12 ------ ------ ------ West Region Total............................ 48.63% 41.90% 37.96% ------ ------ ------ Other Markets................................ 2.67% 4.29% 5.21% ------ ------ ------ Total All Markets.......................... 100.00% 100.00% 100.00% ====== ====== ======
- -------- (1) For operating communities, represents cost, including budgeted renovations. For communities under construction, represents total budgeted development cost, which includes the cost of land, fees, permits, payments to contractors, materials, architectural and engineering fees and interest and property taxes to be capitalized during the construction period. 22 REAL ESTATE PORTFOLIO The information in the following table is as of December 31, 1996, except as noted below (dollar amounts in thousands). Additional information on PTR's real estate portfolio is contained in Schedule III, Real Estate and Depreciation, in PTR's financial statements incorporated by reference in "Item 8. Financial Statements and Supplementary Data".
YEAR TOTAL ACQUIRED OR PERCENTAGE NUMBER OF PTR EXPECTED COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2) ------------ ---------- --------- ---------- ------------- OPERATING COMMUNITIES(3): CENTRAL REGION: Austin, Texas: Stabilized: Anderson Mill Oaks... 1993 95.7% 350 $ 12,558 $ 12,614 Cannon Place......... 1993 99.5 184 6,846 6,904 Hunter's Run*........ 1995 97.1 240 11,480 11,481 Hunter's Run II*..... 1996 95.6 160 8,276 8,276 Monterrey Ranch Village II ......... 1996 99.1 456 24,040 24,044 The Ridge............ 1993 94.5 326 10,640 10,837 Rock Creek........... 1993 97.1 314 10,246 10,347 Saddlebrook*......... 1994 95.1 308 13,321 13,378 Shadowood............ 1993 97.0 236 6,622 6,704 ----- ----- ---------- ---------- Subtotal/Average.... 96.8 2,574 104,029 104,585 ----- ----- ---------- ---------- Dallas, Texas: Stabilized: Apple Ridge.......... 1993 96.4 304 11,151 11,292 Custer Crossing...... 1993 93.4 244 10,555 11,114 Post Oak Ridge....... 1993 98.2 486 15,272 16,533 Quail Run............ 1993 94.6 278 11,212 11,630 Summerstone.......... 1993 97.4 192 7,102 7,275 Timber Ridge......... 1994 95.0 160 7,118 7,289 Woodland Park........ 1993 96.3 216 7,364 7,454 ----- ----- ---------- ---------- Subtotal/Average.... 96.2 1,880 69,774 72,587 ----- ----- ---------- ---------- Denver, Colorado: Stabilized: Cambrian............. 1993 97.4 383 12,159 12,374 The Cedars........... 1993 99.8 408 17,425 17,668 Fox Creek I.......... 1993 94.9 175 6,451 6,515 Hickory Ridge........ 1992 97.2 688 23,587 23,982 Reflections I........ 1993 100.0 208 8,892 9,094 Reflections II*...... 1996 98.1 208 12,335 12,348 Silvercliff#......... 1994 94.6 312 16,398 16,486 Sunwood.............. 1992 100.0 156 6,232 6,443 ----- ----- ---------- ---------- Subtotal/Average.... 98.0 2,538 103,479 104,910 ----- ----- ---------- ---------- El Paso, Texas: Stabilized: Acacia Park*......... 1995 93.2 336 14,281 14,341 Cielo Vista.......... 1993 88.6 378 8,924 9,091 The Crest at Shadow Mountain*........... 1992 91.0 232 8,017 (4) Double Tree.......... 1993 97.9 284 6,236 6,365 Las Flores*#......... 1980-83 97.4 468 8,502 8,705
(see notes following table) 23
YEAR TOTAL ACQUIRED OR PERCENTAGE NUMBER OF PTR EXPECTED COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2) ------------ ---------- --------- ---------- ------------- Mountain Village..... 1992 92.0% 288 $ 7,437 $ 7,521 Park Place*.......... 1989-91 91.8 292 8,817 8,927 The Patriot*......... 1996 97.8 320 12,231 12,365 The Phoenix*......... 1993 98.2 336 10,688 10,813 Shadow Ridge*........ 1991-94 94.6 352 12,381 12,470 Tigua Village*#...... 1970 & 78 96.7 184 2,416 2,533 ---- ----- ---------- ---------- Subtotal/Average.... 94.5 3,470 99,930 93,131 ---- ----- ---------- ---------- Houston, Texas: Stabilized: Beverly Palms........ 1994 97.2 362 10,205 10,362 Braeswood Park#...... 1993 97.1 240 12,604 12,731 Brompton Court#...... 1994 98.5 794 31,444 31,920 Cranbrook Forest..... 1993 87.4 261 6,957 7,183 Memorial Heights I*.. 1996 99.2 360 18,442 18,595 Oaks at Medical Center I*........... 1996 99.2 360 18,411 18,592 Pineloch............. 1993 96.6 440 13,759 13,925 Plaza Del Oro........ 1994 98.9 348 12,077 12,209 Seahawk#............. 1994 99.1 224 8,745 8,846 Weslayan Oaks........ 1993 94.1 84 3,998 3,999 ---- ----- ---------- ---------- Subtotal/Average.... 97.3 3,473 136,642 138,362 ---- ----- ---------- ---------- Omaha, Nebraska: Stabilized: Apple Creek#......... 1994 94.5 384 13,795 13,919 Oakbrook............. 1995 92.6 162 7,536 7,597 ---- ----- ---------- ---------- Subtotal/Average.... 94.0 546 21,331 21,516 ---- ----- ---------- ---------- San Antonio, Texas: Stabilized: Applegate............ 1993 93.6 344 10,225 10,349 Austin Point......... 1993 94.5 328 12,068 12,229 Camino Real.......... 1993 94.3 176 6,281 6,483 Cobblestone Village.. 1992 94.0 184 4,597 4,634 Contour Place........ 1992 92.1 126 2,624 2,763 The Crescent*........ 1994 92.8 306 15,690 15,764 Dymaxion............. 1994 97.4 190 4,654 4,797 The Gables........... 1993 95.3 192 7,388 7,429 Marbach Park......... 1993 86.2 304 8,134 8,243 Palisades Park....... 1993 89.9 328 8,261 8,313 Panther Springs...... 1993 95.5 88 4,047 4,066 Rancho Mirage........ 1993 96.1 254 5,131 5,224 St. Tropez I......... 1992 96.0 273 11,038 11,284 Stanford Heights*.... 1996 93.1 276 13,334 13,366 Sterling Heights*.... 1995 96.4 224 12,104 12,116 Towne East Village... 1993 92.0 100 2,571 2,588 Villas of Castle Hills............... 1993 87.1 163 5,931 6,071 Waters of Northern Hills............... 1994 94.1 305 9,141 9,278 ---- ----- ---------- ---------- Subtotal/Average.... 93.2 4,161 143,219 144,997 ---- ----- ---------- ----------
(see notes following table) 24
YEAR TOTAL ACQUIRED OR PERCENTAGE NUMBER OF PTR EXPECTED COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2) ------------ ---------- --------- ---------- ------------- Tulsa, Oklahoma: Stabilized: Southern Slope....... 1993 95.1% 142 $ 5,363 $ 5,423 ----- ------ ---------- ---------- Central Region Subtotal/Average. 95.6 18,784 683,767 685,511 ----- ------ ---------- ---------- NORTHWEST REGION: Portland, Oregon: Stabilized: Club at the Green.... 1995 97.6 254 11,151 11,200 Double Tree I........ 1995 96.3 245 10,515 10,528 Double Tree II#...... 1995 96.0 124 6,681 6,681 Knight's Castle...... 1995 94.9 296 13,182 13,335 Meridian at Murrayhill.......... 1995 96.8 312 17,256 17,305 Preston's Crossing*.. 1996 94.3 228 12,866 12,877 Riverwood Heights.... 1995 95.0 240 10,163 10,187 Squire's Court....... 1995 94.0 235 10,980 11,134 Pre-Stabilized: Brighton............. 1996 93.6 233 11,476 12,117 Timberline........... 1996 98.5 130 7,335 7,411 ----- ------ ---------- ---------- Subtotal/Average.... 95.6 2,297 111,605 112,775 ----- ------ ---------- ---------- Salt Lake City, Utah: Stabilized: Brighton Place....... 1995 94.6 336 15,282 15,473 Cherry Creek#........ 1995 92.4 225 8,982 9,053 Greenpointe#......... 1995 97.9 192 6,008 6,097 Mountain Shadow#..... 1995 95.4 174 5,687 5,746 Pre-Stabilized: Fox Creek#........... 1996 95.7 186 7,936 8,303 Summertree#.......... 1996 95.8 240 10,183 10,535 ----- ------ ---------- ---------- Subtotal/Average.... 95.2 1,353 54,078 55,207 ----- ------ ---------- ---------- Seattle, Washington: Stabilized: Logan's Ridge........ 1995 96.9 258 13,345 13,417 Matanza Creek........ 1995 99.3 152 7,097 7,129 Millwood Estates..... 1995 100.0 300 11,401 11,566 Pebble Cove*......... 1995 100.0 288 16,979 16,991 Remington Park....... 1995 97.3 332 19,120 19,234 Walden Pond.......... 1995 100.0 316 13,904 13,935 Pre-Stabilized: Clubhouse#........... 1996 97.4 194 8,171 8,725 ----- ------ ---------- ---------- Subtotal/Average.... 98.7 1,840 90,017 90,997 ----- ------ ---------- ---------- Northwest Region Subtotal/Average. 96.6 5,490 255,700 258,979 ----- ------ ---------- ----------
(see notes following table) 25
TOTAL YEAR ACQUIRED PERCENTAGE NUMBER OF PTR EXPECTED OR COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2) --------------- ---------- --------- ---------- ------------- WEST REGION: Albuquerque, New Mexico: Stabilized: Commanche Wells...... 1994 84.9% 179 $ 5,164 $ 5,273 Corrales Pointe...... 1993 95.2 208 6,811 7,143 Entrada Pointe....... 1994 96.2 209 7,676 7,821 La Paloma*........... 1996 93.4 424 23,174 24,810 La Ventana*.......... 1996 95.3 232 15,327 15,506 Pavilions*........... 1991 97.5 240 15,438 15,771 Sandia Ridge......... 1992 90.4 272 7,656 7,769 Vista Del Sol........ 1993 94.6 168 6,068 6,236 Wellington Place..... 1993 93.2 280 10,456 10,721 Pre-Stabilized: Vistas at Seven Bar Ranch*.............. 1996 92.6 364 21,874 22,139 Telegraph Hill....... 1996 95.5 200 8,245 8,607 ---- ----- ---------- ---------- Subtotal/Average.... 93.5 2,776 127,889 131,796 ---- ----- ---------- ---------- Inland Empire, California(5): Pre-Stabilized: The Crossing......... 1996 94.9 296 15,409 15,545 Miramonte............ 1995 96.6 290 16,335 16,582 Mission Springs & Villas.............. 1996 93.8 736 39,295 39,925 Westcourt Village.... 1996 89.5 515 15,333 15,794 Woodsong Village..... 1996 93.1 262 12,492 12,841 ---- ----- ---------- ---------- Subtotal/Average.... 93.9 2,099 98,864 100,687 ---- ----- ---------- ---------- Las Vegas, Nevada: Stabilized: The Hamptons......... 1995 98.2 492 21,130 21,309 Horizons at Peccole Ranch............... 1995 98.8 408 21,730 21,826 King's Crossing...... 1995 96.8 440 19,401 19,609 Sunterra#............ 1995 99.6 444 14,254 14,713 Pre-Stabilized: La Tierra at the Lakes#.............. 1995 96.7 896 42,257 43,509 ---- ----- ---------- ---------- Subtotal/Average.... 97.8 2,680 118,772 120,966 ---- ----- ---------- ---------- Orange County, California: Pre-Stabilized: Newpointe............ 1996 97.5 160 9,484 9,808 Villa Marseilles..... 1996 99.0 192 13,387 13,860 ---- ----- ---------- ---------- Subtotal/Average.... 98.3 352 22,871 23,668 ---- ----- ---------- ---------- Phoenix, Arizona: Stabilized: Bay Club............. 1993 94.1 472 15,107 15,575 Foxfire.............. 1994 96.3 188 7,357 7,410 Moorings at Mesa Cove................ 1992 95.8 406 17,372 17,576
(see notes following table) 26
TOTAL YEAR ACQUIRED PERCENTAGE NUMBER OF PTR EXPECTED OR COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2) --------------- ---------- --------- ---------- ------------- North Mountain Village..... 1994 96.7% 568 $ 18,459 $ 18,554 Peaks at Papago Park II*... 1996 99.3 144 7,188 7,207 Peaks at Papago Park I..... 1994 97.6 624 29,271 29,756 The Ridge-Phoenix.......... 1993 96.6 380 12,755 13,197 San Antigua*............... 1994 100.0 320 23,789 23,837 San Marina................. 1992 98.3 400 6,950 (4) San Marquis North*......... 1995 98.6 208 10,750 10,878 San Marquis South*......... 1994 99.6 264 13,479 13,624 Scottsdale Greens.......... 1994 96.1 644 28,298 29,179 Superstition Park.......... 1992 97.3 376 12,693 12,915 ----- ------ ---------- ---------- Subtotal/Average.......... 97.1 4,994 203,468 199,708 ----- ------ ---------- ---------- San Diego, California: Stabilized: Scripps Landing............ 1994 96.3 160 9,200 9,455 Tierrasanta Ridge.......... 1994 90.9 340 19,684 19,888 Pre-Stabilized: Club Pacifica.............. 1996 96.2 264 14,615 14,749 El Dorado Hills#........... 1996 90.6 448 30,215 31,188 Ocean Crest................ 1996 89.7 300 16,243 16,450 The Palisades.............. 1996 98.0 296 31,638 32,160 ----- ------ ---------- ---------- Subtotal/Average.......... 93.0 1,808 121,595 123,890 ----- ------ ---------- ---------- San Francisco (Bay Area), California: Stabilized: Treat Commons#............. 1995 90.6 510 38,906 38,991 Pre-Stabilized: Ashton Place#.............. 1996 94.5 948 65,898 84,200 Harborside................. 1996 100.0 148 21,423 21,691 Quail Ridge................ 1996 86.4 396 18,141 19,327 Redwood Shores#............ 1996 95.1 304 37,654 37,754 ----- ------ ---------- ---------- Subtotal/Average.......... 92.7 2,306 182,022 201,963 ----- ------ ---------- ---------- Santa Fe, New Mexico: Stabilized: Meadows of Santa Fe*....... 1994 86.8 296 12,432 12,535 ----- ------ ---------- ---------- Tucson, Arizona: Stabilized: Cobble Creek............... 1992 96.4 301 7,899 (4) Craycroft Gardens.......... 1992 94.1 101 1,974 2,010 Tierra Antigua............. 1992 98.0 147 5,486 5,544 Villa Caprice.............. 1993 92.9 268 8,846 9,015 Windsail#.................. 1993 96.3 300 9,976 10,076 ----- ------ ---------- ---------- Subtotal/Average.......... 95.5 1,117 34,181 26,645 ----- ------ ---------- ---------- West Region Subtotal/Average....... 95.0 18,428 922,094 941,858 ----- ------ ---------- ---------- Multifamily Operating Communities Total/Average........ 95.5% 42,702 $1,861,561 $1,886,348 ----- ------ ---------- ----------
(see notes following table) 27
YEAR TOTAL ACQUIRED OR PERCENTAGE NUMBER OF PTR EXPECTED COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2) ------------ ---------- --------- ---------- ------------- COMMUNITIES UNDER CONSTRUCTION: CENTRAL REGION: Dallas, Texas: Park Meadows......... 1997 N/A 368 $ 5,997 $ 17,136 ----- ---------- ---------- Houston, Texas: Memorial Heights II.. 1997 N/A 256 9,639 15,763 ----- ---------- ---------- Central Region Subtotal........ 624 15,636 32,899 ----- ---------- ---------- NORTHWEST REGION: Portland, Oregon: Arbor Heights........ 1998 N/A 348 8,804 22,818 Cambridge Crossing... 1997 N/A 250 5,834 15,567 ----- ---------- ---------- Subtotal........... 598 14,638 38,385 ----- ---------- ---------- Salt Lake City, Utah: Greenpointe Expansion........... 1997 N/A 32 156 2,332 Mountain Shadow Expansion........... 1997 N/A 88 334 4,726 Remington............ 1997 N/A 288 16,089 17,095 Riverview............ 1998 N/A 492 10,965 32,558 ----- ---------- ---------- Subtotal........... 900 27,544 56,711 ----- ---------- ---------- Seattle, Washington: Canyon Creek......... 1997 N/A 336 14,643 25,217 Harbour Pointe....... 1997 N/A 229 4,892 15,004 ----- ---------- ---------- Subtotal........... 565 19,535 40,221 ----- ---------- ---------- Northwest Region Subtotal........ 2,063 61,717 135,317 ----- ---------- ---------- WEST REGION: Orange County, California: Las Flores Apartment Homes............... 1998 N/A 504 8,234 43,894 ----- ---------- ---------- Phoenix, Arizona: Arrowhead I.......... 1998 N/A 272 2,389 17,070 Miralago I........... 1997 N/A 496 19,440 24,631 San Palmera.......... 1997 N/A 412 21,049 24,337 San Valiente I....... 1997 N/A 376 16,913 22,010 ----- ---------- ---------- Subtotal........... 1,556 59,791 88,048 ----- ---------- ---------- Reno, Nevada: Vista Ridge.......... 1997 N/A 324 17,595 20,852 Tucson, Arizona: San Ventana I........ 1997 N/A 408 23,737 27,249 ----- ---------- ---------- West Region Subtotal........ 2,792 109,357 180,043 ----- ---------- ---------- Total Communities Under Construction.. 5,479 $ 186,710 $ 348,259 ----- ---------- ----------
(see notes following table) 28
TOTAL YEAR ACQUIRED PERCENTAGE NUMBER OF PTR EXPECTED OR COMPLETED(1) LEASED UNITS INVESTMENT INVESTMENT(2) --------------- ---------- --------- ---------- ------------- COMMUNITIES IN PLANNING AND OWNED: Central Region...... 1,982 $ 29,440 $ 113,595 ------ ---------- ---------- Northwest Region.... 472 6,594 34,506 ------ ---------- ---------- West Region......... 897 12,470 61,055 ------ ---------- ---------- Total Communities In Planning and Owned............ 3,351 $ 48,504 $ 209,156 ------ ---------- ---------- LAND HELD FOR FUTURE DEVELOPMENT.............. -- $ 30,043 $ -- ------ ---------- ---------- Total Multifamily Communities Owned at December 31, 1996. 51,532 $2,126,818 $2,443,763 ------ ---------- ---------- NON-MULTIFAMILY: San Francisco, California: Wharf Holiday Inn (Hotel)................ 1971 100.0% N/A $ 22,870 $ 22,870 Dallas, Texas: Irving Blvd. (Industrial Building).............. 1989 100.0 N/A 540 (4) El Paso, Texas: Vista Industrial (Industrial Building).. 1987 100.0 N/A 3,135 3,135 ----- ------ ---------- ---------- Total/Average Non- Multifamily at December 31, 1996.. 100.0% N/A $ 26,545 $ 26,005 ----- ------ ---------- ---------- Total Real Estate Owned at December 31, 1996. 51,532 $2,153,363 $2,469,768 ====== ========== ========== JANUARY 1997 OPERATING COMMUNITY ACQUISITIONS: NORTHWEST REGION: Seattle, Washington: Newport Crossing........ 1997 N/A 192 N/A $ 12,279 ------ ---------- ---------- WEST REGION: San Francisco (Bay Area), California: Reflections............ 1997 N/A 496 N/A 52,826 ------ ---------- ---------- Total January 1997 Activity............. 688 N/A $ 65,105 ====== ========== ==========
- -------- See footnotes following the table below. 29 The following table sets forth certain information with respect to PTR's communities in planning and under control at January 31, 1997 (dollar amounts in thousands). The term "in planning" means that construction is anticipated to commence within 12 months. The term "under control" means that PTR has an exclusive right (through contingent contract or letter of intent) during a contractually agreed-upon time period to acquire land for future development of multifamily communities, subject to removal of contingencies during the due diligence process, but does not currently own the land. There can be no assurance that such land will be acquired. The unit and total expected investment information shown for communities in planning is based on management's best estimates.
EXPECTED NUMBER TOTAL EXPECTED OF UNITS INVESTMENT(2)(6) -------- ---------------- COMMUNITIES IN PLANNING AND UNDER CONTROL: Central Region...................................... 864 $ 49,196 Northwest Region.................................... 1,508 143,895 West Region......................................... 1,135 71,440 ----- -------- Total............................................. 3,507 $264,531 ===== ========
- -------- *Community developed by PTR. #Community is encumbered by a mortgage. See PTR's financial statements incorporated by reference in "Item 8. Financial Statements and Supplementary Data" for additional information on PTR's mortgages payable. (1) With respect to communities under construction, represents expected completion date. (2) For operating communities, represents cost, including budgeted renovations, as of January 31, 1997. For communities under construction and in planning, represents total budgeted development cost as of January 31, 1997, which includes the cost of land, fees, permits, payments to contractors, materials, architectural and engineering fees and interest and property taxes to be capitalized during the construction period. The term "in planning" means that construction is anticipated to commence within 12 months. (3) The term "stabilized" means that renovation, repositioning, new management and new marketing programs (or development and marketing in the case of newly developed communities) have been completed and in effect for a sufficient period of time (but in no event longer than 12 months, except for major rehabilitations) to achieve 93% occupancy at market rents. Prior to being "stabilized," a community is considered "pre-stabilized." See "Item 1. Business--PTR's Operating System and Business Strategy-- Opportunistic Acquisitions." (4) Property was disposed of during January 1997. (5) The Inland Empire is a part of the Los Angeles basin. It includes San Bernardino and Riverside counties, which have a total population of approximately three million people. (6) As of December 31, 1996, PTR's actual investment in these developments was $1.6 million. This amount is reflected in the "Other assets" caption of PTR's balance sheet at December 31, 1996. ITEM 3. LEGAL PROCEEDINGS PTR is a party to various claims and routine litigation arising in the ordinary course of business. PTR does not believe that the results of any of such claims and litigation, individually or in the aggregate, will have a material adverse effect on its business, financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 30 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information The Common Shares are listed on the NYSE under the symbol "PTR." The following table sets forth the high and low sales prices of the Common Shares as reported in the NYSE Composite Tape and cash distributions per Common Share, for the periods indicated.
CASH HIGH LOW DISTRIBUTIONS ------- ------- ------------- 1995: First Quarter............................. $18 3/8 $16 3/8 $0.2875 Second Quarter............................ 18 1/8 16 5/8 0.2875 Third Quarter............................. 19 1/4 17 0.2875 Fourth Quarter............................ 20 1/2 17 1/4 0.2875 1996: First Quarter............................. 22 1/4 19 1/4 0.31 Second Quarter............................ 22 3/8 20 1/2 0.31 Third Quarter............................. 22 5/8 20 1/4 0.31 Fourth Quarter............................ 23 5/8 19 0.31 1997: First Quarter (through March 12).......... 25 1/8 21 0.325
In addition to the quarterly cash distributions shown above, PTR made the Homestead Distribution on November 12, 1996. The securities distributed in the Homestead Distribution had a market value of $3.032 per Common Share based on the closing prices of such securities on the ASE on November 11, 1996, the day prior to the distribution date. The Homestead Distribution resulted in an adjustment of $3.125 per PTR Common Share ($21.875 before and $18.750 after) on the NYSE on November 12, 1996. As of March 10, 1997, PTR had approximately 76,042,168 Common Shares outstanding, approximately 3,050 record holders of Common Shares and approximately 23,500 beneficial holders of Common Shares. 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 non-cash 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 84 consecutive quarterly cash distributions on the Common Shares. PTR announces the following year's projected annual distribution level after the Board's annual budget review and approval in December of each year. At its December 10, 1996 Board meeting, the Board announced an increase in the annual distribution level from $1.24 to $1.30 per Common Share and declared the first quarter 1997 distribution of $0.325 per Common Share. The first quarter distribution was paid on February 20, 1997 to shareholders of record on February 7, 1997. The payment of distributions is subject to the discretion of the Board and is dependent upon the financial condition and operating results of PTR. 31 Pursuant to the terms of the Preferred Shares, PTR is restricted from declaring or paying any distribution with respect to its Common Shares unless all cumulative distributions with respect to the Preferred Shares have been paid and sufficient funds have been set aside for Preferred Share distributions that have been declared. For federal income tax purposes, distributions may consist of ordinary income, capital gains, non-taxable return of capital or a combination thereof. Distributions that 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 the Common Shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the shareholder's basis in the Common Shares, it will generally be treated as gain from the sale or exchange of that shareholder's Common Shares. PTR annually notifies shareholders of the taxability of distributions paid during the preceding year. For federal income tax purposes, the following summarizes the taxability of cash distributions paid on the Common Shares in 1995 and 1994 and the estimated taxability for 1996:
1996 1995 1994 ----- ----- ----- Per Common Share: Ordinary income....................................... $0.61 $0.92 $0.68 Capital gains......................................... 0.11 -- -- Return of capital..................................... 0.52 0.23 0.32 ----- ----- ----- Total............................................... $1.24 $1.15 $1.00 ===== ===== =====
The Homestead securities distributed by PTR to each holder of Common Shares in the Homestead Distribution were valued at $2.16 per PTR Common Share for federal income tax purposes, of which $1.06 was taxable as ordinary income, $0.19 was taxable as a capital gain and $0.91 was treated as a return of capital. On July 21, 1994, in addition to the normal Common Share distributions paid, PTR redeemed the shareholder purchase rights issued pursuant to the Rights Agreement dated as of February 23, 1990, as amended. Pursuant to the redemption, each holder of record at the close of business on July 21, 1994 was entitled to receive $0.01 per shareholder purchase right. The redemption price was paid on August 12, 1994 and was taxable as ordinary income for federal income tax purposes. Under federal income tax rules, PTR's earnings and profits are first allocated to its Series A Preferred Shares and Series B Preferred Shares, which increases the portion of the Common Shares distribution classified as return of capital. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." For federal income tax purposes, the following summaries reflect the estimated taxability of dividends paid on the Series A Preferred Shares and Series B Preferred Shares, respectively.
1996 1995 1994 ----- ----- ----- Per Series A Preferred Share: Ordinary income....................................... $1.47 $1.75 $1.75 Capital gains......................................... 0.28 -- -- Return of capital..................................... -- -- -- ----- ----- ----- Total............................................... $1.75 $1.75 $1.75 ===== ===== =====
DATE OF ISSUANCE TO 1996 12/31/95 ----- ----------- Per Series B Preferred Share: Ordinary income.. $1.89 $1.3625 Capital gains... 0.36 -- ----- ------- Total.. $2.25 $1.3625 ===== =======
32 Due to the increase in the conversion ratio resulting from the Homestead Distribution to holders of Common Shares, holders of Series A Preferred Shares were deemed to have received a distribution of $2.43 on November 12, 1996 for federal income tax purposes. Of this amount, $1.19 was taxable as ordinary income, $0.22 was taxable as a capital gain and $1.02 was treated as a return of capital. PTR's tax return for the year ended December 31, 1996 has not been filed, and the taxability information for 1996 is based upon the best available data. PTR's tax returns for prior years have not been examined by the Internal Revenue Service and, therefore, the taxability of the dividends is subject to change. 33 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data relating to the historical financial condition and results of operations of PTR for 1996, 1995, 1994, 1993 and 1992. Such selected financial data is qualified in its entirety by, and should be read in conjunction with, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation" and the financial statements and notes thereto incorporated by reference herein (amounts in thousands, except per share data).
YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1996 1995 1994 1993 1992 ---------- ---------- ---------- -------- -------- OPERATIONS SUMMARY: Rental income.......... $ 322,046 $ 262,473 $ 183,472 $ 76,129 $ 30,970 Interest income on Homestead Notes....... 2,035 -- -- -- -- Total revenues......... 326,246 264,873 186,105 78,418 32,779 Property management fees paid to affiliates............ 11,610 8,912 7,148 3,862 1,424 REIT management fee paid to affiliate..... 22,191 20,354 13,182 7,073 2,711 General and administrative expense............... 1,077 952 784 660 436 Earnings from operations(1)......... 94,089 81,696 46,719 23,191 9,037 Gain (loss) on sale of investments........... 37,492 2,623 -- 2,302 (51) Preferred Share cash dividends paid........ 24,167 21,823 16,100 1,341 -- Net earnings attributable to Common Shares................ 106,544 62,496 30,619 24,152 8,986 Common Share cash distributions paid.... 90,728 76,804 46,121 29,162 13,059 PER SHARE DATA: Net earnings attributable to Common Shares................ $ 1.46 $ 0.93 $ 0.66 $ 0.66 $ 0.46 Common Share cash distributions paid.... 1.24 1.15 1.00 0.82 0.70 Series A Preferred Share cash dividends paid.................. 1.75 1.75 1.75 0.1458 -- Series B Preferred Share cash dividends paid.................. $ 2.25 $ 1.363 -- -- -- Weighted-average Common Shares outstanding.... 73,057 67,052 46,734 36,549 19,435 DECEMBER 31, ------------------------------------------------------ 1996 1995 1994 1993 1992 ---------- ---------- ---------- -------- -------- FINANCIAL POSITION: Real estate owned, at cost.................. $2,153,363 $1,855,866 $1,296,288 $872,610 $337,274 Homestead Notes........ 176,304 -- -- -- -- Total assets........... 2,282,432 1,840,999 1,295,778 890,301 342,235 Line of credit......... 110,200 129,000 102,000 51,500 54,802 Long-term debt......... 580,000 200,000 200,000 -- -- Mortgages payable...... 217,188 158,054 93,624 48,872 30,824 Total liabilities...... 1,014,924 565,331 455,136 135,284 94,186 Shareholders' equity... $1,267,508 $1,275,668 $ 840,642 $755,017 $248,049 Number of Common Shares outstanding........... 75,511 72,211 50,456 44,645 27,034 YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1996 1995 1994 1993 1992 ---------- ---------- ---------- -------- -------- OTHER DATA: Net earnings attributable to Common Shares................ $ 106,544 $ 62,496 $ 30,619 $ 24,152 $ 8,986 Add (Deduct): Depreciation........... 44,887 36,685 24,614 10,509 5,311 Provision for possible loss on investments... -- 420 1,600 2,270 400 Gain or loss on sale of investments........... (37,492) (2,623) -- (2,302) 51 Extraordinary item-- loss on early extinguishment of debt, net............. 739 -- -- -- -- Homestead Notes-- related amortization.. (141) -- -- -- -- Other (primarily provision for loss on receivables).......... -- -- -- 87 174 ---------- ---------- ---------- -------- -------- Funds from operations attributable to Common Shares(2)(3).......... $ 114,537 $ 96,978 $ 56,833 $ 34,716 $ 14,922 ========== ========== ========== ======== ======== Net cash provided by operating activities.. $ 143,939 $ 121,795 $ 94,625 $ 49,247 $ 20,252 Net cash used by investing activities.. (360,935) (294,488) (368,515) (529,065) (229,489) Net cash provided by financing activities.. 195,720 191,520 276,457 478,345 185,130
34 - -------- (1) Earnings from operations for the years ended December 31, 1995, 1994 and 1993 reflect a $420,000, $1.6 million and a $2.3 million provision, respectively, for possible losses relating to investments in non- multifamily properties. (2) Funds from operations is defined as net earnings computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (or losses) plus depreciation and provision for possible loss on investments and excluding extraordinary items. Management believes that an understanding of funds from operations will enhance the reader's comprehension of PTR's results of operations and cash flows presented in the financial statements and other data in this document. In July 1994, PTR changed to a more conservative policy of expensing the amortization of loan costs in determining funds from operations. For comparability, funds from operations has been restated to give effect to this policy as if it had been in effect since January 1, 1992. Funds from operations should not be construed as a substitute for "net earnings" in evaluating operating results or as a substitute for "cash flow" in evaluating liquidity and the funds from operations measure presented by PTR may not be comparable to similarly titled measures of other REITs. (3) See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Funds From Operations" for pro forma funds from operations information giving effect to the Homestead transaction as if it had occurred as of January 1, 1995. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with PTR's financial statements and notes thereto included in Item 14 of this report. The statements contained in this discussion and elsewhere in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which PTR operates, management's beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. PTR undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. PTR's operating results depend primarily on income from multifamily communities, which is substantially influenced by (i) the demand for and supply of multifamily units in PTR's primary target market and submarkets, (ii) operating expense levels, (iii) the effectiveness of property-level operations and (iv) the pace and price at which PTR can acquire and develop additional multifamily communities. Capital and credit market conditions which affect PTR's cost of capital also influence operating results. OVERVIEW General PTR's results of operations, financial position and liquidity as of and for each of the years in the three-year period ended December 31, 1996 have been influenced primarily by the operations of and investments made in PTR's multifamily communities. PTR's investment activity has been financed through proceeds from debt and equity offerings, proceeds from asset dispositions and internally generated funds. During the three-year period ended December 31, 1996, PTR raised approximately $101.4 million in net proceeds from the issuance of Series B Preferred Shares, $318.1 million in net proceeds from subscription offerings of Common Shares, $572.6 million in net proceeds from the issuance of unsecured, long-term, fixed rate debt and $314.2 million in net proceeds from property dispositions (excluding the Homestead transaction). PTR's target market and submarkets have benefited substantially in recent periods from demographic trends (including job and population growth) that increase the demand for multifamily units. Consequently, rental rates 35 for multifamily units have increased more than the inflation rate for the last three years and are expected to continue experiencing such increases for 1997. Expense levels also influence operating results. During 1996, PTR's rental expenses increased but at a lower rate than rental rate increases, producing overall growth in net operating income. During 1995 and 1994, rental expenses as a percentage of rental income decreased slightly. Rental expenses during 1997 are expected to increase at approximately the rate of inflation, which is less than expected rental rate growth. Multifamily Investments The following table provides an overview of PTR's multifamily portfolio and related investment activity for 1996, 1995 and 1994 (dollar amounts in thousands):
YEAR ENDED DECEMBER 31, -------------------------------- 1996 1995 1994 ---------- ---------- ---------- OPERATING COMMUNITIES: Communities............................... 142 131 103 Units..................................... 42,702 38,737 30,182 Total expected investment(1).............. $1,891,828 $1,515,267 $1,109,188 COMMUNITIES UNDER CONSTRUCTION: Starts During Year: Communities............................... 13 11 13 Units .................................... 3,875 3,196 3,468 Total expected investment(1).............. $262,547 $179,402 $176,139 Completions During Year: Communities .............................. 13 5 7 Units .................................... 3,820 1,088 1,986 Total expected investment(1).............. $208,332 $52,560 $102,910 Stabilizations During Year: Communities .............................. 12 6 7 Units .................................... 3,456 1,690 2,178 Total expected investment(1).............. $186,426 $73,472 $102,150 Under Construction at Year-End: Communities .............................. 17 17 11 Units .................................... 5,479 5,424 3,316 Total expected investment(1).............. $354,852 $297,549 $170,017 ACQUISITIONS(2): Communities .............................. 20 24 20 Units .................................... 6,448 7,633 6,625 Total expected investment(1).............. $417,729 $361,027 $266,066 MULTIFAMILY DISPOSITIONS: Communities .............................. 22 1 2 Units .................................... 6,303 166 538 Net sales proceeds........................ $285,500 $8,765 $11,807 Gains..................................... $37,124 $3,244 --
- -------- (1) For operating communities and acquisitions, represents cost, including budgeted renovations, as of each year-end. For communities under construction, represents total budgeted development cost as of each year- end, which includes the cost of land, fees, permits, payments to contractors, materials, architectural and engineering fees and interest and property taxes to be capitalized during the construction period. (2) 1995 acquisitions include 17 communities containing 5,579 units with an aggregate purchase price including budgeted renovations of $242.5 million acquired in connection with the March 1995 merger with PACIFIC. See "-- Liquidity and Capital Resources--Merger and Concurrent Subscription Offering." 36 Current Development Activity PTR believes that development of multifamily communities from the ground up, which are built for long-term ownership and designed to meet broad resident preferences and demographic trends, will continue to provide an important source of long-term cash flow growth. PTR believes its ability to compete is significantly enhanced relative to other companies because of the REIT Manager's depth of development and acquisition personnel and presence in local markets combined with PTR's access to investment capital. The following information on development communities under construction is as of December 31, 1996, except as noted below (dollar amounts in thousands).
START ACTUAL OR EXPECTED NUMBER TOTAL DATE EXPECTED DATE FOR STABILIZATION OF PTR EXPECTED (QUARTER/ FIRST UNITS DATE % UNITS INVESTMENT INVESTMENT(1) YEAR) (QUARTER/YEAR)(2) (QUARTER/YEAR) LEASED(3) ------ ---------- ------------- --------- ----------------- -------------- --------- COMMUNITIES UNDER CONSTRUCTION AND IN LEASE-UP(4): NORTHWEST REGION: Salt Lake City, Utah: Remington.............. 288 $16,089 $ 17,095 Q3/95 Q3/96 Q3/97 100.0% ----- ------- -------- WEST REGION: Phoenix, Arizona: Miralago I............. 496 19,440 24,631 Q4/95 Q4/96 Q2/98 100.0 San Palmera............ 412 21,049 24,337 Q4/95 Q4/96 Q1/98 82.0 ----- ------- -------- Total Phoenix......... 908 40,489 48,968 ----- ------- -------- Reno, Nevada: Vista Ridge............ 324 17,595 20,852 Q1/96 Q4/96 Q4/97 90.3 ----- ------- -------- Tucson, Arizona: San Ventana............ 408 23,737 27,249 Q2/95 Q2/96 Q4/97 100.0 ----- ------- -------- Total West Region... 1,640 81,821 97,069 ----- ------- -------- Total in Lease-up.. 1,928 $97,910 $114,164 ----- ------- -------- OTHER COMMUNITIES UNDER CONSTRUCTION(5): CENTRAL REGION: Dallas, Texas: Park Meadows........... 368 $ 5,997 $ 17,136 Q3/96 Q2/97 Q2/98 n/a ----- ------- -------- Houston, Texas: Memorial Heights II.... 256 9,639 15,763 Q4/96 Q4/97 Q3/98 n/a ----- ------- -------- Total Central Region............. 624 15,636 32,899 ----- ------- -------- NORTHWEST REGION: Portland, Oregon: Arbor Heights.......... 348 8,804 22,818 Q2/96 Q2/97 Q2/98 n/a Cambridge Crossing..... 250 5,834 15,567 Q3/96 Q3/97 Q3/98 n/a ----- ------- -------- Total Portland........ 598 14,638 38,385 ----- ------- -------- Salt Lake City, Utah: Greenpointe Expansion.. 32 156 2,332 Q4/96 Q3/97 Q4/97 n/a Mountain Shadow Expansion............. 88 334 4,726 Q4/96 Q3/97 Q1/98 n/a Riverview ............. 492 10,965 32,558 Q2/96 Q3/97 Q3/98 n/a ----- ------- -------- Total Salt Lake City.. 612 11,455 39,616 ----- ------- -------- Seattle, Washington: Canyon Creek........... 336 14,643 25,217 Q2/96 Q1/97 Q2/98 n/a Harbour Pointe......... 229 4,892 15,004 Q3/96 Q3/97 Q2/98 n/a ----- ------- -------- Total Seattle......... 565 19,535 40,221 ----- ------- -------- Total Northwest Region............. 1,775 45,628 118,222 ----- ------- --------
37
ACTUAL OR EXPECTED EXPECTED START DATE FOR STABILIZATION NUMBER INVESTMENT TOTAL DATE FIRST UNITS DATE OF COST TO EXPECTED (QUARTER/ (QUARTER/ (QUARTER/ % UNITS DATE INVESTMENT(1) YEAR) YEAR)(2) YEAR) LEASED(3) ------ ---------- ------------- --------- ----------- ------------- --------- WEST REGION: Orange County, California: Las Flores Apartment Homes................. 504 $ 8,234 $ 43,894 Q4/96 Q4/97 Q4/98 n/a ----- -------- -------- Phoenix, Arizona: Arrowhead I............ 272 2,389 17,070 Q3/96 Q3/97 Q3/98 n/a San Valiente........... 376 16,913 22,010 Q2/96 Q1/97 Q4/97 n/a ----- -------- -------- Total Phoenix......... 648 19,302 39,080 ----- -------- -------- Total West Region... 1,152 27,536 82,974 ----- -------- -------- Total Other........ 3,551 $ 88,800 $234,095 ----- -------- -------- Total Communities Under Construction.... 5,479 $186,710 $348,259 ===== ======== ========
- -------- (1) Represents total budgeted development cost as of January 31, 1997, which includes the cost of land, fees, permits, payments to contractors, materials, architectural and engineering fees and interest and property taxes to be capitalized during the construction period. (2) Represents the date that the first completed units were made available for leasing (or are expected to be made available for leasing). PTR begins leasing completed units prior to completion of the entire community. (3) The percentage leased is based on total units completed and is as of January 31, 1997. (4) A development community is considered in "lease-up" once the first units are delivered. (5) Lease-up has not yet commenced. There are risks associated with PTR's development and construction activities which include: development and acquisition opportunities explored may be abandoned; construction costs of a community may exceed original estimates due to increased material, labor or other expenses, which could make completion of the community uneconomical; occupancy rates and rents at a newly completed community are dependent on a number of factors, including market and general economic conditions, and may not be sufficient to make the community profitable; financing may not be available on favorable terms for the development of a community; and construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs. Development activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary land-use, building, occupancy and other required governmental permits and authorizations. The occurrence of any of the events described above could adversely affect PTR's ability to achieve its projected yields on communities under development or redevelopment. To mitigate these risks, PTR obtains zoning and municipal approvals prior to purchasing land. Furthermore, PTR does not take construction risk, but instead uses qualified third-party general contractors to build its communities, using guaranteed maximum price contracts. PTR cannot eliminate all development risk, but believes that the opportunities to better control product and realize higher returns from development communities compensate for the limited risk. 38 Recent Acquisitions In addition to its development activity, PTR completed the acquisition of $486.1 million of operating multifamily communities, representing a total of 7,136 units, in 1996 and through January 31, 1997. The communities PTR acquired are listed in the table below (dollar amounts in thousands):
TOTAL EXPECTED ACQUISITION UNITS INVESTMENT(1) DATE ----- ------------- ----------- NORTHWEST REGION: Portland, Oregon: Brighton................................... 233 $ 12,117 08/16/96 Timberline................................. 130 7,411 04/17/96 Salt Lake City, Utah: Fox Creek.................................. 186 8,303 12/17/96 Summertree................................. 240 10,555 10/29/96 Seattle, Washington: Clubhouse.................................. 194 8,725 12/19/96 Newport Crossing........................... 192 12,279 01/10/97 ----- -------- Total Northwest Region................... 1,175 $ 59,390 ----- -------- WEST REGION: Albuquerque, New Mexico: Telegraph Hill............................. 200 $ 8,607 10/15/96 Inland Empire, California: The Crossing............................... 296 15,545 05/21/96 Mission Springs & Villas................... 736 39,925 05/31/96 Westcourt Village.......................... 515 15,794 03/27/96 Woodsong Village........................... 262 12,841 08/28/96 Orange County, California: Newpointe.................................. 160 9,808 07/10/96 Villa Marseille............................ 192 13,860 11/13/96 San Diego, California: Club Pacifica.............................. 264 14,749 04/23/96 El Dorado Hills............................ 448 31,188 08/30/96 Ocean Crest................................ 300 16,450 03/29/96 The Palisades.............................. 296 32,160 11/27/96 San Francisco (Bay Area), California: Ashton Place............................... 948 84,200 09/16/96 Harborside................................. 148 21,691 12/31/96 Quail Ridge................................ 396 19,327 06/13/96 Redwood Shores............................. 304 37,754 09/20/96 Reflections................................ 496 52,826 01/27/97 ----- -------- Total West Region........................ 5,961 $426,725 ----- -------- Total.................................. 7,136 $486,115 ===== ========
- -------- (1) Represents cost, including budgeted renovations, as of January 31, 1997. Acquisitions entail risks that investments will fail to perform in accordance with expectations and that judgments with respect to the cost of improvements to bring an acquired community up to standards established for the market position intended for that community will prove inaccurate, as well as general investment risks associated with any new real estate investment. Although PTR undertakes an evaluation of the physical condition of each new community before it is acquired, certain defects or necessary repairs may not be detected until after the community is acquired, which could significantly increase PTR's total acquisition costs. These risks are partially mitigated and managed by the extensive market research and rigorous due diligence process performed in connection with every community considered. These factors combined with PTR's 39 extensive market experience throughout its target market and methodical approval process have proven PTR's ability to select investments that have a high probability of meeting or exceeding underwritten expectations. Non-Multifamily Properties In addition to multifamily investment activity, PTR had developed and operated extended-stay lodging facilities under the Homestead Village(R) name since 1992. On October 17, 1996, PTR contributed its Homestead Village(R) properties to Homestead, a newly formed company, in exchange for Homestead common stock. As of the contribution date, the Homestead Village(R) properties constituted approximately 7.1% of PTR's total assets, at cost. Additionally, the Homestead Village(R) properties generated approximately 8.2% of PTR's net operating income from January 1, 1996 to October 17, 1996 and approximately 5.9% and 3.5% of PTR's 1995 and 1994 net operating income, respectively. See "--Liquidity and Capital Resources--Homestead Transaction" for further information. PTR will continue to aggressively manage its non-multifamily properties in order to maximize cash flow, and may sell its remaining non-multifamily properties as opportunities arise. As of January 31, 1997, PTR owned two non- multifamily properties, including a 338-room, five-story hotel located in the Fisherman's Wharf area of San Francisco, California, which is leased to Holiday Inns of America, Inc. Excluding the Homestead Village(R) properties, approximately 1% of PTR's total 1996 rental income and less than 2% of 1995 and 1994 rental income was generated by non-multifamily properties. RESULTS OF OPERATIONS Net earnings for 1996, 1995 and 1994 were $130.7 million, $84.3 million and $46.7 million, respectively. Net earnings increased $46.4 million (55%) in 1996 over 1995 and $37.6 million (81%) in 1995 over 1994. These increases related primarily to net increases in the number of multifamily operating communities from new acquisitions and developments and, in 1996, substantial gains from dispositions. A discussion of the major components of the increases in net earnings follows. Property Operations The following table summarizes the net operating income generated from multifamily and non-multifamily property operations (in thousands).
1996 CHANGE 1995 CHANGE 1994 -------- ------- -------- ------- -------- Rental income..................... $322,046 $59,573 $262,473 $79,001 $183,472 -------- ------- -------- ------- -------- Rental expenses................... 89,550 15,742 73,808 18,036 55,772 Real estate taxes................. 26,962 5,636 21,326 5,233 16,093 Property management fees paid to affiliates.......... 11,610 2,698 8,912 1,764 7,148 -------- ------- -------- ------- -------- Operating expenses................ 128,122 24,076 104,046 25,033 79,013 -------- ------- -------- ------- -------- Net operating income ("NOI")...... $193,924 $35,497 $158,427 $53,968 $104,459 ======== ======= ======== ======= ======== NOI/Rental income................. 60.2% (0.2)% 60.4% 3.5% 56.9% ======== ======= ======== ======= ========
The increases in rental income resulted primarily from net increases in the number of multifamily operating communities during each respective period and collections growth. The percentage of PTR's total rental income generated by multifamily communities was 91.1%, 93.7% and 94.3% for 1996, 1995 and 1994, respectively. This percentage is expected to increase in future periods due to ongoing multifamily investment activities, the periodic sale of non- multifamily properties and the October 17, 1996 contribution of PTR's Homestead Village(R) properties to Homestead, a newly formed company. At December 31, 1996, multifamily investments comprised 98.9% of PTR's total real estate portfolio, based on total expected investment. Rental income increases were partially offset by the additional operating expenses associated with the increase in operating communities. Overall, NOI as a percentage of rental income improved from 1994 to 1995 and remained relatively level from 1995 to 1996 as a greater percentage of PTR's portfolio became stabilized. PTR categorizes operating multifamily communities (which include all communities not under development) as either "stabilized" or "pre-stabilized." The term "stabilized" means that renovation, 40 repositioning, new management and new marketing programs (or development and marketing in the case of newly developed communities) have been completed for a sufficient period of time (but in no event longer than 12 months, except for major rehabilitations) to achieve 93% occupancy at market rents. Prior to being "stabilized," a community is considered "pre-stabilized." Approximately 74.4%, 87.2% and 82.3% of PTR's operating multifamily portfolio was classified as stabilized as of December 31, 1996, 1995 and 1994, respectively, based on total expected investment. The December 31, 1996 stabilized percentage was lower than the stabilized percentage throughout most of 1996 due to above average acquisition activity in the fourth quarter of 1996. Using a weighted- average percentage based on total expected investment at the end of each quarter, approximately 81.1%, 82.8% and 64.4% of PTR's operating multifamily portfolio was classified as stabilized during 1996, 1995 and 1994, respectively. The full impact of additional net operating income from PTR's multifamily development activities, and to a lesser extent, PTR's acquisition activities, is not reflected until after the communities are stabilized. Initially these investment activities are dilutive when compared to the results of operations that would occur if these investments were yielding a stabilized return; however, they are an important source of PTR's long-term growth. During the construction period for communities developed by PTR, there is no operating income; therefore, the only contribution to net earnings and funds from operations from units under construction results from the capitalization of interest. The capitalization of interest ceases for all units in a building once the building is completed and units are placed in service. Operating expenses, including pre-opening marketing costs, are expensed and typically exceed rental revenues during the early stages of lease-up. As the lease-up process continues, net operating income becomes positive and the return on investment approaches a stabilized yield. However, the net operating income generated during the lease-up period is less than the income that is expected to be earned when the community is stabilized. Therefore, development communities are dilutive during the construction period and until the property reaches stabilization, which generally is achieved 18 to 24 months after construction commences. Despite this short-term dilutive impact, PTR has demonstrated that its development activities contribute significantly to long- term performance as the communities achieve stabilization. Multifamily Communities Fully Operational Throughout Consecutive Periods For the 93 multifamily communities which were fully operational throughout both 1996 and 1995, property-level net operating income increased 3.31% in 1996 over 1995. The increase in net operating income resulted from a 2.81% rental revenue increase and a 2.08% increase in rental expenses for such communities. For the 79 multifamily communities fully operating throughout both 1995 and 1994, property-level net operating income increased 7.8% in 1995 over 1994. The increase in net operating income resulted from a 3.7% rental revenue increase and a 1.5% decrease in rental expenses for such communities. The following tables illustrate the performance of PTR's communities which were fully operational for consecutive years ("same store communities") and the same store community information by region and market (dollar amounts in thousands):
FULLY OPERATIONAL FULLY OPERATIONAL COMMUNITIES AS OF COMMUNITIES AS OF JANUARY 1, 1995 JANUARY 1, 1994 ----------------- ----------------- PORTFOLIO: Communities........................... 93 79 Units................................. 27,765 21,605 Total expected investment(1).......... $1,039,774 $758,749 % of total PTR portfolio(2)........... 46.28% 41.85% OPERATING PERFORMANCE: 1996 VS. 1995 1995 VS. 1994 ------------- ------------- Collections growth(3)................. 2.81% 3.70% Property operating expense growth (decrease)(4)......................... 2.08% (1.51)% Net operating income growth(5) ....... 3.31% 7.75% SUMMARY INFORMATION: 1996 1995 ------------- ------------- Average physical occupancy............ 94.72% 94.36% Property operating expense ratio(6)... 40.10% 40.39% Average rental rate per unit(7)....... $605 $589 Recurring capital expenditures per unit................................. $239 $142
41
COLLECTIONS 1/1/95 SAME STORE TOTAL PTR PORTFOLIO AVERAGE PHYSICAL AVERAGE PHYSICAL GROWTH 1996 COMMUNITIES INVESTMENT INVESTMENT % OCCUPANCY 1996 OCCUPANCY 1995 VS. 1995(3) % BY MARKET(2) BY MARKET(2) ---------------- ---------------- ----------- ---------------------- ------------------- CENTRAL REGION: Austin, Texas......... 95.39% 95.75% 3.34% 5.79% 4.65% Dallas, Texas......... 95.92 96.10 5.53 6.71 3.86 Denver, Colorado...... 96.43 96.29 2.83 8.77 4.61 El Paso, Texas........ 93.43 91.83 0.95 6.20 4.45 Houston, Texas........ 96.02 92.53 6.17 9.60 7.29 San Antonio, Texas.... 92.58 93.64 (1.32) 11.33 6.37 ----- ----- ----- ------ ------ Total Central Region............. 94.73% 94.11% 2.63% 48.40% 31.23% ----- ----- ----- ------ ------ NORTHWEST REGION: Portland, Oregon...... 93.72% 96.04% (1.45)% 7.04% 6.71% Salt Lake City, Utah.. 94.79 94.43 5.30 1.12 4.94 Seattle, Washington... 94.81 93.53 5.77 2.62 5.82 ----- ----- ----- ------ ------ Total Northwest Region............. 94.12% 95.25% 0.97% 10.78% 17.47% ----- ----- ----- ------ ------ WEST REGION: Albuquerque, New Mexico............... 94.71% 95.25% (0.95)% 5.05% 5.80% Las Vegas, Nevada..... 94.99 92.54 4.89 11.54 5.34 Northern California(8)........ -- -- -- -- 8.99 Phoenix, Arizona...... 95.23 95.53 5.78 15.12 12.95 Southern California... 95.33 94.29 5.60 2.78 12.82 Tucson, Arizona....... 93.61 94.30 (2.18) 3.29 2.73 ----- ----- ----- ------ ------ Total West Region... 94.91% 94.45% 3.74% 37.78% 48.63% ----- ----- ----- ------ ------ Other Markets....... 94.35% 95.06% 0.61% 3.04% 2.67% ----- ----- ----- ------ ------ Total............. 94.72% 94.36% 2.81% 100.00% 100.00% ===== ===== ===== ====== ======
- -------- (1) Represents cost, including budgeted renovations. (2) Based on total expected investment. (3) Represents percentage growth in actual rental income, net of vacancies, bad debts and concessions. (4) Includes rental expenses, management fees, real estate taxes and property management fees. (5) Represents growth in total rental income less property operating expenses (excluding depreciation and interest expense). (6) Represents property operating expenses as a percentage of rental income. (7) Represents weighted-average "asking rents" during each period. (8) PTR entered this market subsequent to January 1, 1995; therefore, there are no communities for the same store comparison. Homestead Operations and Interest Income Prior to the Homestead transaction described below in "--Liquidity and Capital Resources--Homestead Transaction," which closed on October 17, 1996, PTR developed and operated Homestead Village(R) properties. Following is a summary of the operations related to these properties:
DECEMBER 31, OCTOBER 17, ------------- 1996 1995 1994 ----------- ------ ------ Number of operating properties.................. 29 20 12 Net operating income for period beginning January 1, (in thousands)...................... $13,294 $9,314 $3,652
42 The increase in net operating income in each period is primarily attributable to the increase in the number of operating properties from period to period as a result of significant development activity. During 1996, PTR recorded $2.0 million in interest income ($1.9 million for purposes of calculating funds from operations) from the Homestead Notes received on October 17, 1996 in connection with the Homestead transaction and Homestead Notes received thereafter in connection with additional fundings of Homestead development activity. Homestead interest income will increase in future periods as PTR continues to fund Homestead's development activity up to its $198.8 million funding commitment and since the Homestead Notes were outstanding for less than one quarter during 1996. Following is a summary of Homestead fundings during 1996 (in thousands). Funded balance as of October 17, 1996........................... $ 75,946 Additional amount funded through December 31, 1996.............. 25,242 -------- Funded balance as of December 31, 1996.......................... $101,188 ========
PTR deducts from net earnings the interest income related to the amortization of discounts and warrant-related deferred revenue in calculating funds from operations. Therefore, the effective interest rate on the Homestead Notes as a percentage of the "funded" balance for purposes of calculating funds from operations is approximately 10.7% per annum as compared to approximately 12.4% per annum for purposes of calculating net earnings. PTR expects to complete the funding of the remaining $97.6 million under its funding commitment in 1997 and the first half of 1998. Depreciation Expense The increases in depreciation expense reflected in each year of the three- year period resulted primarily from the increase in the number of operating communities partially offset by dispositions and, in 1996, the contribution of PTR's Homestead Village(R) properties to Homestead. Interest Expense The following table summarizes PTR's interest expense (in thousands).
YEAR ENDED DECEMBER 31, --------------------------- 1996 1995 1994 -------- -------- ------- Line of credit............................... $ 9,813 $ 5,749 $ 6,097 Unsecured long-term debt..................... 29,308 14,480 12,941 Mortgage..................................... 13,108 11,096 6,433 Capitalized interest......................... (16,941) (11,741) (6,029) -------- -------- ------- Total interest expense................... $ 35,288 $ 19,584 $19,442 ======== ======== =======
Line of credit interest expense increased $4.1 million in 1996 as compared with 1995 and decreased $0.3 million in 1995 as compared with 1994. The increase in 1996 as compared to 1995 resulted from higher outstanding balances and an increase in amortization of additional loan costs (administrative fees, renewal fees and legal fees) relating to PTR's revolving credit facility, which were offset in part by lower interest rates. Interest expense on senior, unsecured, long-term, fixed rate debt ("Notes") increased for 1996 as compared with 1995, resulting from the issuance of $150 million of Notes in February 1996, the issuance of $100 million of Notes in August 1996 and the issuance of $130 million of Notes in October 1996. Interest expense increased for 1995 as compared with 1994, as a result of the issuance of $200 million of Notes in February 1994. 43 Mortgage interest expense increased $2.0 million in 1996 as compared with 1995, and $4.7 million in 1995 as compared with 1994. These increases are the result of additional weighted-average debt outstanding due to mortgage assumptions related to acquisitions which were partially offset by prepayments. The increases in interest expense were offset by increases in capitalized interest of $5.2 million in 1996 over 1995 and $5.7 million in 1995 over 1994. The increase in capitalized interest is primarily attributable to increased levels of multifamily development activity in each year. REIT Management Fee Paid to Affiliate The REIT Management fee paid by PTR increased by $1.8 million in 1996 over 1995 and $7.2 million in 1995 over 1994. These increases are attributable to the fact that the REIT Management fee paid by PTR generally fluctuates with the level of PTR's pre-REIT Management fee cash flow, which increased substantially throughout the same period (see "--REIT Management Agreement" below). In the future, as PTR arranges additional unsecured long-term debt and nonconvertible preferred share financing and as additional fundings of the Homestead Notes occur, the REIT Management fee will effectively decline in proportion to PTR's earnings from operations. This decline will result from the fact that actual or assumed regularly scheduled principal payments associated with the unsecured long-term debt and distributions actually paid with respect to any nonconvertible preferred shares are deducted from the cash flow amount on which the REIT Management fee is based. Similarly, interest income from the Homestead convertible mortgage notes is not included in the cash flow amount in determining the REIT Management fee. See "Item 1. Business--Security Capital Pacific Trust" for a description of a proposal that PTR has received from Security Capital Group to exchange the REIT Manager and SCG Realty Services for Common Shares. Gains and Provision for Loss on Real Estate and Investments Each year, REIT Management formulates operating and capital plans based on an ongoing active review of PTR's portfolio. Based in part upon the market research provided by Security Capital Investment Research and in an effort to optimize its portfolio composition, PTR may from time to time seek to dispose of assets that in management's view no longer meet PTR's long-term investment objectives. The proceeds from these selected dispositions will be redeployed, typically through tax-deferred exchanges, into assets that in PTR's view offer better long-term cash flow growth prospects. As a result of this asset optimization strategy, PTR disposed of 22 multifamily communities and one industrial building during 1996, representing aggregate net proceeds of $291.1 million, and disposed of one multifamily property in the fourth quarter of 1995, representing net proceeds of $8.8 million. For federal income tax purposes, the majority of the dispositions were structured as tax-deferred exchanges which deferred gain recognition. For financial reporting purposes, however, the transactions qualified for profit recognition and aggregate gains of $37.5 million and $2.6 million were recorded for 1996 and 1995, respectively. Statement of Financial Accounting Standards No. 121, Accounting For The Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of ("SFAS No. 121"), adopted by PTR effective January 1, 1996, establishes accounting standards for the review of long-lived assets to be held and used for impairment whenever the carrying amount of an asset may not be recoverable. SFAS No. 121 also requires that certain long-lived assets to be disposed of be reported at the lower of carrying amount or fair value less cost to sell, PTR did not recognize any losses on the date it adopted SFAS No. 121. As part of PTR's asset optimization strategy, 19 multifamily communities and two non-multifamily properties were held for disposition as of December 31, 1996. The aggregate carrying value of properties held for disposition was $178.9 million at December 31, 1996. Each property's carrying value is less than or equal to its estimated fair market value, net of estimated costs to sell. Such properties are not depreciated during the period for which they are determined to be held for disposition. Subject to normal closing risks, PTR expects to complete the disposition of all properties during 1997 and redeploy the net proceeds from such dispositions primarily through tax-deferred exchanges into the acquisition of multifamily communities. The earnings from operations for properties held for disposition which are included in PTR's earnings from operations for 1996, 1995 and 1994 were $15.8 million, $15.3 million and $10.5 million, respectively. 44 PTR's other real estate investments are periodically evaluated for impairment and provisions for possible losses are made if required. As a result of such evaluation, PTR recorded a provision for possible loss of $220,000 and $1,600,000 during 1995 and 1994, respectively, relating to a non- multifamily investment which was subsequently sold in October 1995. Also, during 1995 it was determined that PTR could potentially be liable for certain maintenance items under the terms of a 1993 master lease agreement on a non- multifamily property which resulted in the recording of an estimated provision for loss of $200,000. The recording of a provision for loss has no impact on cash flow from operating activities. As of December 31, 1996, PTR's real estate investments were carried at depreciated cost, which is not in excess of fair market value. Extraordinary Item--Loss on Early Extinguishment of Debt During 1996, PTR prepaid $25.8 million in mortgage notes payable. Such early extinguishment of debt resulted in prepayment penalties and a write-off of unamortized loan costs in the aggregate of $870,000 which was recorded as an extraordinary item for 1996. ENVIRONMENTAL MATTERS PTR is subject to environmental regulations related to the ownership, operation, development and acquisition of real estate. As part of its due diligence procedures, PTR has conducted Phase I environmental assessments on each community prior to acquisition. The cost of complying with environmental regulations was not material to PTR's results of operations. PTR is not aware of any environmental condition on any of its communities that is likely to have a material adverse effect on PTR's financial position or results of operations. LIQUIDITY AND CAPITAL RESOURCES PTR considers its liquidity and ability to generate cash from operations and financings to be adequate and expects it to continue to be adequate to meet PTR's development, acquisition, operating, debt service, Homestead funding obligation and shareholder distribution requirements. Operating Activities Net cash flow provided by operating activities increased by $22.1 million (18.2%) for 1996 as compared to 1995 and $27.2 million (28.7%) for 1995 as compared to 1994. These increases are due primarily to multifamily property acquisitions and developments as described under "--Overview" and "--Results of Operations" above and, to a lesser extent, cash flow growth in communities fully operating in both comparative years. Investing and Financing Activities During 1996, 1995 and 1994, PTR invested cash of $628.6 million, $311.6 million and $380.7 million, respectively, in real estate investments relating primarily to the significant acquisition and development activity summarized in "--Overview" above. The $628.6 million invested in 1996 was financed primarily from $291.1 million of net proceeds received from property dispositions and proceeds from the issuance of $380 million of unsecured long- term debt. The $311.6 million invested in 1995 was financed primarily from $216.3 million of net proceeds from the sale of Common Shares and $101.3 million of net proceeds from the sale of Series B Preferred Shares. The $380.7 million invested in 1994 was financed primarily from $101.1 million of net proceeds from the sale of Common Shares and proceeds from the issuance of $200 million of unsecured long-term debt. Other significant financing activity included the payment of $114.9 million, $98.6 million and $62.2 million in Common and Preferred Share distributions and dividends for 1996, 1995 and 1994, respectively. The increases in these distributions and dividends from year to year reflect the sale of additional Common Shares issued in 1995 and 1994 and the impact of the Series B Preferred Shares issued in 1995. In addition to the cash financing and investing activities described above, in March 1995, PTR issued 8,468,460 Common Shares valued at $138.7 million, assumed $51.9 million in outstanding line of credit debt and assumed $54.4 million in mortgage debt in exchange for all of PACIFIC's common stock. Mortgage debt assumed in connection with other multifamily property acquisitions aggregated $104.2 million, $12.1 million and $56.6 million for 1996, 1995 and 1994, respectively. 45 Credit Facilities PTR has a $350 million unsecured revolving line of credit with TCB, as agent for a group of financial institutions (collectively, the "Lenders"). At March 10, 1997, there were approximately $151.5 million of borrowings outstanding on this line of credit. The line of credit matures August 1998 and may be extended annually for an additional year with the approval of the Lenders. The line of credit bears interest at the greater of prime (8.25% at March 10, 1997) or the federal funds rate plus 0.50% or at PTR's option, LIBOR (5.4375% at March 10, 1997) plus 1.125% (6.5625% at March 10, 1997). The spread over LIBOR can vary from LIBOR plus 0.75% to LIBOR plus 1.50% based upon the rating of PTR's senior unsecured debt. Additionally, there is a commitment fee on the average unfunded line of credit balance. The commitment fee was $396,000, $502,000 and $224,000 for 1996, 1995 and 1994, respectively. A summary of PTR's line of credit borrowings is as follows (dollars in thousands):
YEAR ENDED DECEMBER 31, -------------------------- 1996 1995 1994 -------- -------- -------- Borrowings outstanding at December 31......... $ 99,750 $129,000 $102,000 Weighted-average daily borrowings............. $112,248 $ 51,858 $ 59,890 Weighted-average daily nominal interest rate.. 7.3% 8.0% 7.0% Weighted-average daily effective interest rate......................................... 8.8% 11.1% 10.6%
On September 9, 1996, PTR entered into a short-term, unsecured, borrowing agreement with TCB. The loan matures September 9, 1997 and bears interest at an overnight rate, which has ranged from 5.80% to 7.50%. At March 10, 1997, there were $6.6 million of borrowings outstanding under this agreement. On March 10, 1997, PTR borrowed $60 million under a short-term borrowing agreement with a financial institution. The loan matures on September 10, 1997, but provides for early repayment at PTR's option on the 10th day of each month during the term. Interest is payable monthly at an annual rate of LIBOR plus 0.60% (6.0375% at March 10, 1997). These proceeds were used to repay borrowings under PTR's line of credit. The aggregate amount of borrowings outstanding under all of PTR's credit facilities on March 10, 1997 was $218.1 million. Long-Term Debt As of December 31, 1996, PTR has issued a total of $580 million of Notes, which bear interest at a specified rate per annum, payable semi-annually. Funds from such issuances were used primarily for acquisition, development and renovation of multifamily communities and to repay revolving credit balances incurred for such purposes. The following table summarizes the Notes:
ISSUANCE AVERAGE EFFECTIVE AND INTEREST RATE, AVERAGE OUTSTANDING AVERAGE INCLUDING OFFERING ORIGINAL PRINCIPAL COUPON DISCOUNTS AND LIFE DATE OF ISSUANCE AMOUNT RATE ISSUANCE COSTS (YEARS) ---------------- ----------- ------- ------------------ -------- October 21, 1996......... $130 million 7.350% 7.500% 6.85 August 6, 1996........... 100 million 7.840 7.950 15.60 February 23, 1996........ 150 million 7.710 7.840 15.50 February 8, 1994......... 200 million 7.240 7.370 14.25 ------------ ------ ------ ----- Total/Average $580 million 7.500% 7.620% 12.03 ============ ====== ====== =====
The Notes, other than a $15 million tranche of 6.500% Notes issued October 21, 1996 and due 2026 (the "6.500% Notes"), are redeemable any time at the option of PTR, in whole or in part, at a redemption price equal to the sum of the principal amount of the Notes being redeemed plus accrued interest thereon to the redemption date plus an adjustment, if any, based on the yield to maturity relating to market yields available at 46 redemption. The 6.500% Notes may be repaid on October 15, 1999 at the option of the holders at their full principal amount together with accrued interest. If the holders do not exercise their right to require PTR to repay the 6.500% Notes on October 15, 1999, they may be repaid at the option of PTR, in whole or in part, at a redemption price equal to the sum of the principal amount of the Notes being redeemed plus accrued interest thereon to the redemption date plus an adjustment, if any, based on the yield to maturity relating to market yields available at redemption. The Notes are governed by the terms and provisions of an indenture agreement. Mortgages Payable The changes in mortgages payable during the past three years consisted of the following (in thousands):
1996 1995 1994 -------- -------- ------- Balances at January 1........................ $158,054 $ 93,624 $48,872 Notes originated or assumed................. 104,176 66,481 56,624 Principal payments and prepayments.......... (45,042) (2,051) (11,872) -------- -------- ------- Balances at December 31...................... $217,188 $158,054 $93,624 ======== ======== =======
The overall effective interest rate of PTR's mortgages as of December 31, 1996 was 7.60%. Scheduled Debt Maturities As of December 31, 1996, approximate principal payments due during each of the years in the 20-year period ending December 31, 2016 are as follows (in thousands):
SHORT TERM UNSECURED UNSECURED BORROWING MORTGAGES LONG-TERM DEBT LINE OF CREDIT AGREEMENT TOTAL --------- -------------- -------------- ---------- -------- 1997......... $ 15,266 $ -- $ -- $10,450 $ 25,716 1998......... 40,012 -- 99,750 -- 139,762 1999......... 12,790 30,000 -- -- 42,790 2000......... 29,799 -- -- -- 29,799 2001......... 11,280 12,500 -- -- 23,780 2002......... 17,348 32,500 -- -- 49,848 2003......... 1,752 38,750 -- -- 40,502 2004......... 1,903 38,750 -- -- 40,653 2005......... 2,066 38,750 -- -- 40,816 2006......... 2,241 38,750 -- -- 40,991 2007......... 13,528 18,750 -- -- 32,278 2008......... 18,863 38,750 -- -- 57,613 2009......... 1,603 36,250 -- -- 37,853 2010......... 1,732 38,750 -- -- 40,482 2011......... 1,871 25,000 -- -- 26,871 2012......... 2,022 30,000 -- -- 32,022 2013......... 2,185 35,000 -- -- 37,185 2014......... 2,361 42,500 -- -- 44,861 2015......... 2,551 40,000 -- -- 42,551 2016......... 2,756 45,000 -- -- 47,756 Thereafter... 33,259 -- -- -- 33,259 -------- -------- ------- ------- -------- Total........ $217,188 $580,000 $99,750 $10,450 $907,388 ======== ======== ======= ======= ========
47 Covenants PTR's debt instruments generally contain certain covenants common to the type of facility or borrowing, including financial covenants establishing minimum debt service coverage ratios and maximum loan to value ratios. PTR was in compliance with all covenants pertaining to its debt instruments at December 31, 1996. Commitments and Contingencies At January 31, 1997, PTR had contingent contracts or letters of intent, subject to PTR's final due diligence and approval of all entitlements, to acquire land for new development communities with an estimated 3,507 multifamily units at a total budgeted development cost of $264.5 million. At the same date, PTR also had contingent contracts or letters of intent, subject to final due diligence, for the acquisition of 964 additional operating multifamily units with a total expected investment of $77.2 million, including budgeted renovations. At January 31, 1997, PTR had unfunded development commitments for developments under construction of $158.8 million. For a description of unfunded commitments in connection with the Homestead transaction, see "--Homestead Transaction" below. PTR expects to finance these activities and other future investment and operating needs with cash on hand, borrowings under its credit facilities and disposition proceeds from its asset optimization strategy, prior to arranging long-term capital. The credit facilities will facilitate an efficient response to market opportunities while minimizing the amount of cash invested in short- term investments at lower yields. As of March 10, 1997, there were approximately $218.1 million of borrowings outstanding under all of PTR's credit facilities. Other sources of future liquidity and financial flexibility include $170 million in shelf-registered securities which can be issued in the form of unsecured long-term debt or preferred shares on an as-needed basis, subject to PTR's ability to effect an offering on satisfactory terms. PTR believes that its current conservative ratio of long-term debt to total long- term undepreciated book capitalization (the sum of long-term debt and shareholders' equity after adding back accumulated depreciation) of 36.9% at December 31, 1996, provides considerable flexibility to prudently increase its capital base by utilizing long-term debt as a financing tool in the future. From time to time, PTR utilizes derivative financial instruments as hedges in anticipation of future debt offerings in order to manage well-defined interest rate risk. In anticipation of a 1997 debt offering, PTR entered into interest rate contracts in 1996 with notional amounts aggregating $50 million which PTR plans to terminate when the anticipated offering is completed. As of March 10, 1997, the fair market value of these contracts was an unrealized loss of approximately $69,250. The gain or loss ultimately realized upon termination of the hedge will be deferred and amortized into interest expense over the term of the related debt. Homestead Transaction On October 17, 1996, PTR, ATLANTIC, Security Capital Group and Homestead consummated a merger agreement pursuant to which each of PTR, ATLANTIC and Security Capital Group contributed, through a series of merger transactions, all of their respective assets related to their Homestead Village(R) extended- stay lodging assets to Homestead, a newly formed company. In connection with the transaction, PTR and ATLANTIC entered into funding commitment agreements to finance the development of certain Homestead properties. PTR contributed 54 Homestead Village(R) properties (or the rights to acquire such properties) ("Homestead Assets") to Homestead in exchange for 9,485,727 shares of Homestead common stock. Simultaneously, PTR received 6,363,789 warrants to acquire additional shares of Homestead common stock at a price of $10.00 per share in exchange for entering into a funding commitment agreement. In this agreement, PTR agreed to provide up to $198.8 million in secured financing for developments to Homestead in exchange for up to $221.3 million in Homestead Notes, including those existing on the properties at the transaction date. 48 The Homestead Notes were created under a master facility providing for aggregate fundings of up to $198.8 million in exchange for notes with a face amount of up to $221.3 million. Under the terms of the funding commitment agreement, PTR receives approximately $1.00 in principal amount of Homestead Notes for every $.90 funded (i.e., the Homestead Notes are issued at a discount). The discount is amortized into interest income over the term of the Homestead Notes using a method which approximates the effective interest method. Maximum fundings are established for each individual development project and specific liens are recorded to secure payment. The Homestead Notes are cross-collateralized, which enables PTR to foreclose or take possession of any one or more of the underlying properties upon the occurrence of an event of default. The Homestead Notes require semi-annual interest-only payments at 9% per annum of the face amount of the Homestead Notes outstanding, are callable at the option of Homestead after 5 years and mature on October 31, 2006. The Homestead Notes are convertible into Homestead common stock after March 31, 1997 on the basis of one share of Homestead common stock for every $11.50 of principal amount outstanding, subject to adjustment. The initial value attributed to the conversion feature has been recorded as an additional component of the Homestead Notes' balance and the corresponding discount is being amortized into interest income over the term of the Homestead Notes using a method which approximates the effective interest method. The difference between the fair value of the Homestead Notes (assuming conversion), based upon the closing price of $18.00 of Homestead's common stock on the ASE at December 31, 1996, and the amortized cost of the Homestead Notes is reflected as an additional component of the Homestead Notes' balance and as an unrealized holding gain. PTR also received warrants to purchase Homestead common stock in exchange for entering into the funding commitment agreement. The warrants were distributed to PTR shareholders with the Homestead common stock in the Homestead Distribution. The benefit associated with the receipt of the Homestead warrants has been recorded as deferred revenue which is included in accrued expenses and other liabilities and is being amortized into interest income using a method which approximates the effective interest method over the term of the Homestead Notes. PTR deducts from net earnings the interest income related to the amortization of discounts and warrant-related deferred revenue in calculating funds from operations. Therefore, the effective interest rate on the Homestead Notes as a percentage of the "funded" balance for purposes of calculating funds from operations is approximately 10.7% per annum as compared to approximately 12.4% per annum for purposes of calculating net earnings. Through February 28, 1997, PTR had funded $111.4 million of its funding commitment. This leaves a remaining commitment under the funding commitment agreement of approximately $87.4 million, which will be provided to Homestead to fund developments as needed on development properties contributed by PTR. During 1997 and the first half of 1998, PTR expects to complete the funding of the Homestead Notes which are convertible into Homestead common stock at a price of $11.50 per share. PTR's ownership of the Homestead Notes, assuming full funding and conversion, would result in the following incremental value per PTR Common Share as of December 31, 1996 (in thousands, except per share amounts): Homestead common stock price (at 12/31/96)...................... $ 18.00 Conversion price................................................ $ 11.50 -------- Incremental value per share of Homestead common stock......... $ 6.50 Shares of Homestead common stock upon conversion (at full funding)....................................................... 19,246 -------- Total incremental value from conversion....................... $125,099 PTR Common Shares outstanding (at 12/31/96)..................... 75,511 -------- Assumed incremental value per PTR Common Share at December 31, 1996......................................................... $ 1.66 ========
49 Upon full funding of the Homestead Notes and after giving effect to the Homestead Distribution described below, PTR's conversion rights would represent a 34.7% ownership interest in Homestead. This ownership interest assumes no further equity offerings by Homestead, conversion of all Homestead Notes by PTR and ATLANTIC and exercise of all outstanding warrants. PTR's Homestead common stock and warrants to acquire additional common stock were distributed on November 12, 1996 to holders of record of Common Shares on October 29, 1996. Each PTR shareholder received 0.125694 shares of Homestead common stock and 0.084326 warrants per PTR Common Share plus cash for fractional shares and warrants in the Homestead Distribution. Merger and Concurrent Subscription Offering On March 23, 1995, PTR consummated a merger (the "Merger") of PACIFIC with and into PTR. PACIFIC was a private multifamily REIT controlled by Security Capital Group. In the Merger, each outstanding share of PACIFIC common stock was converted into the right to receive 0.611 Common Shares. As a result, 8,468,460 Common Shares were issued in the Merger in exchange for all outstanding shares of PACIFIC common stock. The Merger expanded PTR's target market to include a six-state region of the western United States that the REIT Manager believes will provide attractive multifamily growth opportunities. Additionally, PTR changed its name from Property Trust of America to Security Capital Pacific Trust to more accurately reflect its target market. Concurrently with the consummation of the Merger, PTR completed a subscription offering pursuant to which PTR received net proceeds of $216.3 million (13.2 million Common Shares). The subscription offering was designed to allow shareholders of PTR to purchase Common Shares at the same price at which PACIFIC shareholders acquired Common Shares in the Merger ($16.375 per Common Share). Security Capital Group purchased $50 million (3.1 million Common Shares at $16.375 per Common Share) in the subscription offering pursuant to the oversubscription privilege. Distributions PTR announces the following year's projected annual distribution level after the Board's annual budget review and approval in December of each year. At its December 10, 1996 Board meeting, the Board announced a projected increase in the annual distribution level from $1.24 to $1.30 per Common Share and declared the first quarter 1997 distribution of $0.325 per Common Share. The first quarter distribution was paid on February 20, 1997, to shareholders of record on February 7, 1997. The payment of distributions is subject to the discretion of the Board and is dependent upon the financial condition and operating results of PTR. Preferred Shares In November 1993, PTR issued $230 million of Series A Preferred Shares that are entitled to receive an annual dividend equal to the greater of $1.75 per share and the dividend which would be received if the Series A Preferred Shares were converted to Common Shares. This amounted to $14.7 million, $16.1 million and $16.1 million for 1996, 1995 and 1994, respectively. The decrease in the dividend during 1996 is attributable to approximately 2,705,000 Series A Preferred Shares being converted into approximately 3,294,000 Common Shares during 1996. In connection with the Homestead transaction described above, the conversion ratio was adjusted from 1.2162 to 1.3469 Common Shares for each Series A Preferred Share. Based on this conversion ratio and the 1997 projected distribution of $1.30 per Common Share, the dividend per Series A Preferred Share is expected to be approximately $1.751 in 1997. In May 1995, PTR issued $105 million of Series B Preferred Shares that are entitled to receive an annual dividend of $2.25 per share (9.0% annual dividend rate), which amounted to $9.5 million for 1996 and $5.7 million for 1995. The Preferred Share dividends do not reduce the amount PTR has budgeted for Common Share distributions but do increase the percentage of the Common Share distribution that constitutes a non-taxable return of capital. 50 Funds From Operations Funds from operations is defined as net earnings computed in accordance with GAAP, excluding gains (or losses) plus depreciation and provision for possible loss on investments and excluding extraordinary items. Management believes that an understanding of funds from operations will enhance the reader's comprehension of PTR's results of operations and cash flows presented in the financial statements and other sections within this document. In July 1994, PTR changed to the more conservative policy of expensing the amortization of loan costs in determining funds from operations. For comparability, funds from operations has been restated to give effect to this policy as if it had been in effect since January 1, 1992. Funds from operations should not be construed as a substitute for "net earnings" in evaluating operating results nor as a substitute for "cash flow" in evaluating liquidity and the funds from operations measure presented by PTR may not be comparable to similarly titled measures of other REITs. In 1996, PTR contributed its Homestead Assets to Homestead, as more fully described above under "--Homestead Transaction". Management believes that funds from operations for 1996 and 1995 should be adjusted to reflect the effects of the Homestead transaction on funds from operations in order to be comparable. Accordingly, the table below also presents pro forma funds from operations, which have been calculated as if the Homestead transaction had occurred on January 1, 1995. Management believes that the pro forma funds from operations information presented below provides a more meaningful comparison of 1996 and 1995; however, the pro forma funds from operations information is unaudited and is not necessarily indicative of what actual funds from operations would have been if the Homestead transaction had occurred on January 1, 1995. Funds from operations and pro forma funds from operations were as follows (amounts in thousands):
YEAR ENDED DECEMBER 31, ----------------- 1996 1995 -------- ------- Net earnings attributable to Common Shares............ $106,544 $62,496 Add (Deduct): Depreciation........................................ 44,887 36,685 Provision for possible loss on investments.......... -- 420 Gain or loss on sale of investments................. (37,492) (2,623) Extraordinary item--loss on early extinguishment of debt, net.......................................... 739 -- Interest income on Homestead Notes (non-cash portion)........................................... (141) -- -------- ------- Historical funds from operations attributable to Common Shares........................................ 114,537 96,978 -------- ------- Add (deduct) pro forma adjustments relating to the contribution of Homestead Assets: Reduction in revenues and operating expenses(1)..... (13,294) (9,314) Increase in interest income(2)...................... 4,093 446 Increase in interest expense(3)..................... (460) (778) Reduction in capitalized interest(4)................ (2,246) (2,149) REIT Management fee effect(5)....................... 2,757 1,988 Other............................................... 35 62 -------- ------- Total pro forma adjustments....................... (9,115) (9,745) -------- ------- Pro forma funds from operations attributable to Common Shares............................................... $105,422 $87,233 ======== ======= Weighted-average Common Shares outstanding............ 73,057 67,052 ======== =======
- -------- (1) Represents the elimination of Homestead's historical revenues and operating expenses. (2) Represents the interest income which would have been recognized on the Homestead Notes, assuming that PTR received Homestead common stock in exchange for its contribution first, and then Homestead Notes in exchange for the balance of its contribution over the respective time periods. 51 (3) Represents the assumed amount of incremental interest expense which would have been incurred as a result of higher line of credit balances. (4) Represents the reclassification of historical interest costs capitalized on Homestead developments to interest expense. (5) Represents the decrease in REIT Management fee that would have resulted from the pro forma adjustments. REIT MANAGEMENT AGREEMENT Effective March 1, 1991, PTR entered into a REIT management agreement (the "REIT Management Agreement") with the REIT Manager pursuant to which the REIT Manager assumed day-to-day management of PTR. All officers of PTR are employees of the REIT Manager and PTR currently has no employees. The REIT Manager provides both strategic and day-to-day management of PTR, including research, investment analysis, acquisition, development, dispositions, property management, capital markets, legal, accounting and other administrative services. The REIT Manager is a wholly owned subsidiary of Security Capital Group, which owned 36.0% of the Common Shares as of February 28, 1997. The REIT Management Agreement requires PTR to pay a base annual fee of $855,000 plus 16% of cash flow as defined in the REIT Management Agreement in excess of $4,837,000, payable monthly. In the REIT Management Agreement, cash flow is calculated by reference to PTR's cash flow from operations plus (i) fees paid to the 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 inception of the REIT Management Agreement); and after deducting (i) regularly scheduled principal payments (excluding prepayments or balloon payments) for debt with commercially reasonable amortization schedules, (ii) actual or assumed principal and interest payments on long-term debt, (iii) interest income received in connection with the Homestead Notes and (iv) distributions actually paid with respect to any nonconvertible preferred shares of beneficial interest of PTR. The REIT Management Agreement provides that long-term unsecured debt is treated as if it had regularly scheduled principal and interest payments similar to 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 dividend and interest income from PTR Development Services, realized gains or losses from dispositions of investments or income from cash equivalent investments. The REIT Manager also receives a fee of 0.25% per year on the average daily balance of cash equivalent investments. Since the REIT Management fee fluctuates with the level of PTR's pre-REIT Management fee cash flow, the fee has increased for each of the years ended December 31, 1996, 1995 and 1994, because cash flow increased substantially throughout the same periods. As PTR arranges additional amortizing long-term debt and nonconvertible preferred share financing and as additional funding of Homestead Notes occurs, the REIT Management fee will effectively decline in proportion to PTR's earnings from operations. This decline will result from the fact that actual or assumed regularly scheduled principal payments associated with long-term debt and distributions actually paid with respect to nonconvertible preferred shares are deducted from the cash flow amount on which the REIT Management fee is based. Similarly, interest income from the Homestead Notes is not included in the cash flow amount in determining the REIT Management fee. PTR is obligated to reimburse the REIT Manager for certain expenses incurred by the REIT Manager on behalf of PTR relating to PTR's operations, consisting primarily of external professional fees, offering costs and travel expenses. The REIT Management Agreement is renewable by PTR annually, subject to a determination by the independent Trustees (who receive performance benchmark information verified by an independent third party) that the REIT Manager's performance has been satisfactory and that the compensation payable to the REIT Manager is fair. Each of PTR and the REIT Manager may terminate the REIT Management Agreement on 60 days' notice. 52 PTR recently announced that it received a proposal from Security Capital Group to exchange the REIT Manager and SCG Realty Services for Common Shares. As a result of the proposed transaction, PTR would become an internally managed REIT and Security Capital Group would remain PTR's largest shareholder. The Board has formed a special committee comprised of independent Trustees to review the proposed transaction. The proposed transaction is subject to approval by both the special committee and the full Board. If the Board approves the transaction, a proxy statement, subject to review by the Securities and Exchange Commission, will be mailed to PTR's common shareholders prior to a shareholder vote on the proposed transaction. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PTR's Balance Sheets as of December 31, 1996 and 1995, its Statements of Earnings, Shareholders' Equity and Cash Flows for each of the years in the three-year period ended December 31, 1996 and Schedule III--Real Estate and Accumulated Depreciation, together with the report of KPMG Peat Marwick LLP, independent auditors, are included under Item 14 of this report and are incorporated herein by reference. Selected quarterly financial data is presented in Note 10 of Notes to Financial Statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE MATTERS Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information regarding PTR's executive officers, see "Item 1. Business-- Trustees and Officers of PTR and Directors and Officers of the REIT Manager and Relevant Affiliates." The other information required by this Item 10 is incorporated herein by reference to the description under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in PTR's definitive proxy statement for its 1997 annual meeting of shareholders (the "1997 Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION Incorporated herein by reference to the description under the captions "Trustee Compensation" and "PTR Officers" in the 1997 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated herein by reference to the description under the captions "Principal Shareholders" and "Election of Trustees" in the 1997 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated herein by reference to the description under the caption "Certain Relationships and Transactions" in the 1997 Proxy Statement. 53 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as a part of this report: (a) Financial Statements and Schedules: 1. Financial Statements: See Index to Financial Statements and Schedule on page 55 of this report, which is incorporated herein by reference. 2. Financial Statement Schedules: Schedule III. All other schedules have been omitted since the required information is presented in the financial statements and the related notes or is not applicable. 3. Exhibits See Index to Exhibits on pages 88-90 of this report, which is incorporated herein by reference. (b) Reports on Form 8-K: The following reports on Form 8-K were filed during the last quarter of the period covered by this report.
ITEMS FINANCIAL DATE REPORTED STATEMENTS ---- -------- ---------- October 14, 1996...................................... 5,7 yes October 17, 1996...................................... 5,7 no
(c) Exhibits: The Exhibits required by Item 601 of Regulation S-K are listed in the Index to Exhibits on pages 88-90 of this report, which is incorporated herein by reference. 54 INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
PAGE ---- SECURITY CAPITAL PACIFIC TRUST: Independent Auditors' Report............................................ 56 Balance Sheets as of December 31, 1996 and 1995......................... 57 Statements of Earnings for the years ended December 31, 1996, 1995 and 1994................................................................... 58 Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994.................................................... 59 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994................................................................... 60 Notes to Financial Statements........................................... 61 Schedule III--Real Estate and Accumulated Depreciation as of December 31, 1996............................................................... 80
55 INDEPENDENT AUDITORS' REPORT The Board of Trustees and Shareholders SECURITY CAPITAL PACIFIC TRUST: We have audited the financial statements of SECURITY CAPITAL PACIFIC TRUST as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Trust'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 TRUST as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, 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 Chicago, Illinois January 29, 1997, except as to Note 13which is as of March 10, 1997 56 SECURITY CAPITAL PACIFIC TRUST BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS DECEMBER 31, ------ ---------------------- 1996 1995 ---------- ---------- Real estate............................................ $2,153,363 $1,855,866 Less accumulated depreciation.......................... 97,574 81,979 ---------- ---------- 2,055,789 1,773,887 Homestead Notes........................................ 176,304 -- Other mortgage notes receivable........................ 13,525 15,844 ---------- ---------- Net investments.................................... 2,245,618 1,789,731 Cash and cash equivalents.............................. 5,643 26,919 Accounts receivable and accrued interest............... 4,157 3,318 Other assets........................................... 27,014 21,031 ---------- ---------- Total assets....................................... $2,282,432 $1,840,999 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Lines of credit...................................... $ 110,200 $ 129,000 Long-term debt....................................... 580,000 200,000 Mortgages payable.................................... 217,188 158,054 Distributions payable................................ 24,537 22,437 Accounts payable..................................... 22,782 21,040 Accrued expenses and other liabilities............... 60,217 34,800 ---------- ---------- Total liabilities.................................. 1,014,924 565,331 ---------- ---------- Shareholders' equity: Series A Preferred Shares (6,494,967 convertible shares in 1996 and 9,200,000 in 1995; stated liquidation preference of $25 per share)............ 162,374 230,000 Series B Preferred Shares (4,200,000 shares issued; stated liquidation preference of $25 per share)..... 105,000 105,000 Common Shares (shares issued--75,510,986 in 1996 and 72,375,819 in 1995)................................. 75,511 72,376 Additional paid-in capital........................... 918,434 952,679 Unrealized holding gain on Homestead Notes........... 74,923 -- Distributions in excess of net earnings.............. (68,734) (82,450) Treasury shares (164,901 in 1995).................... -- (1,937) ---------- ---------- Total shareholders' equity......................... 1,267,508 1,275,668 ---------- ---------- Total liabilities and shareholders' equity......... $2,282,432 $1,840,999 ========== ==========
The accompanying notes are an integral part of the financial statements. 57 SECURITY CAPITAL PACIFIC TRUST STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, -------------------------- 1996 1995 1994 -------- -------- -------- Revenues: Rental income..................................... $322,046 $262,473 $183,472 Interest income on Homestead Notes................ 2,035 -- -- Other interest income............................. 2,165 2,400 2,633 -------- -------- -------- 326,246 264,873 186,105 -------- -------- -------- Expenses: Rental expenses................................... 89,550 73,808 55,772 Real estate taxes................................. 26,962 21,326 16,093 Property management fees paid to affiliates....... 11,610 8,912 7,148 Depreciation...................................... 44,887 36,685 24,614 Interest.......................................... 35,288 19,584 19,442 REIT management fee paid to affiliate............. 22,191 20,354 13,182 General and administrative........................ 1,077 952 784 Provision for possible loss on investments........ -- 420 1,600 Other............................................. 592 1,136 751 -------- -------- -------- 232,157 183,177 139,386 -------- -------- -------- Earnings from operations............................ 94,089 81,696 46,719 Gain on sale of investments, net.................... 37,492 2,623 -- -------- -------- -------- Net earnings before extraordinary item.............. 131,581 84,319 46,719 Less extraordinary item-loss on early extinguishment of debt............................................ 870 -- -- -------- -------- -------- Net earnings........................................ 130,711 84,319 46,719 Less Preferred Share dividends...................... 24,167 21,823 16,100 -------- -------- -------- Net earnings attributable to Common Shares........ $106,544 $ 62,496 $ 30,619 ======== ======== ======== Weighted-average Common Shares outstanding.......... 73,057 67,052 46,734 ======== ======== ======== Per Common Share amounts............................ Net earnings before extraordinary item............ $ 1.47 $ 0.93 $ 0.66 ======== ======== ======== Net earnings...................................... $ 1.46 $ 0.93 $ 0.66 ======== ======== ========
The accompanying notes are an integral part of the financial statements. 58 SECURITY CAPITAL PACIFIC TRUST STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996 (IN THOUSANDS EXCEPT SHARE DATA)
SHARES OF BENEFICIAL INTEREST, $1.00 PAR VALUE ------------------------------- SERIES A SERIES B PREFERRED PREFERRED SHARES AT SHARES AT COMMON AGGREGATE AGGREGATE SHARES ADDITIONAL UNREALIZED DISTRIBUTIONS LIQUIDATION LIQUIDATION AT PAR PAID-IN HOLDING IN EXCESS OF TREASURY PREFERENCE PREFERENCE VALUE CAPITAL GAINS NET EARNINGS SHARES TOTAL ----------- ----------- ------- ---------- ---------- ------------- -------- ---------- Balances at December 31, 1993................... $230,000 $ -- $44,809 $523,053 $ -- $ (40,916) $(1,929) $ 755,017 Net earnings........... -- -- -- -- -- 46,719 -- 46,719 Common Share distributions paid.... -- -- -- -- -- (46,121) -- (46,121) Redemption of shareholder purchase rights................ -- -- -- -- -- (448) -- (448) Net increase in Common Share distributions accrued............... -- -- -- -- -- (3,345) -- (3,345) Preferred Share dividends paid........ -- -- -- -- -- (16,100) -- (16,100) Sale of shares, net of expenses.............. -- -- 5,594 95,482 -- -- -- 101,076 Dividend Reinvestment and Share Purchase Plan, net............. -- -- 216 3,607 -- -- -- 3,823 Exercise of stock options, net.......... -- -- 2 19 -- -- -- 21 -------- -------- ------- -------- ------- --------- ------- ---------- Balances at December 31, 1994................... 230,000 -- 50,621 622,161 -- (60,211) (1,929) 840,642 Net earnings........... -- -- -- -- -- 84,319 -- 84,319 Common Share distributions paid.... -- -- -- -- -- (76,804) -- (76,804) Net increase in Common Share distributions accrued............... -- -- -- -- -- (7,931) -- (7,931) Preferred Share dividends paid........ -- -- -- -- -- (21,823) -- (21,823) Issuance of shares, net of expenses........... -- 105,000 21,694 329,591 -- -- -- 456,285 Dividend Reinvestment and Share Purchase Plan, net............. -- -- 61 927 -- -- -- 988 Cost of treasury shares purchased............. -- -- -- -- -- -- (8) (8) -------- -------- ------- -------- ------- --------- ------- ---------- Balances at December 31, 1995................... 230,000 105,000 72,376 952,679 -- (82,450) (1,937) 1,275,668 Net earnings........... -- -- -- -- -- 130,711 -- 130,711 Common Share distributions paid.... -- -- -- -- -- (90,728) -- (90,728) Net increase in Common Share distributions accrued............... -- -- -- -- -- (2,100) -- (2,100) Preferred Share dividends paid........ -- -- -- -- -- (24,167) -- (24,167) Conversion of Series A Preferred shares into Common Shares......... (67,626) -- 3,294 64,332 -- -- -- -- Distribution of Homestead common stock and warrants at book value, net of transaction expenses.. -- -- -- (96,914) -- -- -- (96,914) Unrealized holding gain on Homestead Notes.... -- -- -- -- 74,923 -- -- 74,923 Cost of treasury shares purchased............. -- -- -- -- -- -- (1) (1) Retirement of 164,957 treasury shares....... -- -- (165) (1,773) -- -- 1,938 -- Exercise of stock options, net.......... -- -- 6 110 -- -- -- 116 -------- -------- ------- -------- ------- --------- ------- ---------- Balances at December 31, 1996................... $162,374 $105,000 $75,511 $918,434 $74,923 $ (68,734) $ -- $1,267,508 ======== ======== ======= ======== ======= ========= ======= ==========
The accompanying notes are an integral part of the financial statements. 59 SECURITY CAPITAL PACIFIC TRUST STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------- 1996 1995 1994 --------- --------- --------- Operating Activities Net earnings................................. $ 130,711 $ 84,319 $ 46,719 Adjustments to reconcile net earnings to net cash flow provided by operating activities: Depreciation and amortization.............. 46,911 38,228 26,517 Provision for possible loss on investments. -- 420 1,600 Gain on sale of investments, net........... (37,492) (2,623) -- Increase in accounts payable............... 565 2,719 3,463 (Decrease) increase in accrued real estate taxes..................................... (2,168) 2,167 7,874 Increase in accrued interest on long-term debt...................................... 9,214 -- 5,391 Increase in accrued expenses and other liabilities............................... 4,240 4,857 4,264 Increase in other operating assets......... (8,042) (8,292) (1,203) --------- --------- --------- Net cash flow provided by operating activities.................................. 143,939 121,795 94,625 --------- --------- --------- Investing activities: Real estate investments...................... (628,640) (311,619) (380,688) Advances on Homestead Notes.................. (25,242) -- -- Mortgage notes receivable.................... -- (1,538) (162) Principal repayments on other mortgage notes receivable.................................. 2,319 7,701 189 Proceeds from dispositions, net of closing costs....................................... 291,056 10,968 12,146 Operating cash contributed in Homestead transaction................................. (428) -- -- --------- --------- --------- Net cash flow used in investing activities. (360,935) (294,488) (368,515) --------- --------- --------- Financing activities: Proceeds from sale of shares, net of expenses.................................... -- 317,614 101,076 Proceeds from lines of credit................ 510,985 278,000 266,250 Principal payments on lines of credit........ (529,785) (302,900) (215,750) Proceeds from Dividend Reinvestment and Share Purchase Plan, net.................... -- 988 3,823 Proceeds from long-term debt................. 380,000 -- 200,000 Debt issuance costs incurred................. (5,659) (1,496) (4,422) Cash distributions paid on Common Shares..... (90,728) (76,804) (46,121) Cash dividends paid on Preferred Shares...... (24,167) (21,823) (16,100) Redemption of shareholder purchase rights.... -- -- (448) Regularly scheduled principal payments on mortgages payable........................... (2,037) (1,748) (1,398) Principal prepayment of mortgages payable.... (43,005) (303) (10,474) Proceeds from exercise of stock options...... 116 (8) 21 --------- --------- --------- Net cash flow provided by financing activities................................ 195,720 191,520 276,457 --------- --------- --------- Net increase (decrease) in cash and cash equivalents.................................. (21,276) 18,827 2,567 Cash and cash equivalents at beginning of year......................................... 26,919 8,092 5,525 --------- --------- --------- Cash and cash equivalents at end of year...... $ 5,643 $ 26,919 $ 8,092 ========= ========= ========= Non-cash investing and financing activities: Assumption of mortgages payable upon purchase of multifamily communities......... $ 104,176 $ 12,078 $ 56,624 Series A Preferred Shares converted to Common Shares............................... $ 67,626 $ -- $ -- Accrual of Common Share distributions........ $ 24,537 $ 22,437 $ 14,506 Fair market value adjustment related to Homestead Notes............................. $ 74,923 $ -- $ -- Other: Homestead transaction--See description in Note 2 Merger with Security Capital Pacific Incorporated--See description in Note 3
The accompanying notes are an integral part of the financial statements. 60 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Security Capital Pacific Trust (New York Stock Exchange Symbol: "PTR") is an equity real estate investment trust ("REIT") organized in 1963 under the laws of the state of Maryland, which primarily owns, develops, acquires and operates income-producing multifamily communities in the western United States. Principles of Financial Presentation The accounts of PTR and its majority-owned subsidiaries are consolidated in the accompanying financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of these financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. Cash and Cash Equivalents PTR 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 depreciated cost, which is not in excess of estimated fair market value. Costs directly related to the acquisition (including costs related to certain planned renovations identified during PTR's pre-acquisition due diligence), development or improvement of real estate, and certain indirect costs related to developments are capitalized. Costs incurred in connection with the pursuit of unsuccessful acquisitions or developments are expensed at the time the pursuit is abandoned. Depreciation is computed over the expected useful lives of depreciable property on a straight-line basis. Real estate assets are depreciated principally over the following useful lives: Buildings and improvements... 20-40 years Furnishings and other........ 2-10 years
Make-Ready and Repairs and Maintenance Make-ready (expenditures incurred in preparing a vacant multifamily unit for the next tenant) and repairs and maintenance expenditures, other than acquisition-related renovation costs identified during PTR's pre-acquisition due diligence, are expensed as incurred. PTR generally expenses carpet and appliance repairs and replacements after any planned acquisition-related renovation expenditures for such items have been incurred. Interest During 1996, 1995 and 1994, the total interest paid in cash on all outstanding debt, net of interest capitalized, was $23,631,000, $17,674,000 and $11,949,000, respectively. PTR capitalizes interest incurred during the construction period as part of the cost of multifamily communities under development. Interest capitalized during 1996, 1995 and 1994 aggregated $16,941,000, $11,741,000 and $6,029,000, respectively. 61 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Cost of Raising Capital Costs incurred in connection with the issuance of equity securities are deducted from shareholders' equity. Costs incurred in connection with the issuance or renewal of debt are capitalized as other assets and amortized over the term of the related loan or the renewal period. Amortization of loan costs included in interest expense for 1996, 1995 and 1994 was $2,233,000, $1,543,000 and $1,903,000, respectively. Interest Rate Contracts From time to time, PTR utilizes derivative financial instruments as hedges in anticipation of future debt offerings to manage well-defined interest rate risk. Unrealized changes in the market value of interest rate contracts are deferred until the hedged transaction is consummated and realized gains and losses resulting from changes in the market value of these contracts are deferred and amortized into interest expense over the life of the related debt issuance. Revenue and Gain Recognition PTR leases its multifamily units under operating leases with terms of generally less than one year. Rental income is recognized according to the terms of the underlying leases which approximates the revenue which would be recognized if spread evenly over the lease term. Gains on sales of real estate are recorded when the recognition criteria set forth by generally accepted accounting principles have been met. Rental Expenses Rental expenses shown on the accompanying Statement of Earnings include costs of on-site personnel, utilities, repairs and maintenance, make-ready, property insurance, marketing, landscaping, property management fees paid to unaffiliated companies, and other on-site administrative costs. Federal Income Taxes PTR has made an election to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. PTR believes it qualifies as a REIT and, accordingly, no provisions have been made for federal income taxes in the accompanying financial statements. Per Share Data Primary earnings per share is computed based on the weighted average number of common shares of beneficial interest, par value $1.00 per share ("Common Shares"), outstanding. Fully diluted earnings per Common Share is calculated from the weighted average Common Shares outstanding plus the Common Shares that would be outstanding assuming conversion of all outstanding cumulative convertible Series A Preferred Shares of Beneficial Interest, par value $1.00 per share ("Series A Preferred Shares"), outstanding Trustee options and certain warrants exercisable by third parties (Note 8). For purposes of the fully diluted earnings per share calculation, dividends on the Series A Preferred Shares are added back to net earnings attributable to Common Shares. Primary earnings per share and fully diluted earnings per share were approximately the same for each of the three years presented, although there was reportable dilution for the third quarter of 1996. See Note 10. Reclassifications Certain of the 1995 and 1994 amounts have been reclassified to conform to the 1996 presentation. 62 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (2) HOMESTEAD TRANSACTION On October 17, 1996, PTR, Security Capital Atlantic Incorporated ("ATLANTIC"), Security Capital Group Incorporated ("Security Capital Group") and Homestead Village Incorporated ("Homestead") consummated a merger agreement pursuant to which each of PTR, ATLANTIC and Security Capital Group contributed, through a series of merger transactions, all of their respective assets related to their Homestead Village(R) extended-stay lodging assets to Homestead, a newly formed company. In connection with the transaction, PTR and ATLANTIC entered into funding commitment agreements to finance the development of certain Homestead properties. PTR contributed 54 Homestead Village(R) properties (or the rights to acquire such properties) ("Homestead Assets") to Homestead in exchange for 9,485,727 shares of Homestead common stock. Simultaneously, PTR received 6,363,789 warrants to acquire additional shares of Homestead common stock at a price of $10.00 per share in exchange for entering into a funding commitment agreement. In this agreement PTR agreed to provide up to $198.8 million in secured financing for developments to Homestead in exchange for up to $221.3 million in convertible mortgage notes ("Homestead Notes"), including those existing on the properties at the transaction date. See Note 5 for information on the Homestead Notes. Upon full funding of the Homestead Notes and after giving effect to the Homestead Distribution described below, PTR's conversion rights would represent a 34.7% ownership interest in Homestead. This ownership interest assumes no further equity offerings by Homestead, conversion of all Homestead Notes by PTR and ATLANTIC and exercise of all outstanding warrants. PTR's Homestead common stock and warrants to acquire additional common stock were distributed on November 12, 1996 to holders of record of Common Shares on October 29, 1996 (the "Homestead Distribution"). Each PTR shareholder received 0.125694 shares of Homestead common stock and 0.084326 warrants per PTR Common Share plus cash for fractional shares and warrants. As of October 17, 1996, the Homestead Assets owned by PTR constituted 7.1% of PTR's total assets, and PTR's investment in its wholly owned Homestead Village subsidiaries, including intercompany advances, constituted less than 1% of PTR's total assets. PTR's Homestead Village(R) operations accounted for approximately 8.2% of PTR's total earnings from operations from January 1, 1996 to October 17, 1996. The Homestead transaction had the following impact on PTR's balance sheet as of October 17, 1996, after giving effect to the Homestead Distribution (in thousands): Real estate contributed, net.................................... $154,731 Other non-cash operating assets and liabilities contributed, net............................................................ 3,001 Operating cash contributed...................................... 428 Deferred revenue (included in accrued expenses) relating to PTR's funding commitment....................................... 14,700 -------- $172,860 ======== Homestead Notes received (funded amount)........................ $ 75,946 Homestead common stock and warrants distributed to PTR common shareholders (recorded as a reduction of additional paid-in capital)....................................................... 96,914 -------- $172,860 ========
63 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (3) 1995 MERGER OF SECURITY CAPITAL PACIFIC INCORPORATED AND CONCURRENT SUBSCRIPTION OFFERING On March 23, 1995, PTR consummated a merger (the "Merger") of Security Capital Pacific Incorporated ("PACIFIC"), a Maryland corporation, with and into PTR. PACIFIC was a private multifamily REIT controlled by Security Capital Group, PTR's principal shareholder. PACIFIC's portfolio consisted primarily of 17 operating multifamily communities aggregating 5,579 units. In the Merger, each outstanding share of PACIFIC common stock was converted into the right to receive 0.611 Common Shares. As a result, 8,468,460 of PTR's Common Shares valued at $138.7 million ($16.375 per share) were issued in the Merger in exchange for all of the outstanding shares of PACIFIC common stock. In addition, PTR assumed $51.9 million on PACIFIC's line of credit and $54.4 million of mortgage debt. The Merger has been accounted for as a purchase and, accordingly, the results of operations of PACIFIC have been included in PTR's financial statements from March 23, 1995. The following summarized pro forma (unaudited) information assumes the Merger occurred on January 1, 1994, and represents the combined historical operating results of PTR and PACIFIC for the respective pro forma periods. No material pro forma adjustments to revenue and expenses were required. The weighted-average Common Shares outstanding have been adjusted to reflect the Merger conversion rate (0.611 Common Shares for each share of PACIFIC common stock). The pro forma financial information does not necessarily reflect the results of operations that would have occurred had PACIFIC and PTR constituted a single entity during such periods (in thousands, except per share amounts).
DECEMBER 31, ----------------- 1995 1994 -------- -------- Rental Income........................................... $271,091 $204,337 ======== ======== Net earnings attributable to Common Shares.............. $ 64,152 $ 36,512 ======== ======== Weighted-average Common Shares outstanding.............. 68,955 52,846 ======== ======== Per Common Share amounts: Net earnings attributable to Common Shares............ $ 0.93 $ 0.69 ======== ========
Concurrently with the consummation of the Merger, PTR completed a subscription offering of 13.2 million Common Shares pursuant to which PTR received net proceeds of $216.3 million. The subscription offering was designed to allow shareholders of PTR to purchase Common Shares at the same price at which PACIFIC shareholders acquired Common Shares in the Merger ($16.375 per Common Share). Security Capital Group purchased $50 million (3.1 million Common Shares at $16.375 per Common Share) in the subscription offering pursuant to the oversubscription privilege. 64 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (4) REAL ESTATE Investments Equity investments in real estate, at cost, were as follows (dollar amounts in thousands):
YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1995 ----------------- ----------------- INVESTMENT UNITS INVESTMENT UNITS ---------- ------ ---------- ------ Multifamily: Operating communities........... $1,861,561 42,702 $1,507,458 38,737 Communities under construction.. 186,710 5,479(1) 160,487 5,424(1) Development communities in planning: Development communities owned.. 48,504 3,351(1) 19,921 2,047(1) Development communities under control....................... (2) 3,737(1) (2) 2,408(1) ---------- ------ ---------- ------ Total development communities................. 48,504 7,088 19,921 4,455 ---------- ------ ---------- ------ Land held for future development.................... 30,043 -- 28,796 -- ---------- ------ ---------- ------ Total multifamily............ 2,126,818 55,269 1,716,662 48,616 ---------- ------ ---------- ------ Homestead Assets.................. -- 108,460 Other non-multifamily............. 26,545 30,744 ---------- ---------- Total real estate............ $2,153,363 $1,855,866 ========== ==========
- -------- (1) Unit information is based on management's estimates and is unaudited. (2) PTR's investment as of December 31, 1996 and 1995 for developments in planning and under control was $1.6 million and $2.2 million, respectively, and is reflected in the "other assets" caption of PTR's balance sheets. The change in investments in real estate, at cost, consisted of the following (in thousands):
YEAR ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 ---------- ---------- ---------- Balance at January 1................. $1,855,866 $1,296,288 $ 872,610 ---------- ---------- ---------- Multifamily: Acquisitions and renovations expenditures........................ 463,935 385,356 270,024 Development expenditures, excluding land acquisitions........................ 187,377 117,980 111,184 Acquisition and improvement of land held for current or future development......................... 20,880 11,255 16,789 Recurring capital expenditures....... 7,992 5,119 3,746 Dispositions......................... (269,693) (6,166) (11,902) ---------- ---------- ---------- Net multifamily activity subtotal.... 410,491 513,544 389,841 ---------- ---------- ---------- Non-multifamily: Homestead development expenditures, including land acquisitions......... 54,883 48,247 35,943 Contribution of Homestead Assets (Note 2)............................ (161,370) -- -- Non-multifamily dispositions......... (6,527) (2,235) (331) Provisions for possible losses....... -- (220) (1,600) Other................................ 20 242 (175) ---------- ---------- ---------- Balance at December 31............... $2,153,363 $1,855,866 $1,296,288 ========== ========== ==========
65 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) At January 29, 1997, PTR had contingent contracts or letters of intent, subject to PTR's final due diligence, to acquire land for the near term development of an estimated 3,507 multifamily units with an aggregate estimated development cost of $264.5 million. At the same date, PTR also had contingent contracts or letters of intent, subject to final due diligence, for the acquisition of 964 additional operating multifamily units with a total expected investment of $77.2 million, including planned renovations. At January 29, 1997, PTR had unfunded development commitments for developments under construction of $158.8 million. Pre-Sale Agreements and Development Subsidiary To enhance its flexibility in developing and acquiring multifamily communities which meet PTR's investment criteria, PTR has and will enter into presale agreements with third-party owner/developers to acquire communities developed by such owner/developers. PTR has and will fund such developments through mortgage loans on the communities. For financial reporting purposes, these transactions are recorded as real estate developments rather than mortgage loans due to PTR's commitment to acquire these properties upon completion. In addition, to provide greater flexibility for the use of land acquired for development and to facilitate disposition of excess parcels, PTR has and will make mortgage loans to PTR Development Services Incorporated ("PTR Development Services") to purchase land for development. PTR may also fund developments of multifamily communities by PTR Development Services where the particular community or submarket does not meet PTR's objectives for long-term ownership but presents an attractive investment opportunity. PTR owns all of the preferred stock of PTR Development Services, which entitles PTR to substantially all of the net operating cash flow (95%) of PTR Development Services. An unaffiliated trust owns all of the common stock of PTR Development Services. The common stock is entitled to receive the remaining 5% of net operating cash flow. As of December 31, 1996, the outstanding balance of development and mortgage loans made by PTR to third-party owner/developers and PTR Development Services aggregated $127.3 million and $18.8 million, respectively. The activities of third-party owner/developers and PTR Development Services are consolidated with PTR's activities and all intercompany transactions have been eliminated in consolidation. Gains and Provision for Loss on Real Estate and Investments Each year, REIT Management formulates operating and capital plans based on an ongoing active review of PTR's portfolio. Based in part upon the market research provided by Security Capital Investment Research Incorporated and in an effort to optimize its portfolio composition, PTR may from time to time seek to dispose of assets that in management's view no longer meet PTR's long- term investment objectives. The proceeds from these selected dispositions will be redeployed, typically through tax-deferred exchanges, into assets that in PTR's view offer better long-term cash flow growth prospects. As a result of this asset optimization strategy, PTR disposed of 22 multifamily communities and one industrial building during 1996, representing aggregate net proceeds of $291.1 million, and disposed of one multifamily property in the fourth quarter of 1995, representing net proceeds of $8.8 million. For federal income tax purposes, the majority of the dispositions were structured as tax-deferred exchanges which deferred gain recognition. For financial reporting purposes, however, the transactions qualified for profit recognition and aggregate gains of $37.5 million and $2.6 million were recorded for 1996 and 1995, respectively. Statement of Financial Accounting Standards No. 121, Accounting For The Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of ("SFAS No. 121"), adopted by PTR effective January 1, 1996, establishes accounting standards for the review of long-lived assets to be held and used for impairment 66 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) whenever the carrying amount of an asset may not be recoverable. SFAS No. 121 also requires that certain long-lived assets to be disposed of be reported at the lower of carrying amount or fair value less cost to sell, PTR did not recognize any losses on the date it adopted SFAS No. 121. As part of PTR's asset optimization strategy, 19 communities and two non- multifamily properties were held for disposition as of December 31, 1996. The aggregate carrying value of properties held for disposition was $178.9 million at December 31, 1996. Each property's carrying value is less than or equal to its estimated fair market value, net of estimated costs to sell. Such properties are not depreciated during the period for which they are determined to be held for disposition. Subject to normal closing risks, PTR expects to complete the disposition of all properties during 1997 and redeploy the net proceeds from such dispositions through tax-deferred exchanges into the acquisition of multifamily communities. The earnings from operations for properties held for dispositions which are included in PTR's earnings from operations for 1996, 1995 and 1994 were $15.8 million, $15.3 million and $10.5 million, respectively. PTR's other real estate investments are periodically evaluated for impairment and provisions for possible losses are made if required. As a result of such evaluation, PTR recorded a provision for possible loss of $220,000 and $1,600,000 during 1995 and 1994, respectively, relating to a non- multifamily investment which was subsequently sold in October 1995. Also, during 1995 it was determined that PTR could potentially be liable for certain maintenance items under the terms of a 1993 master lease agreement on a non- multifamily property which resulted in the recording of an estimated provision for loss of $200,000. The recording of a provision for loss has no impact on cash flow from operating activities. As of December 31, 1996, PTR's real estate investments were carried at depreciated cost, which is not in excess of estimated fair market value. (5) MORTGAGE NOTES RECEIVABLE Homestead Convertible Mortgage Notes In connection with the Homestead transaction described in Note 2 and pursuant to fundings which have occurred under the funding commitment agreement, PTR holds Homestead Notes. The Homestead Notes were created under a master facility providing for aggregate fundings of up to $198.8 million in exchange for Homestead Notes with a face amount of up to $221.3 million. Under the terms of the funding commitment agreement, PTR receives approximately $1.00 in principal amount of Homestead Notes for every $.90 funded (i.e., the Homestead Notes are issued at a discount). The discount is amortized into interest income over the term of the Homestead Notes using a method which approximates the effective interest method. Maximum fundings are established for each individual development project and specific liens are recorded to secure payment. The Homestead Notes are cross-collateralized, which enables PTR to foreclose or take possession of any one or more of the underlying properties upon the occurrence of an event of default. The Homestead Notes require semi-annual interest-only payments at 9% per annum of the face amount of the Homestead Notes outstanding, are callable at the option of Homestead after 5 years and mature on October 31, 2006. The Homestead Notes are convertible into Homestead common stock after March 31, 1997 on the basis of one share of Homestead common stock for every $11.50 of principal amount outstanding, subject to adjustment. The initial value attributed to the conversion feature has been recorded as an additional component of the Homestead Notes' balance and the corresponding discount is being amortized into interest income over the term of the Homestead Notes using a method which approximates the effective interest method. The difference between the fair value of the Homestead Notes (assuming conversion), based upon the trading price of Homestead's common stock on the American Stock Exchange at December 31, 1996, ($18.00) and the amortized cost of the Homestead Notes is reflected as an additional component of the Homestead Notes' balance and as an unrealized holding gain in Shareholders' Equity. 67 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) As described in Note 2, PTR also received Homestead warrants in exchange for entering into the funding commitment agreement. The warrants were distributed to PTR shareholders with the Homestead common stock. The value associated with the receipt of the Homestead warrants has been recorded as deferred revenue which is included in accrued expenses and other liabilities in the accompanying 1996 Balance Sheet and is being amortized into interest income using a method which approximates the effective interest method over the term of the Homestead Notes. The effective interest rate on the Homestead Notes as a percentage of the "funded" balance, including amortization of discount and deferred revenue, is approximately 12.4% per annum (10.7% excluding conversion feature and warrant- related amortization). Following is a reconciliation of the Homestead Notes' components described above to the amount reflected in the accompanying 1996 Balance Sheet (in thousands). Face amount of Homestead Notes.................................. $112,639 Original issue discount......................................... (11,451) -------- Amount funded................................................... 101,188 Amortization of original issue discount......................... 121 Conversion feature--initial value............................... 7,933 Unamortized discount on conversion feature...................... (7,861) Fair value adjustment........................................... 74,923 -------- Carrying value at December 31, 1996............................. $176,304 ========
As of December 31, 1996, PTR had funded $101.2 million of its funding commitment. This leaves a remaining commitment under the funding commitment agreement of approximately $97.6 million, which will be provided to Homestead to fund developments as needed on development properties contributed by PTR. Other Mortgage Notes Receivable The change in investments in other mortgage notes receivable which primarily originated in connection with PTR's sale of non-multifamily communities consisted of the following (in thousands):
1996 1995 1994 -------- ------- ------- Balances at January 1......................... $ 15,844 $22,597 $22,624 Notes originated.............................. -- 1,538 162 Reduction of principal........................ (2,319) (8,291) (189) -------- ------- ------- Balances at December 31....................... $ 13,525 $15,844 $22,597 ======== ======= =======
Interest rates on mortgage notes receivable range from 7.00% to 10.00% with a weighted-average rate of 8.4%. Maturity dates on mortgage notes receivable range from 1998 to 2008. 68 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) (6) BORROWINGS Credit Facilities PTR has a $350 million unsecured revolving line of credit with Texas Commerce Bank, National Association ("TCB"), as agent for a group of financial institutions (collectively, the "Lenders"). The line matures August 1998 and may be extended annually for an additional year with the approval of the Lenders. The line of credit bears interest at the greater of prime (8.25% at December 31, 1996) or the federal funds rate plus 0.50% or at PTR's option, LIBOR (5.50% at December 31, 1996) plus 1.125% (6.625% at December 31, 1996). The spread over LIBOR can vary from LIBOR plus 0.75% to LIBOR plus 1.50% based upon the rating of PTR's senior unsecured debt. Additionally, there is a commitment fee on the average unfunded line of credit balance. The commitment fee was $396,000, $502,000 and $224,000 for 1996, 1995 and 1994, respectively. A summary of PTR's line of credit borrowings is as follows (dollars in thousands):
YEAR ENDED DECEMBER 31, -------------------------- 1996 1995 1994 -------- -------- -------- Total line of credit.......................... $350,000 $350,000 $275,000 Borrowings outstanding at December 31......... 99,750 129,000 102,000 Weighted-average daily borrowings............. 112,248 51,858 59,890 Maximum borrowings outstanding at any month end.......................................... 188,750 138,000 124,000 Weighted-average daily nominal interest rate.. 7.3% 8.0% 7.0% Weighted-average daily effective interest rate......................................... 8.8% 11.1% 10.6% Weighted-average nominal interest rate at December 31.................................. 6.6% 7.3% 7.8%
On September 9, 1996, PTR entered into a short-term, unsecured, borrowing agreement with TCB. The loan matures September 9, 1997 and bears interest at an overnight rate, which has ranged from 5.80% to 7.50%. At December 31, 1996 there was $10.5 million of borrowings outstanding under this agreement. 69 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Long-Term Debt As of December 31, 1996, PTR has issued a total of $580 million of long-term unsecured senior notes ("Notes"), which bear interest at specified rates per annum, payable semi-annually. Funds from such issuances were used primarily for acquisition, development and renovation of multifamily communities and to repay revolving credit balances incurred for such purposes. The following table summarizes the Notes:
ISSUANCE AVERAGE EFFECTIVE AND INTEREST RATE, OUTSTANDING INCLUDING OFFERING ORIGINAL PRINCIPAL PRINCIPAL COUPON DISCOUNTS AND MATURITY LIFE PAYMENT DATE OF ISSUANCE AMOUNT RATE ISSUANCE COSTS DATE (YEARS) REQUIREMENT - ---------------- ----------- ------ ------------------ -------- -------- ----------- 10/21/96 $ 15 million 6.600% 7.030% 10/15/99 3.00 (1) 10/21/96 20 million 6.950 7.400 10/15/02 6.00 (1) 10/21/96 20 million 7.150 7.500 10/15/03 7.00 (1) 10/21/96 20 million 7.250 7.630 10/15/04 8.00 (1) 10/21/96 20 million 7.300 7.640 10/15/05 9.00 (1) 10/21/96 20 million 7.375 7.685 10/15/06 10.00 (1) 10/21/96 15 million 6.500 6.750 10/15/26 30.00 (1) ------------ ------ ------ ----- Subtotal/Average $130 million 7.350% 7.500% 6.85 ------------ ------ ------ ----- 8/6/96 $ 20 million 7.550% 7.680% 8/1/08 12.00 (1) 8/6/96 20 million 7.625 7.730 8/1/09 13.00 (1) 8/6/96 20 million 7.650 7.770 8/1/10 14.00 (1) 8/6/96 20 million 8.100 8.210 8/1/15 19.00 (1) 8/6/96 20 million 8.150 8.250 8/1/16 20.00 (1) ------------ ------ ------ ----- Subtotal/Average $100 million 7.840% 7.950% 15.60 ------------ ------ ------ ----- 2/23/96 $ 50 million 7.150% 7.300% 2/15/10 10.50 (2) 2/23/96 100 million 7.900 8.030 2/15/16 18.00 (3) ------------ ------ ------ ----- Subtotal/Average $150 million 7.710% 7.840% 15.50 ------------ ------ ------ ----- 2/8/94 $100 million 6.875% 6.978% 2/15/08 10.50 (4) 2/8/94 100 million 7.500 7.653 2/15/14 18.00 (5) ------------ ------ ------ ----- Total/Average $200 million 7.240% 7.370% 14.25 ------------ ------ ------ ----- Grand Total/Average $580 million 7.500% 7.620% 12.03 ============ ====== ====== =====
- -------- (1) Entire principal amount due at maturity. (2) These Notes require aggregate annual principal payments of $6.25 million commencing in 2003. (3) These Notes require aggregate annual principal payments of $10 million in 2011, $12.5 million in 2012, $15 million in 2013, $17.5 million in 2014, $20 million in 2015 and $25 million in 2016. (4) These Notes require annual principal payments of $12.5 million commencing in 2001. (5) These Notes require aggregate annual principal payments of $10 million in 2009, $12.5 million in 2010, $15 million in 2011, $17.5 million in 2012, $20 million in 2013, and $25 million in 2014. The Notes, other than the $15 million of 6.500% Notes issued October 21, 1996 and due 2026 (the "6.500% Notes"), are redeemable any time at the option of PTR, in whole or in part, at a redemption price equal to the sum of the principal amount of the Notes being redeemed plus accrued interest thereon to the redemption date plus an adjustment, if any, based on the yield to maturity relating to market yields available at redemption. The 6.500% Notes may be repaid on October 15, 1999 at the option of the holders at their full principal amount together with accrued interest. If the holders do not exercise their right to require PTR to repay the 6.500% Notes on October 15, 1999, they may be repaid at the option of PTR, in whole or in part, at a redemption price equal to the sum of the principal amount of the Notes being redeemed plus accrued interest thereon to the redemption date plus an adjustment, if any, based on the yield to maturity relating to market yields available at redemption. The Notes are governed by the terms and provisions of an indenture agreement. 70 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Mortgages Payable Mortgages payable at December 31, 1996 consisted of the following (dollar amounts in thousands):
BALLOON PRINCIPAL PRINCIPAL EFFECTIVE SCHEDULED PERIODIC PAYMENT BALANCE AT BALANCE AT INTEREST MATURITY PAYMENT DUE AT DECEMBER 31, DECEMBER 31, COMMUNITY RATE(1) DATE TERMS MATURITY 1996 1995 --------- --------- --------- -------- -------- ------------ ------------ CONVENTIONAL FIXED RATE: Knight's Castle....... N/A 10/01/96 (7) N/A $ -- $ 7,609 Tigua Village......... 9.90% 05/01/97 (2) 677 683 694 Chasewood............. N/A 06/01/97 (7) N/A -- 9,485 Presidio at South Mountain............. N/A 10/01/97 (7) N/A -- 14,593 Silvercliff........... 7.66 11/10/97 (2) 7,304 7,382 7,469 Braeswood Park........ 7.51 01/01/98 (2) 6,635 6,761 6,889 Seahawk............... 8.05 01/10/98 (2) 5,350 5,427 5,505 La Tierra at the Lakes................ 7.89 12/01/98 (2) 25,105 26,019 26,444 Windsail.............. 8.88 02/01/99 (2) 4,675 4,798 4,843 Clubhouse............. 8.75 12/01/99 (2) 5,501 5,831 -- Greenpointe........... 8.50 03/01/00 (3) 3,410 3,638 3,696 Mountain Shadow....... 8.50 03/01/00 (3) 3,130 3,340 3,394 Sunterra.............. 8.25 03/01/00 (3) 7,612 8,138 8,274 Brompton Court........ 8.39 09/01/00 (2) 13,340 14,318 14,543 Spring Park........... N/A 09/27/00 (7) N/A -- 4,293 Park Place I.......... N/A 11/01/00 (7) N/A -- 3,515 Park Place II......... N/A 11/01/00 (7) N/A -- 3,517 Treat Commons......... 7.50 09/14/01 (2) 6,578 7,192 7,296 El Dorado............. 7.59 10/01/02 (2) 15,527 16,718 -- Ashton Place.......... 7.75 10/01/23 (3) N/A 47,342 -- Double Tree II........ 8.25 05/01/33 (3) N/A 4,750 4,770 -------- -------- 162,337 136,829 TAX-EXEMPT FIXED RATE(4): Cherry Creek.......... 8.11 11/01/01 (2) 2,630 4,000 4,210 Fox Creek............. 8.71 05/01/97 (2) 4,246 4,236 -- Summertree............ 6.65 12/15/18 (2) 4,435 4,435 -- Redwood Shores........ 5.53 10/01/08 (2) 16,820 25,220 -- -------- -------- 37,891 4,210 TAX-EXEMPT FLOATING RATE(4): Apple Creek........... 6.48 09/01/07 (5) 11,100 11,100 11,100 COMBINED(6): Las Flores............ 8.42 06/01/24 (3) N/A 5,860 5,915 ---- -------- -------- Total/Average Mortgage Debt...... 7.60% $217,188 $158,054 ==== ======== ========
- -------- (1) Represents the effective interest rate, including loan cost amortization and other ongoing fees and expenses, as of December 31, 1996. (2) Amortizing monthly with a balloon payment due at maturity. (3) Fully amortizing. (4) Tax-exempt rates include credit enhancement and other bond-related costs, where applicable. (5) Monthly payments are interest only until maturity and the interest rate is adjusted weekly by the remarketing agent. Weighted-average daily interest rate was 5.97% for 1996. Mortgage is secured by a letter of credit of $11.4 million. The fee for this letter of credit is 5.05% per annum of the outstanding mortgage payable balance. (6) In 1990, the Las Flores apartments were refinanced pursuant to multifamily bonds aggregating $6.2 million. The bonds consist of $4.5 million Series A tax exempt fixed rate bonds and $1.7 million Series B taxable fixed rate bonds. The bonds are guaranteed by the GNMA mortgage-backed securities program. (7) Mortgage was prepaid during 1996. 71 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The changes in mortgages payable during the past three years consisted of the following (in thousands):
1996 1995 1994 -------- -------- ------- Balances at January 1........................ $158,054 $ 93,624 $48,872 Notes originated or assumed................. 104,176 66,481 56,624 Principal payments and prepayments.......... (45,042) (2,051) (11,872) -------- -------- ------- Balances at December 31...................... $217,188 $158,054 $93,624 ======== ======== =======
Scheduled Debt Maturities Approximate principal payments due during each of the years in the 20-year period ending December 31, 2016 are as follows (in thousands):
SHORT TERM UNSECURED UNSECURED BORROWING MORTGAGES LONG-TERM DEBT LINE OF CREDIT AGREEMENT TOTAL --------- -------------- -------------- ---------- -------- 1997......... $ 15,266 $ -- $ -- $10,450 $ 25,716 1998......... 40,012 -- 99,750 -- 139,762 1999......... 12,790 30,000 -- -- 42,790 2000......... 29,799 -- -- -- 29,799 2001......... 11,280 12,500 -- -- 23,780 2002......... 17,348 32,500 -- -- 49,848 2003......... 1,752 38,750 -- -- 40,502 2004......... 1,903 38,750 -- -- 40,653 2005......... 2,066 38,750 -- -- 40,816 2006......... 2,241 38,750 -- -- 40,991 2007......... 13,528 18,750 -- -- 32,278 2008......... 18,863 38,750 -- -- 57,613 2009......... 1,603 36,250 -- -- 37,853 2010......... 1,732 38,750 -- -- 40,482 2011......... 1,871 25,000 -- -- 26,871 2012......... 2,022 30,000 -- -- 32,022 2013......... 2,185 35,000 -- -- 37,185 2014......... 2,361 42,500 -- -- 44,861 2015......... 2,551 40,000 -- -- 42,551 2016......... 2,756 45,000 -- -- 47,756 Thereafter... 33,259 -- -- -- 33,259 -------- -------- ------- ------- -------- Total:....... $217,188 $580,000 $99,750 $10,450 $907,388 ======== ======== ======= ======= ========
Covenants PTR's debt instruments generally contain certain covenants common to the type of facility or borrowing, including financial covenants establishing minimum debt service coverage ratios and maximum loan to value ratios. PTR was in compliance with all covenants pertaining to its debt instruments at December 31, 1996. (7) DISTRIBUTIONS PTR's distribution strategy is to distribute what it believes is a conservative percentage of cash flow while maintaining its status as a REIT which generally requires annual distributions of at least 95% of PTR's taxable income. 72 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) PTR announces the following year's projected annual distribution level after the Board's annual budget review and approval in December of each year. At its December 10, 1996 Board meeting, the Board announced an increase in the annual distribution level from $1.24 to $1.30 per Common Share and declared the first quarter 1997 distribution of $0.325 per Common Share. The first quarter distribution was paid on February 20, 1997 to shareholders of record on February 7, 1997. The payment of distributions is subject to the discretion of the Board and is dependent upon the financial condition and operating results of PTR. Pursuant to the terms of the Preferred Shares, PTR is restricted from declaring or paying any distribution with respect to its Common Shares unless all cumulative distributions with respect to the Preferred Shares have been paid and sufficient funds have been set aside for Preferred Share distributions that have been declared. PTR made total cash distributions of $1.24 per Common Share in 1996, $1.15 per Common Share in 1995 and $1.00 per Common Share in 1994. In addition, on November 12, 1996, PTR distributed 0.125694 shares of Homestead common stock and warrants to purchase 0.084326 shares of Homestead common stock per Common Share in the Homestead Distribution to each holder of record of Common Shares on October 29, 1996. For federal income tax purposes, the following summarizes the taxability of cash distributions paid on the Common Shares in 1995 and 1994 and the estimated taxability for 1996:
1996 1995 1994 ----- ----- ----- Per Common Share Ordinary income....................................... $0.61 $0.92 $0.68 Capital gains......................................... 0.11 -- -- Return of capital..................................... 0.52 0.23 0.32 ----- ----- ----- Total............................................... $1.24 $1.15 $1.00 ===== ===== =====
The Homestead securities distributed by PTR to each holder of Common Shares in the Homestead Distribution were valued at $2.16 per PTR Common Share for federal income tax purposes, of which $1.06 was taxable as ordinary income, $0.19 was taxable as a capital gain and $0.91 was treated as a return of capital. On July 21, 1994, in addition to the normal Common Share distributions paid, PTR redeemed the shareholder purchase rights issued pursuant to the Rights Agreement dated as of February 23, 1990, as amended. Pursuant to the redemption, each holder of record at the close of business on July 21, 1994 was entitled to receive $0.01 per shareholder purchase right. The redemption price was paid on August 12, 1994 and was taxable as ordinary income for federal income tax purposes. 73 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) For federal income tax purposes, the following summaries reflect the taxability of dividends paid on Series A Preferred Shares and Series B Cumulative Redeemable Preferred Shares ("Series B Preferred Shares"), respectively, for periods prior to 1996 and the estimated taxability for 1996. The Series A and Series B Preferred Shares are discussed in Note 8.
1996 1995 1994 ----- ----- ----- Per Series A Preferred Share: Ordinary income...................................... $1.47 $1.75 $1.75 Capital gains........................................ 0.28 -- -- Return of capital.................................... -- -- -- ----- ----- ----- Total.............................................. $1.75 $1.75 $1.75 ===== ===== =====
DATE OF ISSUANCE 1996 TO 12/31/95 ----- ---------------- Per Series B Preferred Share: Ordinary income.................................. $1.89 $1.3625 Capital gains.................................... 0.36 -- ----- ------- Total.......................................... $2.25 $1.3625 ===== =======
Due to the increase in the conversion ratio (Note 8) resulting from the Homestead Distribution to holders of Common Shares, holders of Series A Preferred Shares were deemed to have received a distribution of $2.43 on November 12, 1996 for federal income tax purposes. Of this amount, $1.19 was taxable as ordinary income, $0.22 was taxable as a capital gain and $1.02 was treated as a return of capital. PTR's tax return for the year ended December 31, 1996 has not been filed, and the taxability information for 1996 is based upon the best available data. PTR's tax returns for prior years have not been examined by the Internal Revenue Service and, therefore, the taxability of the dividends is subject to change. (8) SHAREHOLDERS' EQUITY Shares of Beneficial Interest At December 31, 1996, 150,000,000 shares of beneficial interest, par value $1.00 per share, were authorized. The Board is authorized to issue, from the authorized but unissued 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. Series A Preferred Shares The Series A Preferred Shares issued in November 1993 have a liquidation preference of $25.00 per share for an aggregate liquidation preference at December 31, 1996 of $162.4 million plus any accrued but unpaid distributions. Holders of the Series A Preferred Shares are entitled only to limited voting rights under certain conditions. During 1996, 2,705,000 of PTR's Series A Preferred Shares were converted, at the option of the holders, into 3,294,000 Common Shares (an implied conversion ratio of 1.2178 Common Shares for each Series A Preferred Share, which is a combination of the original conversion ratio of 1.2162 and the adjusted ratio discussed below). 74 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) As a result of the Homestead Distribution, PTR adjusted the conversion price of its Series A Preferred Shares, effective as of the opening of business on October 30, 1996, from $20.556 to $18.561 per Common Share (a conversion ratio of 1.3469 Common Shares for each Series A Preferred Share), as required by the Articles Supplementary governing the Series A Preferred Shares. Distributions on the Series A Preferred Shares are cumulative in an amount per share equal to the greater of $1.75 per annum or the annualized quarterly PTR distribution rate on the Common Shares into which the Series A Preferred Shares are convertible. The Series A Preferred Share dividends are payable quarterly in arrears on the last day of March, June, September and December of each year. Based on the projected 1997 distribution level of $1.30 per Common Share, the projected 1997 dividend on the Series A Preferred Shares is $1.751 per share. The Series A Preferred Shares are redeemable at the option of PTR after November 30, 2003. Series B Preferred Shares The Series B Preferred Shares issued in May 1995 have a liquidation preference of $25.00 per share for an aggregate liquidation preference of $105.0 million plus any accrued but unpaid distributions. The net proceeds (after underwriting commissions and other offering costs) to PTR from the sale of the Series B Preferred Shares were $101.4 million. On and after May 24, 2000, the Series B Preferred Shares may be redeemed for cash at the option of PTR, in whole or in part, at a redemption price of $25.00 per share plus accrued and unpaid distributions, if any, to the redemption date. The redemption price (other than the portion thereof consisting of accrued and unpaid distributions) is payable solely out of the sale proceeds of other capital shares of PTR, which may include shares of other series of preferred shares. The holders of the Series B Preferred Shares have no preemptive rights with respect to any shares of the capital securities of PTR or any other securities of PTR convertible into or carrying rights or options to purchase any such shares. The Series B Preferred Shares have no stated maturity and are not subject to any sinking fund or other obligation of PTR to redeem or retire the Series B Preferred Shares and are not convertible into any other securities of PTR. In addition, holders of the Series B Preferred Shares are entitled to receive, when and as declared by the Board, out of funds legally available for the payment of distributions, cumulative preferential cash distributions at the rate of 9% of the liquidation preference per annum (equivalent to $2.25 per share). Such distributions are cumulative from the date of original issue and are payable quarterly in arrears on the last day of each March, June, September and December. Series A Preferred Shares and Series B Preferred Shares are collectively referred to as "Preferred Shares." The net proceeds from the sale of Preferred Shares were used primarily for the acquisition, development and renovation of multifamily communities, and to repay revolving credit balances incurred for such purposes. Both series of Preferred Shares rank on a parity as to distributions and liquidation proceeds. All dividends due and payable on Preferred Shares have been accrued and paid as of the end of each fiscal year and, accordingly, are reflected in the accompanying financial statements. Option Plan In January 1987, PTR adopted its Share Option Plan for Outside Trustees (the "1987 Plan"). There are 200,000 Common Shares reserved for issuance upon exercise of options which could have been granted to independent Trustees under the 1987 Plan. All options granted are for a term of five years and are exercisable in whole or in part. The exercise price of the options granted may not be less than the fair market value on the date of grant. At December 31, 1996, there were 32,000 options for Common Shares outstanding and exercisable under the 1987 Plan at exercise prices ranging from $10.625 to $21.50 per Common Share. No further options may be granted under the 1987 Plan. 75 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Outstanding Warrants As a result of the Merger discussed in Note 3, warrants to acquire 140,530 Common Shares at an exercise price of $14.21 per share were outstanding as of December 31, 1996. These warrants are subject to adjustment to prevent dilution and expire on November 8, 1999. Ownership Restrictions and Significant Shareholder PTR's Restated Declaration of Trust and the Articles Supplementary governing the Preferred Shares restrict beneficial ownership (or ownership generally attributed to a person under the REIT tax rules) of PTR's outstanding shares by a single person, or persons acting as a group, to 9.8% of the Common Shares and 25% of each series of Preferred Shares. The purpose of these provisions are to assist in protecting and preserving PTR's REIT status and to protect the interests 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 Internal Revenue Code of 1986, as amended, 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% each of the Common Shares, or an aggregate of 49% of the outstanding Common Shares, and thus assists the Trustees in protecting and preserving PTR's REIT status for tax purposes. Common Shares owned by a person or group of persons in excess of the 9.8% limit are subject to redemption by PTR. The provision does not apply where a majority of the Board, in its sole and absolute discretion, waives such limit after determining 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. The Board has permitted Security Capital Group, the owner of the REIT Manager (see Note 9), to acquire up to 49% of PTR's fully converted Common Shares. Security Capital Group's ownership of Common Shares is attributed for tax purposes to its shareholders. Security Capital Group owned 36.3% of PTR's total outstanding Common Shares at December 31, 1996. Pursuant to an agreement between Security Capital Group and PTR, Security Capital Group has agreed to acquire no more than 49% of the fully converted Common Shares except pursuant to an all-cash tender offer for all Common Shares held open for 90 days. Security Capital Group would have no limitation on making a tender offer if an unrelated third party commences such a tender offer. Purchase Rights In 1994, the Board authorized the distribution of one preferred share purchase right (a "Purchase Right") for each Common Share outstanding at the close of business on July 21, 1994. Holders of additional Common Shares issued after July 21, 1994 and prior to the expiration of the Purchase Rights on July 21, 2004 will be entitled to one Purchase Right for each additional Common Share. Each Purchase Right entitles the holder under certain circumstances to purchase from PTR one one-hundredth of a share of a series of Junior Participating Preferred Shares, par value $1.00 per share (the "Participating Preferred Shares"), at a price of $60.00 per one-hundredth of a Participating Preferred Share, subject to adjustment. Purchase Rights are exercisable when a person or group of persons acquires beneficial ownership of 20% or more of the fully converted Common Shares (49% in the case of Security Capital Group and certain defined affiliates), commences or announces a tender offer or exchange offer which would result in the beneficial ownership by a person or group of persons of 25% or more of the outstanding Common Shares (49% in the case of Security Capital Group and certain defined affiliates) or files or announces their intention to file with any regulatory authority an application seeking approval of any transaction which would result in the beneficial ownership by a person of 25% or more of the outstanding Common Shares (49% in the case of 76 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Security Capital Group and certain defined affiliates). Under certain circumstances, each Purchase Right entitles the holder to purchase, at the Purchase Right's then current exercise price, a number of 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 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 Board. Shelf Registration On September 27, 1996, PTR filed a $300 million shelf registration statement with the Securities and Exchange Commission. These securities can be issued in the form of unsecured debt and preferred shares of beneficial interest on an as-needed basis, subject to PTR's ability to effect an offering on satisfactory terms. As of December 31, 1996, $170 million in securities were available to be issued under this shelf registration. (9) REIT MANAGEMENT AND PROPERTY MANAGEMENT AGREEMENTS Effective March 1, 1991, PTR entered into a REIT management agreement (the "REIT Management Agreement") with Security Capital Pacific Incorporated (the "REIT Manager"), pursuant to which the REIT Manager assumed day-to-day management of PTR. All officers of PTR are employees of the REIT Manager and PTR currently has no employees. The REIT Manager provides both strategic and day-to-day management of PTR, including research, investment analysis, acquisition, development, dispositions, property management, capital markets, legal, accounting and other administrative services. The REIT Manager is a wholly owned subsidiary of Security Capital Group (see Note 8). The REIT Management Agreement requires PTR to pay a base annual fee of $855,000 plus 16% of cash flow as defined in the REIT Management Agreement in excess of $4,837,000, payable monthly. In the REIT Management Agreement, cash flow is calculated by reference to PTR's cash flow from operations plus (i) fees paid to the 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 inception of the REIT Management Agreement); and after deducting (i) regularly scheduled principal payments (excluding prepayments or balloon payments) for debt with commercially reasonable amortization schedules, (ii) actual or assumed principal and interest payments on long-term debt, (iii) interest income received in connection with the Homestead Notes resulting from the Homestead transaction discussed in Notes 2 and 5 and (iv) distributions actually paid with respect to any nonconvertible preferred shares of beneficial interest of PTR. The REIT Management Agreement provides that the long-term unsecured debt described in Note 6 is treated as if it had regularly scheduled principal and interest payments similar to 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 dividend and interest income from PTR Development Services, realized gains or losses from dispositions of investments or income from cash equivalent investments. The REIT Manager also receives a fee of 0.25% per year on the average daily balance of cash equivalent investments. PTR is obligated to reimburse the REIT Manager for certain expenses incurred by the REIT Manager on behalf of PTR relating to PTR's operations, consisting primarily of external professional fees, offering costs and travel expenses. The REIT Management Agreement is renewable by PTR annually, subject to a determination by the independent Trustees (who receive performance benchmark information verified by an independent third party) 77 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONTINUED) that the REIT Manager's performance has been satisfactory and that the compensation payable to the REIT Manager is fair. Each of PTR and the REIT Manager may terminate the REIT Management Agreement on 60 days' notice. SCG Realty Services Incorporated ("SCG Realty Services"), a subsidiary of Security Capital Group, has managed and currently manages a substantial majority of PTR's operating multifamily communities (91.3% as of January 29, 1997, based on total expected investment). Homestead Realty Services Incorporated ("Homestead Realty Services"), a subsidiary of Security Capital Group, managed all of PTR's operating Homestead Village(R) extended-stay lodging assets through October 17, 1996 (See Note 2). PTR recently announced that it received a proposal from Security Capital Group to exchange the REIT Manager and SCG Realty Services for Common Shares. As a result of the proposed transaction, PTR would become an internally managed REIT and Security Capital Group would remain PTR's largest shareholder. The Board has formed a special committee comprised of independent Trustees to review the proposed transaction. The proposed transaction is subject to approval by both the special committee and the full Board. If the Board approves the transaction, a proxy statement, subject to review by the Securities and Exchange Commission, will be mailed to PTR's common shareholders prior to a shareholder vote on the proposed transaction. (10) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data (in thousands except per share amounts) for 1996 and 1995 is as follows:
THREE MONTHS ENDED YEAR ------------------------------- ENDED 3-31 6-30 9-30 12-31 12-31 ------- ------- ------- ------- -------- 1996: Rental income....................... $75,809 $79,491 $84,802 $81,944 $322,046 ======= ======= ======= ======= ======== Earnings from operations............ $22,920 $24,462 $24,718 $21,989 $ 94,089 Gain on sale of investments, net.... 2,923 5,160 25,257 4,152 37,492 Less extraordinary item--loss on early extinguishment of debt....... -- 870 -- -- 870 Less preferred share dividends...... 6,388 6,386 6,182 5,211 24,167 ------- ------- ------- ------- -------- Net earnings attributable to Common Shares............................. $19,455 $22,366 $43,793 $20,930 $106,544 ======= ======= ======= ======= ======== Net earnings per Common Share: Primary........................... $ 0.27 $ 0.31 $ 0.60 $ 0.28 $ 1.46 ======= ======= ======= ======= ======== Fully-diluted..................... $ -- $ -- $ .57 $ -- $ -- ======= ======= ======= ======= ======== Weighted-average Common Shares: Primary........................... 72,211 72,223 72,628 75,147 73,057 ======= ======= ======= ======= ======== Fully-diluted..................... -- -- 83,217 -- -- ======= ======= ======= ======= ======== 1995: Rental income....................... $53,518 $65,719 $70,176 $73,060 $262,473 ======= ======= ======= ======= ======== Earnings from operations............ $14,540 $20,806 $23,203 $23,147 $ 81,696 Gain on sale of investments, net.... -- -- -- 2,623 2,623 Less preferred share dividends...... 4,025 5,023 6,387 6,388 21,823 ------- ------- ------- ------- -------- Net earnings attributable to Common Shares............................. $10,515 $15,783 $16,816 $19,382 $ 62,496 ======= ======= ======= ======= ======== Primary and fully-diluted net earnings per Common Shares...................... $ 0.20 $ 0.22 $ 0.23 $ 0.27 $ 0.93 ======= ======= ======= ======= ======== Weighted-average Common Shares outstanding........................ 51,485 72,027 72,211 72,211 67,052 ======= ======= ======= ======= ========
78 SECURITY CAPITAL PACIFIC TRUST NOTES TO FINANCIAL STATEMENTS--(CONCLUDED) (11) COMMITMENTS AND CONTINGENCIES PTR is a party to various claims and routine litigation arising in the ordinary course of business. PTR does not believe that the results of any of such claims and litigation, individually or in the aggregate, will have a material adverse effect on its business, financial position or results of operations. PTR is subject to environmental regulations related to the ownership, operation, development and acquisition of real estate. As part of its due diligence investigation procedures, PTR has conducted Phase I environmental assessments on each property prior to acquisition since 1984. The cost of complying with environmental regulations was not material to PTR's results of operations for any of the years in the three-year period ended December 31, 1996. PTR is not aware of any environmental condition on any of its communities which is likely to have a material adverse effect on PTR's financial condition or results of operations. See Notes 4 and 5 for development and acquisition commitments. (12) FAIR VALUES OF FINANCIAL INSTRUMENTS The following disclosures of estimated fair value of financial instruments was determined by PTR based on available market information and valuation methodologies believed to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and accordingly they are not necessarily indicative of amounts that PTR could realize upon disposition. As of December 31, 1996 and 1995, the carrying amount of certain financial instruments employed by PTR, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses were representative of their fair values because of the short-term maturity of these instruments. Similarly, the carrying value of lines of credit balances approximates fair value as of those dates since the interest rate fluctuates based on published market rates. As discussed in Note 5, the Homestead Notes outstanding at December 31, 1996 are reflected at fair value in the accompanying balance sheet. PTR believes the carrying value of the other mortgage notes receivable approximates fair value. As of December 31, 1996 and 1995, based on the borrowings available to PTR, the carrying value of the long-term debt and mortgages was a reasonable estimation of their fair values. Derivative Financial Instruments PTR has only limited involvement with derivative financial instruments and does not use them for trading purposes. PTR occasionally utilizes derivative financial instruments as hedges in anticipation of future transactions to manage well-defined interest rate risk. In anticipation of a 1997 debt offering, PTR entered into interest rate contracts in 1996 with notional amounts aggregating $50 million which PTR plans to terminate when the anticipated offering is completed. As of December 31, 1996, the fair value of these interest rate contracts was an unrealized loss of approximately $831,000 (approximately $69,250 as of March 10, 1997) based on quoted market prices or estimates obtained from brokers. There were no derivative financial instruments outstanding as of December 31, 1995. (13) SUBSEQUENT EVENT On March 10, 1997, PTR borrowed $60 million under a short-term borrowing agreement with a financial institution. The loan matures on September 10, 1997, but provides for early repayment at PTR's option on the 10th day of each month during the term. Interest is payable monthly at an annual rate of LIBOR plus 0.60% (6.0375% at March 10, 1997). These proceeds were used to pay down PTR's $350 million line of credit which had an outstanding balance of $151.5 million after the paydown on March 10, 1997. 79 SCHEDULE III SECURITY CAPITAL PACIFIC TRUST REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996 (IN THOUSANDS)
GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31, INITIAL COST TO PTR COSTS 1996 ------------------- CAPITALIZED --------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED ---------- ------- ------ ------------ ----------- ------ ------------ ------- ---------- --------- -------- MULTIFAMILY: Albuquerque, New Mexico: Commanche Wells..... $ -- $ 719 $ 4,072 $ 374 $ 719 $ 4,445 $ 5,164 $ 331 1985 1994 Corrales Pointe..... -- 944 5,351 516 944 5,867 6,811 507 1986 1993 Entrada Pointe...... -- 1,014 5,744 918 1,014 6,662 7,676 518 1986 1994 La Paloma........... -- 4,135 -- 19,039 4,135 19,039 23,174 1,073 1996 1993 La Ventana.......... -- 2,210 -- 13,117 2,657 12,670 15,327 387 1996 1994 Pavilions........... -- 2,182 7,624 5,632 2,182 13,256 15,438 1,864 (a) (a) Sandia Ridge........ -- 1,339 5,358 959 1,339 6,317 7,656 898 1986 1992 Vistas at Seven Bar Ranch (g).......... -- 2,597 -- 19,277 2,597 19,277 21,874 243 1996 1994 Vista Del Sol....... -- 1,105 4,419 544 1,105 4,963 6,068 165 1987 1993 Wellington Place.... -- 1,881 7,523 1,052 1,881 8,575 10,456 701 1981 1993 Telegraph Hill...... -- 1,216 6,889 140 1,216 7,029 8,245 48 1986 1996 Austin, Texas: Anderson Mill Oaks.. -- 1,794 10,165 600 1,794 10,764 12,558 912 1984 1993 Cannon Place........ -- 1,220 4,879 747 1,220 5,626 6,846 459 1984 1993 Estates of Gracy Farms (g).......... -- 788 -- 453 788 453 1,241 (b) (b) 1993 Hunters' Run........ -- 1,400 -- 10,080 1,400 10,080 11,480 516 1995 1993 Hunters' Run II..... -- 797 -- 7,479 797 7,479 8,276 115 1996 1995 Monterey Ranch Village II......... -- 1,151 -- 22,889 1,151 22,889 24,040 291 1996 1993 The Ridge........... -- 1,669 6,675 2,296 1,669 8,971 10,640 826 1978 1993 Rock Creek.......... -- 1,311 7,431 1,504 1,311 8,935 10,246 741 1979 1993 Saddlebrook......... -- 800 -- 12,521 800 12,521 13,321 1,184 1994 1992 Shadowood........... -- 1,197 4,787 638 1,197 5,425 6,622 476 1985 1993 Dallas, Texas: Apple Ridge......... -- 1,986 7,942 1,223 1,986 9,165 11,151 736 1984 1993 Custer Crossing..... -- 1,532 8,683 340 1,532 9,023 10,555 758 1985 1993 Park Meadows (g).... -- 1,373 -- 4,625 1,373 4,624 5,997 (b) (b) 1996 Post Oak Ridge...... -- 2,137 12,111 1,024 2,137 13,135 15,272 1,096 1983 1993 Quail Run........... -- 1,613 9,140 459 1,613 9,599 11,212 801 1983 1993 Summerstone......... -- 1,028 5,823 251 1,028 6,074 7,102 516 1983 1993 Timber Ridge........ -- 997 5,651 470 997 6,121 7,118 363 1984 1994 Timber Ridge II (g). -- 675 -- 567 675 567 1,242 (b) (b) 1996 Woodland Park....... -- 1,386 5,543 435 1,386 5,978 7,364 482 1986 1993 Denver, Colorado: Cambrian............ -- 2,256 9,026 877 2,256 9,903 12,159 909 1983 1993 The Cedars.......... -- 3,128 12,512 1,785 3,128 14,297 17,425 1,330 1984 1993 Fox Creek I......... -- 1,167 4,669 615 1,167 5,284 6,451 423 1984 1993 Fox Creek II........ -- -- -- 217 -- 217 217 (b) (b) 1995 Hickory Ridge....... -- 4,402 17,607 1,578 4,402 19,185 23,587 2,112 1984 1992 Reflections I....... -- 1,591 6,362 940 1,591 7,301 8,892 675 1980 1993 Reflections II...... -- 805 -- 11,530 805 11,530 12,335 335 1996 1993 Silvercliff......... 7,382 2,410 13,656 332 2,410 13,988 16,398 1,031 1991 1994 Sunwood............. -- 1,030 4,596 606 1,030 5,202 6,232 570 1981 1992 El Paso, Texas: Acacia Park......... -- 1,130 -- 13,151 1,130 13,151 14,281 760 1995 1993 Cielo Vista......... -- 1,111 4,445 3,368 1,111 7,813 8,924 519 1962 1993 The Crest at Shadow Mountain........... -- 865 -- 7,152 865 7,152 8,017 1,106 1991 1992
80
GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31, INITIAL COST TO PTR COSTS 1996 ------------------- CAPITALIZED --------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED ---------- ------- ------ ------------ ----------- ------ ------------ ------- ---------- --------- -------- Double Tree......... $ -- $1,106 $ 4,423 $ 708 $1,106 $ 5,130 $ 6,236 $ 488 1980 1993 Las Flores.......... 5,860 625 6,624 1,253 625 7,877 8,502 3,368 (c) (c) Mountain Village.... -- 1,203 4,824 1,410 1,203 6,234 7,437 991 1982 1992 The Patriot......... -- 1,027 -- 11,204 1,027 11,204 12,231 485 1996 1993 Park Place.......... -- 992 7,409 416 992 7,825 8,817 1,708 (d) (d) The Phoenix......... -- 454 -- 10,234 454 10,234 10,688 1,136 1993 1993 Shadow Ridge........ -- 1,524 3,993 6,864 1,524 10,857 12,381 1,190 (e) (e) Tigua Village....... 683 161 146 2,109 161 2,255 2,416 1,228 (f) (f) Houston, Texas: American Rice....... -- 13,162 -- 254 13,162 254 13,416 (b) (b) 1996 Beverly Palms....... -- 1,393 7,893 919 1,393 8,812 10,205 647 1970 1994 Braeswood Park...... 6,761 1,861 10,548 195 1,861 10,743 12,604 912 1984 1993 Brompton Court...... 14,318 4,058 22,993 4,393 4,058 27,386 31,444 1,830 1972 1994 Cranbrook Forest.... -- 1,326 5,302 329 1,326 5,631 6,957 463 1984 1993 Memorial Heights I.. -- 3,169 -- 15,273 3,169 15,273 18,442 290 1996 1996 Memorial Heights II. -- 9,164 -- 475 9,164 475 9,639 (b) (b) 1996 Oaks at Medical Center I........... -- 4,210 -- 14,201 4,210 14,201 18,411 347 (b) 1994 Oaks at Medical Center II.......... -- 3,368 -- 2,044 3,368 2,044 5,412 (b) (b) 1994 Pineloch............ -- 1,980 11,221 558 1,980 11,779 13,759 988 1984 1993 Plaza Del Oro....... -- 1,713 9,706 658 1,713 10,364 12,077 710 1984 1994 Seahawk............. 5,427 1,258 7,125 362 1,258 7,487 8,745 542 1984 1994 Sacks............... -- 2,812 -- -- 2,812 -- 2,812 (b) (b) 1996 Weslayan Oaks....... -- 581 3,293 124 581 3,417 3,998 294 1984 1993 Inland Empire, California: The Crossing........ -- 2,227 12,622 560 2,227 13,182 15,409 232 1989 1996 Miramonte........... -- 2,357 13,364 614 2,357 13,978 16,335 374 1989 1995 Mission Springs & Villas............. -- 5,780 32,757 758 5,780 33,515 39,295 506 1988 1996 Westcourt Village... -- 1,909 10,817 2,607 1,909 13,424 15,333 273 1986 1996 Woodsong Village.... -- 1,846 10,469 177 1,846 10,646 12,492 97 1985 1996 Kansas City, Kansas: SWC 119th & Quivira. -- 1,565 -- 368 1,565 367 1,932 (b) (b) 1996 NEC 119th & Quivira. -- 1,540 -- 470 1,540 470 2,010 (b) (b) 1996 Las Vegas, Nevada: The Hamptons........ -- 2,959 16,790 1,381 2,959 18,171 21,130 799 1989 1995 Horizons at Peccole Ranch.............. -- 3,173 18,048 509 3,173 18,557 21,730 851 1990 1995 King's Crossing..... -- 2,860 16,272 269 2,860 16,541 19,401 764 1991 1995 La Tierra at the Lakes.............. 26,019 5,904 33,561 2,792 5,904 36,353 42,257 1,676 1986 1995 Sunterra............ 8,138 2,086 11,867 301 2,086 12,168 14,254 561 1986 1995 Omaha, Nebraska: Apple Creek......... 11,100 1,953 11,069 773 1,953 11,842 13,795 787 1987 1994 Oakbrook............ -- 1,108 6,307 121 1,108 6,428 7,536 296 1994 1995 Orange County, California: Aliso Viejo......... -- 4,872 -- 883 4,872 883 5,755 (b) (b) 1996 Las Flores Apartment Homes.............. -- 4,190 -- 4,044 4,190 4,044 8,234 (b) (b) 1996 Newpointe........... -- 1,403 7,981 100 1,403 8,081 9,484 109 1987 1996 Villa Marseilles.... -- 1,970 11,162 255 1,970 11,417 13,387 26 1991 1996 Phoenix, Arizona: Arrowhead I (g)..... -- 2,019 -- 370 2,019 370 2,389 (b) (b) 1995 Bay Club............ -- 2,797 11,188 1,122 2,797 12,310 15,107 1,037 1985 1993 Foxfire............. -- 1,055 5,976 326 1,055 6,302 7,357 465 1985 1994 Miralago I (g)...... -- 2,743 -- 16,697 2,743 16,697 19,440 6 1996 1995 Moorings at Mesa Cove............... -- 3,261 13,045 1,066 3,261 14,111 17,372 1,464 1985 1992 North Mountain Village............ -- 2,704 15,323 432 2,704 15,755 18,459 1,199 1986 1994 Peaks at Papago Park I.................. -- 4,131 23,408 1,732 4,131 25,140 29,271 1,843 1988 1994 Peaks at Papago Park II................. -- 1,000 -- 6,188 1,000 6,188 7,188 101 1996 1994 The Ridge--Phoenix.. -- 1,852 10,492 411 1,852 10,903 12,755 918 1987 1993 San Antigua......... -- 4,200 -- 19,589 4,200 19,589 23,789 1,732 1994 1991
81
GROSS AMOUNT AT WHICH CARRIED AT DECEMBER 31, INITIAL COST TO PTR COSTS 1996 ------------------- CAPITALIZED -------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED ---------- ------- ------ ------------ ----------- ------ ------------ ------ ---------- --------- -------- San Marina........... $ -- $1,208 $4,831 $ 911 $1,208 $5,742 $6,950 $1,044 11986 1992 San Marquis North.... -- 1,215 -- 9,535 1,215 9,535 10,750 608 1994 1993 San Marquis South.... -- 2,312 -- 11,167 2,312 11,167 13,479 968 1994 1993 San Palmera (g)...... -- 3,515 -- 17,534 3,515 17,534 21,049 7 1996 1995 San Valiente I (g)... -- 3,062 -- 13,851 3,062 13,851 16,913 (b) (b) 1995 Scottsdale Greens.... -- 3,489 19,774 5,035 3,489 24,809 28,298 1,629 1980 1994 Superstition Park.... -- 2,340 9,362 991 2,340 10,353 12,693 1,069 1985 1992 Portland, Oregon: Arbor Heights........ -- 2,669 -- 6,135 2,669 6,135 8,804 (b) (b) 1996 Brighton............. -- 1,675 9,532 270 1,675 9,801 11,476 90 1,685 1996 Cambridge Crossing... -- 2,260 -- 3,574 2,260 3,574 5,834 (b) (b) 1996 Club at the Green.... -- 1,640 9,327 184 1,640 9,511 11,151 453 1991 1995 Double Tree I........ -- 1,548 8,810 157 1,548 8,967 10,515 416 1990 1995 Double Tree II....... 4,750 991 5,611 79 991 5,690 6,681 252 1994 1995 Knight's Castle...... -- 1,963 11,164 55 1,963 11,219 13,182 524 1989 1995 Meridian at Murrayhill.......... -- 2,517 14,320 420 2,517 14,739 17,256 680 1990 1995 Preston's Crossing (g)................. -- 851 -- 12,015 851 12,015 12,866 125 1996 1995 Riverwood Heights.... -- 1,479 8,410 274 1,479 8,684 10,163 399 1990 1995 Squire's Court....... -- 1,630 9,249 101 1,630 9,350 10,980 435 1989 1995 Timberline........... -- 1,058 5,995 282 1,058 6,277 7,335 114 1990 1996 Reno, Nevada: Meadowview I & II.... -- 3,485 -- 735 3,485 735 4,220 (b) (b) 1996 Vista Ridge.......... -- 2,002 -- 15,593 2,002 15,593 17,595 (b) (b) 1995 Salt Lake City, Utah: Brighton Place....... -- 2,091 11,892 1,300 2,091 13,191 15,282 582 1979 1995 Cherry Creek......... 4,000 1,290 7,330 362 1,290 7,692 8,982 344 1986 1995 Fox Creek............ 4,236 1,172 6,641 123 1,172 6,764 7,936 -- 1985 1996 Greenpointe.......... 3,638 891 5,050 67 891 5,117 6,008 238 1985 1995 Greenpointe Expan- sion................ -- 32 -- 124 32 124 156 (b) (b) 1996 Mountain Shadow...... 3,340 832 4,730 125 832 4,855 5,687 222 1985 1995 Mountain Shadow Expansion........... -- 95 -- 239 95 239 334 (b) (b) 1996 Remington............ -- 2,324 -- 13,765 2,324 13,765 16,089 76 1996 1995 Riverview............ -- 4,636 -- 6,329 4,636 6,329 10,965 (b) (b) 1996 Summertree........... 4,435 1,521 8,619 43 1,521 8,662 10,183 39 1986 1996 San Antonio, Texas: Applegate............ -- 1,455 8,248 522 1,455 8,770 10,225 737 1983 1993 Austin Point......... -- 1,728 9,725 615 1,728 10,340 12,068 870 1982 1993 Camino Real.......... -- 1,084 4,338 859 1,084 5,197 6,281 529 1979 1993 Cobblestone Village.. -- 786 3,120 691 786 3,811 4,597 658 1984 1992 Contour Place........ -- 456 1,829 339 456 2,168 2,624 427 1984 1992 The Crescent......... -- 1,145 -- 14,545 1,145 14,545 15,690 1,384 1994 1992 Dymaxion I........... -- 683 3,740 231 683 3,971 4,654 228 1984 1994 The Gables........... -- 1,025 5,809 554 1,025 6,363 7,388 521 1983 1993 Marbach Park......... -- 1,122 6,361 651 1,122 7,012 8,134 605 1985 1993 Palisades Park....... -- 1,167 6,613 481 1,167 7,094 8,261 598 1983 1993 Panther Springs...... -- 585 3,317 145 585 3,462 4,047 294 1985 1993 Rancho Mirage........ -- 724 2,971 1,437 724 4,407 5,131 368 1974 1993 Stanford Heights..... -- 1,631 -- 11,703 1,631 11,703 13,334 399 1996 1993 Sterling Heights..... -- 1,644 -- 10,460 1,644 10,460 12,104 558 1995 1993 St. Tropez I......... -- 2,013 8,054 971 2,013 9,025 11,038 983 1982 1992 St. Tropez II........ -- 605 -- 554 605 554 1,159 (b) (b) 1994 Towne East Village... -- 350 1,985 236 350 2,221 2,571 182 1983 1993 Villas of Castle Hills............... -- 1,037 4,148 746 1,037 4,894 5,931 424 1971 1993 Waters of Northern Hills............... -- 1,251 7,105 785 1,251 7,890 9,141 604 1982 1994
82
GROSS AMOUNT AT WHICH CARRIED AT INITIAL COST TO PTR COSTS DECEMBER 31, 1996 --------------------- CAPITALIZED -------------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED ---------- -------- -------- ------------ ----------- -------- ------------ ---------- ---------- --------- -------- San Diego, Cali- fornia: Club Pacifica... $ -- $ 2,141 $ 12,132 $ 343 $ 2,141 $ 12,474 $ 14,615 $ 227 1987 1996 El Dorado Hills. 16,718 4,418 25,084 713 4,418 25,797 30,215 237 1983 1996 Ocean Crest..... -- 2,369 13,427 447 2,369 13,874 16,243 280 1993 1996 Scripps Landing. -- 1,332 7,550 318 1,332 7,868 9,200 646 1985 1994 The Palisades... -- 4,741 26,866 31 4,741 26,897 31,638 59 1991 1996 Tierrasanta Ridge.......... -- 2,859 16,130 695 2,859 16,825 19,684 1,340 1994 1994 San Francisco (Bay Area), Cal- ifornia: Harborside...... -- 3,213 18,210 -- 3,213 18,210 21,423 (b) (b) 1996 Ashton Place.... 47,342 9,782 55,429 687 9,782 56,116 65,898 385 1970 1996 Quail Ridge..... -- 2,633 14,923 587 2,633 15,508 18,141 246 1986 1996 Redwood Shores.. 25,220 5,608 31,778 263 5,608 32,046 37,654 215 1986 1996 Treat Commons... 7,192 5,788 32,802 316 5,788 33,118 38,906 884 1988 1995 Santa Fe, New Mexico: Foothills of Santa Fe Phase I.............. -- 1,396 -- 1,098 1,396 1,098 2,494 (b) (b) 1995 The Meadows of Santa Fe....... -- 760 -- 11,672 760 11,672 12,432 1,220 1994 1993 Seattle, Washing- ton: Canyon Creek.... -- 5,250 -- 9,393 5,250 9,393 14,643 (b) (b) Canyon Crown.... -- 4,370 -- 231 4,370 231 4,601 (b) (b) Clubhouse....... 5,831 1,223 6,928 20 1,223 6,948 8,171 -- 1982 1996 Forrest Creste.. -- 1,681 -- 312 1,681 312 1,993 (b) (b) 1996 Harbour Pointe.. -- 2,027 -- 2,865 2,027 2,865 4,892 (b) (b) 1996 Logan's Ridge... -- 1,950 11,118 278 1,950 11,395 13,345 524 1987 1995 Matanza Creek... -- 1,016 5,814 267 1,016 6,081 7,097 276 1991 1995 Millwood Es- tates.......... -- 1,593 9,200 608 1,593 9,808 11,401 440 1987 1995 Pebble Cove..... -- 1,895 -- 15,084 1,895 15,084 16,979 148 1996 1995 Remington Park.. -- 2,795 15,593 732 2,795 16,325 19,120 684 1990 1995 Walden Pond..... -- 2,033 11,535 336 2,033 11,871 13,904 545 1990 1995 Tucson, Arizona: Cobble Creek.... -- 1,422 5,690 777 1,422 6,477 7,899 1,041 1980 1992 Craycroft Gar- dens........... -- 348 1,392 234 348 1,626 1,974 235 1963 1992 San Ventana (g). -- 3,177 -- 20,561 3,177 20,560 23,737 89 1996 1993 Tierra Antigua.. -- 992 3,967 527 992 4,494 5,486 669 1979 1992 Villa Caprice... -- 1,279 7,248 319 1,279 7,567 8,846 641 1972 1993 Windsail........ 4,798 1,852 7,407 718 1,852 8,124 9,976 770 1986 1993 Tulsa, Oklahoma: Southern Slope.. -- 779 4,413 170 779 4,584 5,363 392 1982 1993 -------- -------- ---------- -------- -------- ---------- ---------- ------ ---- ---- Total Multifami- ly............. 217,188 357,708 1,189,347 549,720 358,155 1,738,620 2,096,775 93,386 -------- -------- ---------- -------- -------- ---------- ---------- ------ ---- ---- LAND HELD FOR FU- TURE MULTIFAMILY DEVELOPMENT: Austin, Texas: Monterey Ranch Village I (h).. -- 424 -- 1,887 424 1,887 2,311 (b) (b) 1993 Monterey Ranch Village III (i)............ -- 1,131 -- 6,036 1,131 6,036 7,167 (b) (b) 1993 Monterey Ranch IV (j)......... -- 920 -- -- 920 -- 920 -- N/A 1993 El Paso, Texas: West Ten (k).... -- 1,523 -- 83 1,523 83 1,606 -- N/A 1994 Houston, Texas: SPCA Tract (l).. -- 563 -- -- 563 -- 563 (b) (b) 1996 North Arlington, Texas: Cracker Barrel.. -- 245 -- -- 245 -- 245 --
83
GROSS AMOUNT AT WHICH CARRIED AT INITIAL COST TO PTR COSTS DECEMBER 31, 1996 --------------------- CAPITALIZED -------------------------------- BUILDINGS SUBSE- BUILDINGS ACCUMU- CON- ENCUM- AND QUENT TO AND LATED DE- STRUCTION YEAR PROPERTIES BRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTALS PRECIATION YEAR ACQUIRED ---------- -------- -------- ------------ ----------- -------- ------------ ---------- ---------- --------- -------- Phoenix, Arizona: San Valiente (m) ............... $ -- $ 1,647 $ -- $ 540 $ 1,647 $ 540 $ 2,187 $ -- N/A 1995 Arrowhead II (n)............ -- 1,601 -- 128 1,601 128 1,729 -- N/A 1995 Miralago II..... -- 1,801 33 33 1,801 66 1,867 -- San Antonio, Tex- as: Dymaxion II (o). -- 545 -- 18 545 18 563 -- N/A 1994 Indian Trails II (p)............ -- 864 -- 43 864 43 907 -- N/A 1994 Walker Ranch I (q)............ -- 2,230 -- 1,282 2,230 1,282 3,512 (b) (b) 1994 Walker Ranch II (r)............ -- 1,481 -- 579 1,481 579 2,060 (b) (b) 1994 Walker Ranch III (s)............ -- 555 -- 258 555 258 813 (b) (b) 1994 Santa Fe, New Mexico: Foothills of Santa Fe II (t)............ -- 1,114 -- 147 1,115 146 1,261 (b) (b) 1995 St. Francis (u). -- 1,941 -- 391 941 391 2,332 -- N/A 1994 -------- ---------- -------- -------- ---------- ---------- ------- Total Develop- ment Land...... 18,585 33 11,425 18,586 11,457 30,043 -------- ---------- -------- -------- ---------- ---------- ------- HOTEL: San Francisco, California: Wharf Holiday Inn (v)........ -- 12,861 1,935 8,075 12,861 10,009 22,870 3,440 1972 1971 -------- ---------- -------- -------- ---------- ---------- ------- OFFICE/INDUSTRIAL: Dallas, Texas: Irving Blvd..... -- 109 303 128 109 431 540 249 1968 1977 El Paso, Texas: Vista Industri- al............. -- 567 2,504 63 567 2,568 3,135 499 1987 1987 -------- -------- ---------- -------- -------- ---------- ---------- ------- TOTAL OFFICE/INDUSTRIAL. -- 676 2,807 191 676 2,999 3,675 748 -------- -------- ---------- -------- -------- ---------- ---------- ------- TOTAL........... $217,188 $389,830 $1,194,122 $569,411 $390,278 $1,763,085 $2,153,363 $97,574 ======== ======== ========== ======== ======== ========== ========== =======
- ------- (a)Phase I (118 units) was acquired in 1991 and Phase II (122 units) was developed in 1992. (b)As of December 31, 1996, property was undergoing development. (c)Phase I (120 units) was developed in 1980, Phase II (60 units) was developed in 1981 and Phase III (288 units) was developed in 1983. (d)Phase I (160 units) was developed in 1989 and Phase II (132 units) was developed in 1991. (e)Phase I (208 units) was acquired in 1991 and Phase II (144 units) was developed in 1994. (f)Phase I (84 units) was developed in 1970 and Phase II (100 units) was developed in 1978. (g)Represents properties owned by third party developers that are subject to presale agreements to PTR to acquire such properties. PTR's investment as of December 31, 1996 represents development loans made by PTR to such developers. (h)19.9 acres of undeveloped land. (i)53.1 acres of undeveloped land. (j)11.01 acres of undeveloped land. (k)25.30 acres of undeveloped land. (l).05 acres of undeveloped land. (m)7.6 acres of undeveloped land. (n)11.60 acres of undeveloped land. (o)18.0 acres of undeveloped land. (p)25.6 acres of undeveloped land. (q)38.7 acres of undeveloped land. (r)30.5 acres of undeveloped land. (s)10.3 acres of undeveloped land. (t)19.2 acres of undeveloped land. (u)10.4 acres of undeveloped land. (v)PTR owns the building and land leased to hold Holiday Inns of America, Inc. at Fisherman's Wharf in San Francisco. The lease with Holiday Inns expires in 2018. 84 The following is a reconciliation of the carrying amount and related accumulated depreciation of PTR's investment in real estate, at cost (in thousands):
CARRYING AMOUNTS DECEMBER 31, ---------------- ---------------------------------- 1996 1995 1994 ---------- ---------- ---------- Balance at January 1....................... $1,855,866 $1,296,288 $872,610 Multifamily: Acquisitions and renovations expenditures............................ 463,935 385,356 270,024 Development expenditures, excluding land acquisition............................. 187,377 117,980 111,184 Acquisition and improvements of land held for current and future development...... 20,880 11,255 16,789 Recurring capital expenditures........... 7,992 5,119 3,746 Dispositions............................. (269,693) (6,166) (11,902) ---------- ---------- ---------- Net multifamily activity subtotal...... $ 410,491 $ 513,544 $ 389,841 ---------- ---------- ---------- Non-multifamily: Homestead development expenditure, including land acquisitions............. $ 54,883 $ 48,247 $ 35,943 Contribution of Homestead Assets......... (161,370) -- -- Nonmultifamily dispositions.............. (6,527) (2,235) (331) Provision for possible loss.............. -- (220) (1,600) Other.................................... 20 242 (175) ---------- ---------- ---------- Balance at December 31..................... $2,153,363 $1,855,866 $1,296,288 ========== ========== ========== ACCUMULATED DEPRECIATION DECEMBER 31, ------------------------ ---------------------------------- 1996 1995 1994 ---------- ---------- ---------- Balance at January 1....................... $ 81,979 $ 46,199 $ 22,022 Depreciation for the year.................. 44,887 36,685 24,614 Accumulated depreciation of real estate sold...................................... (22,653) (646) (151) Contribution of Homestead Assets........... (6,639) -- -- Other...................................... -- (259) (286) ---------- ---------- ---------- Balance at December 31..................... $ 97,574 $ 81,979 $ 46,199 ========== ========== ==========
85 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of Security Capital Pacific Trust, a Maryland real estate investment trust, and the undersigned Trustees and officers of Security Capital Pacific Trust, hereby constitutes and appoints C. Ronald Blankenship, Bryan J. Flanagan, Jeffrey A. Klopf, Ariel Amir, Edward J. Schneidman and Michael T. Blair its or his true and lawful attorneys-in-fact and agents, for it or him and in its or his name, place and stead, in any and all capacities, with full power to act alone, to sign any and all amendments to this report, and to file each such amendment to this report, with all exhibits thereto, and any and all documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as it or he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them may lawfully do or cause to be done by virtue hereof. 86 SECURITY CAPITAL PACIFIC TRUST SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Security Capital Pacific Trust /s/ C. Ronald Blankenship By: _________________________________ C. Ronald Blankenship Chairman (Principal Executive Officer) Date: March 13, 1997 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ C. Ronald Blankenship Chairman (Principal March 13, 1997 ____________________________________ Executive Officer) and C. Ronald Blankenship Trustee /s/ Bryan J. Flanagan Senior Vice President March 13, 1997 ____________________________________ (Principal Financial Bryan J. Flanagan Officer) /s/ Thomas L. Poe Vice President and March 13, 1997 ____________________________________ Controller (Principal Thomas L. Poe Accounting Officer) /s/ James A. Cardwell Trustee March 13, 1997 ____________________________________ James A. Cardwell /s/ John T. Kelley III Trustee March 13, 1997 ____________________________________ John T. Kelley III /s/ Calvin K. Kessler Trustee March 13, 1997 ____________________________________ Calvin K. Kessler /s/ William G. Myers Trustee March 13, 1997 ____________________________________ William G. Myers /s/ James H. Polk III Trustee March 13, 1997 ____________________________________ James H. Polk III /s/ John C. Schweitzer Trustee March 13, 1997 ____________________________________ John C. Schweitzer
87 INDEX TO EXHIBITS Certain of the following documents are filed herewith. Certain other of the following documents have been previously filed with the Securities and Exchange Commission and, pursuant to Rule 12b-32, are incorporated herein by reference.
NUMBER DESCRIPTION ------ ----------- 2.1 Merger and Distribution Agreement, dated as of May 21, 1996, among PTR, Security Capital Atlantic Incorporated ("ATLAN- TIC"), Security Capital Group Incorporated ("Security Capital Group") and Homestead Village Properties Incorporated ("Home- stead") (incorporated by reference to Exhibit 2 to Homestead's Form S-4 Registration Statement (File No. 333-4455; the "Home- stead S-4")) 2.2 Form of Articles of Merger with Homestead (incorporated by reference to Exhibit 2.1 to the Homestead S-4) 2.3 Agreement and Plan of Merger dated as of December 6, 1994 among PTR, Security Capital Pacific Incorporated ("PACIFIC") and Security Capital Group (incorporated by reference to Ex- hibit 2.1 to Registration Statement No. 33-87184) 2.4 Articles of Merger of PACIFIC with and into PTR (incorporated by reference to Exhibit 4.6 to PTR's Form 10-K for the year ended December 31, 1994) 4.1 Restated Declaration of Trust of PTR (incorporated by refer- ence 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 Reg- istration Statement No. 33-86444) 4.5 Fifth Articles of Amendment of Restated Declaration of Trust of PTR 4.6 Articles Supplementary relating to PTR's Cumulative Convert- ible Series A Preferred Shares of Beneficial Interest (incor- porated by reference to Exhibit 3.1 to PTR's Form 8-K dated November 22, 1993) 4.7 Articles Supplementary relating to PTR's Series B Cumulative Redeemable Series B Preferred Shares of Beneficial Interest (incorporated by reference to Exhibit 99.3 to PTR's Form 8-K dated May 18, 1995) 4.8 First Articles of Amendment to Articles Supplementary relating to PTR's Series B Cu- mulative Redeemable Preferred Shares of Beneficial Interest (incorporated by reference to Exhibit 3.1 to PTR's Form 10-Q for the quarter ended September 30, 1995) 4.9 Bylaws of PTR (incorporated by reference to Exhibit 4.1 to PTR's Form 8-K dated November 22, 1993) 4.10 Indenture, dated as of February 1, 1994, between PTR and Mor- gan 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) 4.11 First Supplemental Indenture, dated as of February 2, 1994, among PTR, Morgan Guaranty Trust Company of New York and State Street Bank and Trust Company, as successor Trustee (incorpo- rated by reference to Exhibit 4.3 to PTR's Form 10-K for the year ended December 31, 1993) 4.12 6.60% Note due October 15, 1999 4.13 6.95% Note due October 15, 2002 4.14 7.15% Note due October 15, 2003
88
NUMBER DESCRIPTION ------ ----------- 4.15 7.25% Note due October 15, 2004 4.16 7.30% Note due October 15, 2005 4.17 7.375% Note due October 15, 2006 4.18 6.875% Note due February 15, 2008 (incorporated by reference to Exhibit 4.4 to PTR's Form 10-K for the year ended December 31, 1994) 4.19 7.55% Note due August 1, 2008 4.20 7.625% Note due August 1, 2009 4.21 7.15% Note due February 23, 2010 (incorporated by reference to Exhibit 4.14 to PTR's Form 10-K for the year ended December 31, 1995) 4.22 7.65% Note due August 1, 2010 4.23 7.5% Note due February 15, 2014 (incorporated by reference to Exhibit 4.5 to PTR's Form 10-K for the year ended December 31, 1994) 4.24 8.10% Note due August 1, 2015 4.25 7.90% Note due February 23, 2016 (incorporated by reference to Exhibit 4.15 to PTR's Form 10-K for the year ended December 31, 1995) 4.26 8.15% Note due October 15, 2016 4.27 6.50% Note due October 15, 2026 4.28 Rights Agreement dated as of July 21, 1994 between PTR and Chemical Bank, including form of Rights Certificate (incorpo- rated by reference to Exhibit 4.2 to PTR's Form 8-K dated July 19, 1994) 4.29 First Amendment dated as of February 8, 1995 to the Rights Agreement (incorporated by reference to Exhibit 4.13 to PTR's Form 10-K for the year ended December 31, 1994) 10.1 1987 Share Option Plan for Outside Trustees, as amended (in- corporated by reference to Exhibit 10.1 to PTR's Form 10-K for the year ended December 31, 1995) 10.2 Form of Indemnification Agreement entered into between PTR and all of its officers and Trustees (incorporated by reference to Exhibit 10.50 to Registration Statement No. 33- 43201) 10.3 Second Amended and Restated Investor Agreement dated as of July 11, 1994 between PTR and Security Capital Group (incorpo- rated by reference to Exhibit 10.1 to PTR's Form 8-K dated July 19, 1994) 10.4 Supplemental Investment Agreement dated as of October 1, 1991, by and between PTR and Security Capital Group (incorporated by reference to Exhibit 10.70 to Registration Statement No. 33- 43201) 10.5 Second Supplemental Investment Agreement dated as of December 7, 1993 between PTR and Security Capital Group (incorporated by reference to Exhibit 10.2 to PTR's Form 8-K dated May 3, 1994) 10.6 Third Supplemental Investment Agreement dated as of December 6, 1994 between PTR and Security Capital Group (incorporated by reference to Exhibit 10.6 to PTR's Form 10-K for the year ended December 31, 1994) 10.7 Management Agreement dated as of October 1, 1996 between PTR and SCG Realty Services Incorporated 10.8 Amended and Restated Credit Agreement dated as of August 16, 1996 among PTR, Texas Commerce Bank National Association and Wells Fargo Realty Advisors Funding, Incorporated, as co- agents, and the banks named therein
89
NUMBER DESCRIPTION ------ ----------- 10.9 Fifth Amended and Restated REIT Management Agreement dated as of May 21, 1996 between PTR and the REIT Manager 10.10 Amended and Restated Promissory Note dated as of May 28, 1996 by PTR Homestead Village Incorporated in favor of PTR (incor- porated by reference to Exhibit 4.3 to the Homestead S-4) 10.11 Amended and Restated Promissory Note dated as of May 28, 1996 by PTR Homestead Village Limited Partnership in favor of PTR (incorporated by reference to Exhibit 4.4 to the Homestead S- 4) 10.12 Protection of Business Agreement dated as of October 17, 1996 among ATLANTIC, PTR, Security Capital Group and Homestead 10.13 Investor and Registration Rights Agreement dated as of October 17, 1996 between Homestead and PTR 10.14 Funding Commitment Agreement dated as of October 17, 1996 be- tween Homestead and PTR 12.1 Computation of Ratio of Earnings to Fixed Charges 12.2 Computation of Ratio of Earnings to Fixed Charges and Pre- ferred Share Dividends 21 Subsidiaries of PTR 23 Consent of KPMG Peat Marwick LLP 24 Power of Attorney (included at page 86) 27 Financial Data Schedule
90 EX-4.5 2 FIFTH ARTICLES OF AMEND. OF DECLAR. OF TRUST EXHIBIT 4.5 FIFTH ARTICLES OF AMENDMENT OF RESTATED DECLARATION OF TRUST OF SECURITY CAPITAL PACIFIC TRUST The undersigned, being all the Trustees of Security Capital Pacific Trust, a Maryland real estate investment trust (the "Trust"), do hereby certify ----- pursuant to the provisions of Article 6, Section 2 of the Trust's Restated Declaration of Trust, dated as of June 18, 1991, as amended and supplemented (the "Declaration of Trust"), and Section 8-501 of the Corporations and -------------------- Associations Article of the Annotated Code of Maryland, that the Board of Trustees of the Trust has adopted a resolution declaring this amendment to the Declaration of Trust as hereinafter set forth to be advisable and that the shareholders of the Trust have approved such amendment by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter. Therefore, the Declaration of Trust is hereby amended by adding the following new Article 9: ARTICLE 9. HOMESTEAD TRANSACTION Notwithstanding anything to the contrary contained herein, including, without limitation, the provisions of Article 1 and Article 4 of this Declaration of Trust, the Trust shall be authorized to perform all of its obligations and exercise all of its rights under the terms of that certain Merger and Distribution Agreement, dated as of May 21, 1996 (as such agreement may be amended or supplemented from time to time, the "Merger Agreement"), among the Trust, Security Capital Atlantic Incorporated, Security Capital Group Incorporated and Homestead Village Properties Incorporated and each of the other agreements and transactions contemplated thereby, including, without limitation, the following agreements (as each of such agreements are defined in the Merger Agreement) and the transactions contemplated by such agreements: (i) Articles of Merger; (ii) Warrant Purchase Agreement; (iii) one or more Funding Commitment Agreements (including, without limitation, any notes and mortgages or deeds of trust in connection therewith); (iv) Investor and Registration Rights Agreement; (v) Protection of Business Agreement; and (vi) Distribution Agency Agreement. Each undersigned Trustee acknowledges these Fifth Articles of Amendment to be the act of the Trust and, as to all other matters or facts required to be verified under oath, that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects, and that this statement is made under the penalties for perjury. IN WITNESS WHEREOF, the undersigned have executed these Fifth Articles of Amendment as of this 16th day of October, 1996. /s/ C. Ronald Blankenship --------------------------------------- C. Ronald Blankenship /s/ James A. Cardwell --------------------------------------- James A. Cardwell /s/ John T. Kelley, III --------------------------------------- John T. Kelley, III /s/ Calvin K. Kessler --------------------------------------- Calvin K. Kessler /s/ William G. Myers --------------------------------------- William G. Myers /s/ James H. Polk, III --------------------------------------- James H. Polk, III /s/ John C. Schweitzer --------------------------------------- John C. Schweitzer S-1 EX-4.12 3 6.60% NOTE EXHIBIT 4.12 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $15,000,000 CUSIP No.: 81414E AF 6 SECURITY CAPITAL PACIFIC TRUST 6.600% NOTE DUE 1999 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of FIFTEEN MILLION DOLLARS on October 15, 1999 and to pay interest on the outstanding principal amount thereon from October 21, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on April 15 and October 15 in each year, commencing on April 15, 1997, at the rate of 6.600% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the -------- ------- option of the Company payment of interest may be made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $15,000,000. Securities of this series may be redeemed at any time at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Securities. The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest -2- (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. -3- As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this -4- Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -5- THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. * * * * -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship -------------------------- C. Ronald Blankenship Chairman Attest: By: /s/ Jeffrey A. Klopf --------------------- Jeffrey A. Klopf Secretary Dated: October 21, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY: /s/ Authorized Officer ----------------------- Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ======================================== ======================================== . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print or Typewrite Name and Address including Zip Code of Assignee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- EX-4.13 4 6.95% NOTE EXHIBIT 4.13 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $20,000,000 CUSIP No.: 81414E AG 4 SECURITY CAPITAL PACIFIC TRUST 6.950% NOTE DUE 2002 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of TWENTY MILLION DOLLARS on October 15, 2002 and to pay interest on the outstanding principal amount thereon from October 21, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on April 15 and October 15 in each year, commencing on April 15, 1997, at the rate of 6.950% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the -------- ------- option of the Company payment of interest may be made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $20,000,000. Securities of this series may be redeemed at any time at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Securities. The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest -2- (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. -3- As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this -4- Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -5- THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. * * * * -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship -------------------------- C. Ronald Blankenship Chairman Attest: By: /s/ Jeffrey A. Klopf --------------------- Jeffrey A. Klopf Secretary Dated: October 21, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY: /s/ Authorized Officer ----------------------- Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ======================================== ======================================== . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print or Typewrite Name and Address including Zip Code of Assignee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- EX-4.14 5 7.15% NOTE EXHIBIT 4.14 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $20,000,000 CUSIP No.: 81414E AH 2 SECURITY CAPITAL PACIFIC TRUST 7.150% NOTE DUE 2003 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of TWENTY MILLION DOLLARS on October 15, 2003 and to pay interest on the outstanding principal amount thereon from October 21, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on April 15 and October 15 in each year, commencing on April 15, 1997, at the rate of 7.150% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the -------- ------- option of the Company payment of interest may be made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $20,000,000. Securities of this series may be redeemed at any time at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Securities. The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest -2- (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. -3- As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this -4- Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -5- THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. * * * * -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship ------------------------- C. Ronald Blankenship Chairman Attest: By: /s/ Jeffrey A. Klopf --------------------- Jeffrey A. Klopf Secretary Dated: October 21, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY: /s/ Authorized Officer ----------------------- Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ========================================= ========================================= ................................................................................ (Please Print or Typewrite Name and Address including Zip Code of Assignee) ................................................................................ the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint ........................................................................Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- EX-4.15 6 7.25% NOTE EXHIBIT 4.15 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $20,000,000 CUSIP No.: 81414E AJ 8 SECURITY CAPITAL PACIFIC TRUST 7.250% NOTE DUE 2004 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of TWENTY MILLION DOLLARS on October 15, 2004 and to pay interest on the outstanding principal amount thereon from October 21, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on April 15 and October 15 in each year, commencing on April 15, 1997, at the rate of 7.250% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the -------- ------- option of the Company payment of interest may be made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $20,000,000. Securities of this series may be redeemed at any time at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Securities. The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest -2- (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. -3- As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this -4- Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -5- THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. * * * * -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship -------------------------- C. Ronald Blankenship Chairman Attest: By: /s/ Jeffrey A. Klopf --------------------- Jeffrey A. Klopf Secretary Dated: October 21, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY: /s/ Authorized Officer ----------------------- Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ========================================= ========================================= . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print or Typewrite Name and Address including Zip Code of Assignee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- EX-4.16 7 7.30% NOTE EXHIBIT 4.16 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $20,000,000 CUSIP No.: 81414E AK 5 SECURITY CAPITAL PACIFIC TRUST 7.300% NOTE DUE 2005 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of TWENTY MILLION DOLLARS on October 15, 2005 and to pay interest on the outstanding principal amount thereon from October 21, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on April 15 and October 15 in each year, commencing on April 15, 1997, at the rate of 7.300% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the -------- ------- option of the Company payment of interest may be made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $20,000,000. Securities of this series may be redeemed at any time at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Securities. The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest -2- (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. -3- As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this -4- Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -5- THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. * * * * -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship -------------------------- C. Ronald Blankenship Chairman Attest: By: /s/ Jeffrey A. Klopf --------------------- Jeffrey A. Klopf Secretary Dated: October 21, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY: /s/ Authorized Officer ----------------------- Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ======================================== ======================================== . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print or Typewrite Name and Address including Zip Code of Assignee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- EX-4.17 8 7.375% NOTE EXHIBIT 4.17 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $20,000,000 CUSIP No.: 81414E AL 3 SECURITY CAPITAL PACIFIC TRUST 7.375% NOTE DUE 2006 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of TWENTY MILLION DOLLARS on October 15, 2006 and to pay interest on the outstanding principal amount thereon from October 21, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on April 15 and October 15 in each year, commencing on April 15, 1997, at the rate of 7.375% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the -------- ------- option of the Company payment of interest may be made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $20,000,000. Securities of this series may be redeemed at any time at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Securities. The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest -2- (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. -3- As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this -4- Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -5- THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. * * * * -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship -------------------------- C. Ronald Blankenship Chairman Attest: By: /s/ Jeffrey A. Klopf --------------------- Jeffrey A. Klopf Secretary Dated: October 21, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY: /s/ Authorized Officer ----------------------- Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE =================================== =================================== . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print or Typewrite Name and Address including Zip Code of Assignee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- EX-4.19 9 7.55% NOTE EXHIBIT 4.19 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $20,000,000 CUSIP No.: 81414E AA 7 SECURITY CAPITAL PACIFIC TRUST 7.550% NOTE DUE 2008 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of TWENTY MILLION DOLLARS on August 1, 2008 and to pay interest on the outstanding principal amount thereon from August 8, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on February 1 and August 1 in each year, commencing on February 1, 1997, at the rate of 7.550% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be - -------- ------- made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $20,000,000. Securities of this series may be redeemed at any time at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Securities. The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest -2- (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. -3- As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this -4- Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -5- THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. * * * * -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship -------------------------- C. Ronald Blankenship Chairman Attest: By: /s/ Jeffrey A. Klopf --------------------- Jeffrey A. Klopf Secretary Dated: August 8, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY: /s/ Authorized Officer ----------------------- Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ======================================= ======================================= . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print or Typewrite Name and Address including Zip Code of Assignee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- EX-4.20 10 7.625% NOTE EXHIBIT 4.20 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $20,000,000 CUSIP No.: 81414E AB 5 SECURITY CAPITAL PACIFIC TRUST 7.625% NOTE DUE 2009 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of TWENTY MILLION DOLLARS on August 1, 2009 and to pay interest on the outstanding principal amount thereon from August 8, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on February 1 and August 1 in each year, commencing on February 1, 1997, at the rate of 7.625% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be - -------- ------- made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $20,000,000. Securities of this series may be redeemed at any time at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Securities. The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest -2- (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. -3- As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this -4- Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -5- THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. * * * * -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship -------------------------- C. Ronald Blankenship Chairman Attest: By: /s/ Jeffrey A. Klopf --------------------- Jeffrey A. Klopf Secretary Dated: August 8, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY: /s/ Authorized Officer ----------------------- Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ========================================= ========================================= . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print or Typewrite Name and Address including Zip Code of Assignee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- EX-4.22 11 7.65% NOTE EXHIBIT 4.22 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $20,000,000 CUSIP No.: 81414E AC 3 SECURITY CAPITAL PACIFIC TRUST 7.650% NOTE DUE 2010 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of TWENTY MILLION DOLLARS on August 1, 2010 and to pay interest on the outstanding principal amount thereon from August 8, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on February 1 and August 1 in each year, commencing on February 1, 1997, at the rate of 7.650% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be - -------- ------- made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $20,000,000. Securities of this series may be redeemed at any time at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Securities. The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest -2- (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. -3- As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this -4- Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -5- THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. * * * * -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship -------------------------- C. Ronald Blankenship Chairman Attest: By: /s/ Jeffrey A. Klopf --------------------- Jeffrey A. Klopf Secretary Dated: August 8, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY: /s/ Authorized Officer ----------------------- Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ======================================= ======================================= . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print or Typewrite Name and Address including Zip Code of Assignee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- EX-4.24 12 8.10% NOTE EXHIBIT 4.24 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $20,000,000 CUSIP No.: 81414E AD 1 SECURITY CAPITAL PACIFIC TRUST 8.100% NOTE DUE 2015 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of TWENTY MILLION DOLLARS on August 1, 2015 and to pay interest on the outstanding principal amount thereon from August 8, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on February 1 and August 1 in each year, commencing on February 1, 1997, at the rate of 8.100% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be - -------- ------- made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $20,000,000. Securities of this series may be redeemed at any time at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Securities. The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest -2- (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. -3- As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this -4- Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -5- THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. * * * * -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship -------------------------- C. Ronald Blankenship Chairman Attest: By: /s/ Jeffrey A. Klopf --------------------- Jeffrey A. Klopf Secretary Dated: August 8, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY: /s/ Authorized Officer ----------------------- Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ========================================= ========================================= . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print or Typewrite Name and Address including Zip Code of Assignee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- EX-4.26 13 8.15% NOTE EXHIBIT 4.26 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $20,000,000 CUSIP No.: 81414E AE 9 SECURITY CAPITAL PACIFIC TRUST 8.150% NOTE DUE 2016 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of TWENTY MILLION DOLLARS on August 1, 2016 and to pay interest on the outstanding principal amount thereon from August 8, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on February 1 and August 1 in each year, commencing on February 1, 1997, at the rate of 8.150% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be - -------- ------- made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $20,000,000. Securities of this series may be redeemed at any time at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Securities. The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest -2- (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. -3- As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this -4- Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -5- THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. * * * * -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship -------------------------- C. Ronald Blankenship Chairman Attest: By: /s/ Jeffrey A. Klopf --------------------- Jeffrey A. Klopf Secretary Dated: August 8, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY: /s/ Authorized Officer ----------------------- Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ========================================== ========================================== . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print or Typewrite Name and Address including Zip Code of Assignee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- EX-4.27 14 6.50% NOTE EXHIBIT 4.27 Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Company (as defined below) or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. REGISTERED PRINCIPAL AMOUNT No.: 1 $15,000,000 CUSIP No.: 81414E AM 1 SECURITY CAPITAL PACIFIC TRUST 6.500% NOTE DUE 2026 SECURITY CAPITAL PACIFIC TRUST, a real estate investment trust organized and existing under the laws of the State of Maryland (hereinafter called the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, upon presentation, the principal sum of FIFTEEN MILLION DOLLARS on October 15, 2026 and to pay interest on the outstanding principal amount thereon from October 21, 1996, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on April 15 and October 15 in each year, commencing on April 15, 1997, at the rate of 6.500% per annum, until the entire principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest which shall be the April 1 or October 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not more than 15 days and not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payment of the principal of, Make-Whole Amount, if any, on, and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of Boston, Commonwealth of Massachusetts, or elsewhere as provided in the Indenture, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the -------- ------- option of the Company payment of interest may be made by (i) check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) transfer to an account of the Person entitled thereto located inside the United States. Each Security of this series is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of February 1, 1994, between the Company and Morgan Guaranty Trust Company of New York, as trustee, as supplemented by a First Supplemental Indenture, dated as of February 2, 1994, (as so supplemented, herein called the "Indenture") between the Company and State Street Bank and Trust Company, as successor trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture with respect to the series of which this Security is a part), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the first page hereof, limited in aggregate principal amount to $15,000,000. Securities of this series may be repaid on October 15, 1999 (the "Option Payment Date"), at the option of the Holder, at a repurchase price equal to 100% of the principal amount of the Securities being redeemed plus accrued interest thereon to the Option Payment Date. In order for a Holder to exercise this option, the Company must receive at its offices during the period beginning on August 15, 1999 and ending at 5:00 p.m. (Eastern Standard time) on September 15, 1999 this Security with the section "Option to Elect Repayment on October 15, 1999" properly completed. Any such notice received by the Company during the period beginning on August 15, 1999 and ending at 5:00 p.m. (Eastern Standard time) on September 15, 1999 shall be irrevocable. The repayment option may be exercised for less than the entire principal amount of the Securities, so long as the principal amount that is to be repaid is equal to $1,000 or an integral multiple of $1,000. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of -2- any Security for repayment will be determined by the Company whose determination will be final and binding. Failure by the Company to repay any Security of this series when required as described in the preceding paragraph and Article Thirteen of the Indenture will result in an Event of Default under the Indenture. Securities of this series may be redeemed at any time after October 15, 1999 at the option of the Company, in whole or in part, upon notice of not more than 60 nor less than 30 days prior to the Redemption Date, at a redemption price equal to the sum of (i) the principal amount of the Securities being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make- Whole Amount, if any, with respect to such Securities. The following definitions apply with respect to any redemption of the Securities of this series at the option of the Company: "Make-Whole Amount" means, in connection with any optional redemption or accelerated payment of any Security, the excess, if any, of (i) the aggregate present value as of the date of such redemption or accelerated payment of each dollar of principal being redeemed or paid and the amount of interest (exclusive of interest accrued to the date of redemption or accelerated payment) that would have been payable in respect of such dollar if such redemption or accelerated payment had not been made, determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given or declaration of acceleration is made) from the respective dates on which such principal and interest would have been payable if such redemption or accelerated payment had not been made, over (ii) the aggregate principal amount of the Securities being redeemed or paid. "Reinvestment Rate" means .25% (one-fourth of one percent) plus the arithmetic mean of the yields under the respective headings "This Week" and "Last Week" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity, as of the payment date of the principal being redeemed or paid. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent -3- Statistical Release published prior to the date of determination of the Make- Whole Amount shall be used. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on this Security and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Security. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of, and the Make-Whole Amount, if any, on, the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the -4- consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series of Securities then Outstanding affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, Make-Whole Amount, if any, on, and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any Place of Payment where the principal of, Make-Whole Amount, if any, on, and interest on this Security are payable duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the -5- Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse under or upon any obligation, covenant or agreement contained in the Indenture or in this Security, or because of any indebtedness evidenced thereby, shall be had against any promoter, as such, or against any past, present or future shareholder, officer or trustee, as such, of the Company or of any successor, either directly or through the Company or any successor, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance of this Security by the Holder thereof and as part of the consideration for the issue of the Securities of this series. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused "CUSIP" numbers to be printed on the Securities of this series as a convenience to the Holders of such Securities. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Securities, and reliance may be placed only on the other identification numbers printed hereon. * * * * -6- Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed by the undersigned officer. SECURITY CAPITAL PACIFIC TRUST By: /s/ Jeffrey A. Klopf --------------------- Jeffrey A. Klopf Senior Vice President Attest: By: /s/ Lucinda G. Marker ---------------------- Lucinda G. Marker Assistant Secretary Dated: October 21, 1996 TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee BY: /s/ Authorized Officer ----------------------- Authorized Officer -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ========================================= ========================================= . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Please Print or Typewrite Name and Address including Zip Code of Assignee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the within Security of Security Capital Pacific Trust and hereby does irrevocably constitute and appoint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attorney to transfer said Security on the books of the within-named Company with full power of substitution in the premises. Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Security in every particular, without alteration or enlargement or any change whatever. -8- OPTION TO ELECT REPAYMENT ON OCTOBER 15, 1999 If you elect to have the entire principal amount of this Security repaid by the Company pursuant to the terms of this Security and Article Thirteen of the Indenture, check the following box [_] If you elect to have only a portion of the principal amount of this Security repaid by the Company pursuant to the terms of this Security and Article Thirteen of the Indenture, state the amount to be repaid (multiples of $1,000 only): $____________________ Date:________________ Your Signature:___________________________________ (Signature(s) must correspond with the name(s) as written upon the face of this certificate in every particular, without alteration or enlargement, or any change whatever.) Your social security number or taxpayer identification number:_______________________________________________ Signature Guarantee:____________________________________________________________ NOTICE: Signature(s) must be guaranteed by an "eligible guarantor institution" that is a member or participant in a "signature guarantee program" (i.e., the Securities Transfer Agents Medallion Program, the Stock Exchange Medallion Program or the New York Stock Exchange, Inc. Medallion Signature Program). -9- EX-10.7 15 MANAGEMENT AGREEMENT EXHIBIT 10.7 MANAGEMENT AGREEMENT THIS MANAGEMENT AGREEMENT (this "Agreement"), made and entered into as of --------- the 1st day of October, 1996, by and between SECURITY CAPITAL PACIFIC TRUST, a Maryland real estate investment trust (the "Owner"), and SCG REALTY SERVICES ----- INCORPORATED, a Texas corporation ("Manager"). ------- W I T N E S S E T H: This Agreement covers the apartment projects listed on Exhibit A (each is --------- individually referred to herein as a "Project"). This Agreement constitutes a ------- separate and independent contract between the Owner and the Manager for each Project. Owner desires to employ Manager in the management and operation of the Project by turning over to Manager the operation, direction, management and supervision of the Project, as outlined below, and Manager desires to assume such duties upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants herein contained, Owner and Manager agree as follows: ARTICLE 1 Definitions ----------- The following terms shall have the following meanings when used in this Agreement: 1.1 Term. The term of this Agreement shall commence on the date hereof ---- and shall, subject to the provisions hereof, terminate on September 30, 1997; provided, however, that unless either Owner or Manager delivers written notice to the other party on or before thirty (30) days prior to the expiration of the initial, or any renewal term, the term of this Agreement shall automatically be extended for successive one year terms. 1.2 Fee. The management fee payable each month by Owner to Manager --- hereunder shall be an amount equal to 3% of the Gross Receipts of the Project for such month if the Project is located in California, 3.5% of the Gross Receipts of the Project for such month if the Project is located in Washington, Oregon or Nevada, and 3.75% of the Gross Receipts of the Project for such month if the Project is located in any other state. Notwithstanding the foregoing, the management fee payable for any Project identified on Exhibit A as a --------- "construction project" shall commence on the date 30 days prior to the opening of the leasing office or, if earlier, the first delivery of units, and the management fee shall be equal to 90% of the Gross Receipts shown on a rent schedule approved by Owner until the first to occur of (the "Conversion Date") --------------- (a) the date 12 months after the commencement of payment of management fees, and (b) the month in which the management fee payable under this sentence first equals or exceeds the management fee that would be due if calculated under the first sentence of this Section. On and after the Conversion Date, the management fee shall be calculated in accordance with the first sentence of this Section. 1.3 Depository. An FDIC insured national or state bank designated by ---------- Owner. 1.4 Working Capital Reserve. A reasonable working capital reserve for ----------------------- each Project, as determined by Owner in its sole discretion, shall be delivered by Owner to Manager concurrently with Owner's execution and delivery hereof, to be maintained by Manager during the term hereof, used in connection with the operation of the Project in accordance with the terms hereof, and restored per the terms of Sections 4.4 and 4.5 hereof. 1.5 Fiscal Year. The year beginning January 1 and ending December 31, ----------- which is the fiscal year established by Owner for the Project. 1.6 Budget. A composite of (i) an Operations Budget, which shall be an ------ estimate of receipts and expenditures for the operation of the Project during a Fiscal Year, including a schedule of expected apartment rentals (excluding security deposits) for the period in question and a schedule of expected special repairs and maintenance projects, and (ii) a Capital Budget, which shall be an estimate of capital replacements, substitutions of and additions to the Project for a Fiscal Year. 1.7 Gross Receipts. The entire amount of all receipts, determined on a -------------- cash basis, from (a) tenant rentals collected pursuant to tenant leases for each month during the term hereof; provided, however, that there shall be excluded from tenant rentals any tenant security deposits (except as provided below) and any electric utility payments on behalf of tenants on all "BILLS PAID" properties; (b) cleaning, security and damage deposits forfeited by tenants in such period; (c) laundry and vending machine income; (d) any and all receipts from the operation of the Project received and relating to the period in question; (e) proceeds from rental interruption insurance, unless the entire property is destroyed; in which event this agreement will terminate as to such property and Owner will have no further obligation to Manager with respect to such Project; and (f) any other sums and charges collected in connection with termination of the tenant leases. Gross Receipts do not include the proceeds of (i) any sale, exchange, refinancing, condemnation, or other disposition of all or any part of the Project, (ii) any loans to the Owner whether or not secured by all or any part of the Project, (iii) any capital contributions by the Owner, or (iv) any insurance (other than rental interruption insurance) maintained with regard to the Project. 1.8 Project Employees. Those persons employed by Manager as a ----------------- management staff (i.e., manager, assistant manager, leasing agents, maintenance personnel, and other personnel necessary to be employed in order to maintain and operate the Project). 2 ARTICLE 2 Duties and Rights of Manager ---------------------------- 2.1 Appointment of Manager. During the Term of this Agreement, the ---------------------- Manager agrees, for and in consideration of the compensation hereinafter provided, and the Owner hereby grants to Manager the right, to supervise and direct the leasing, management and operation of the Project. Everything performed by Manager under this Agreement shall be done as an independent contractor of Owner. All obligations or expenses incurred hereunder, including the pro rata portion used in connection with or for the benefit of the Project of all purchases of or contracts for sales or services in bulk or volume which Manager may obtain for discount or convenience in connection with its operation of other apartment projects, shall be for the account of, on behalf of, and at the expense of Owner, expect as otherwise specifically provided; provided, however, Owner shall not be obligated to reimburse Manager for expenses for office equipment or office supplies of Manager (unless incurred for the Project), for any overhead expenses of Manager incurred with respect to its general offices, costs relating to accounting services performed hereunder, or for any salaries of employees of Manager paid with respect to duties performed on a supervisory level (except when Manager's supervisory employees are performing tasks otherwise performed by a resident manager or (to the extent of the savings achieved) where specialists are employed whose involvement creates savings in performance of required duties). Owner shall also have no obligation to reimburse Manager for that portion of the salary of a resident manager which represents payment for services rendered in respect to apartment projects other than the Project. 2.2 General Operation. Subject to the limitations imposed by the ----------------- Budget from time to time, Manager shall operate the Project in the same manner as is customary and usual in operation of comparable facilities, and shall provide such services as are customarily provided by operators of apartment projects of comparable class and standing consistent with the Project's facilities. In addition to the other obligations of Manager set forth herein, Manager shall render the following services and perform the following duties for Owner in a faithful, diligent and efficient manner: (a) maintain businesslike relations with tenants whose service requests shall be received, considered and recorded in systematic fashion in order to show the action taken with respect to each; (b) collect all monthly rentals due from tenants and rent from users or lessees of other non-dwelling facilities in the Project, if any; request, demand, collect, receive and receipt for any and all charges or rents which become due to Owner, and at Owner's expense take such legal action as may be necessary or desirable to evict tenants delinquent in payment of monthly rental or other charges (security deposits, late charges, etc.); (c) prepare or cause to be prepared for execution by the Owner all forms, reports and returns, if any, required to be filed by the Owner under applicable federal, state or local laws and any other requirements relating to the employment of personnel (anything contained herein to the contrary notwithstanding, however, Manager shall not be obligated to prepare any of Owner's state or federal income tax returns); (d) use all reasonable efforts at all times during the term of this Agreement to operate and maintain the Project according to the highest standards achievable consistent with the operation of comparable quality units; (e) maintain the Project as a safe and secure environment and notify Owner of any security risks or issues related to the Project that 3 become known to Manager; (f) advertise when necessary, at Owner's expense, the availability for rental of the Project units and display "for rent" or other similar signs upon the Project, it being understood that Manager may install one or more signs on or about the Project stating that same is under management of Manager and may use, in a tasteful manner, Manager's name and logo in any display advertising which may be done on behalf of the Project; and (g) sign, renew and cancel tenant leases for the Project, in compliance with standards established by Owner under the provisions of written apartment leases to bona fide individuals, for monthly rentals and otherwise on terms established by criteria approved from time to time by Owner, based upon Manager's recommendations; provided, however, that Project Employees may occupy apartment units on a month-to-month basis with or without an executed tenant lease. 2.3 Budget. ------ (a) Manager shall submit for Owner's approval no later than one hundred twenty (120) days prior to the beginning of each successive Fiscal Year the Budget for the ensuing Fiscal Year. The Budget shall be approved or rejected by Owner within thirty (30) days after receipt. If Owner fails to approve or disapprove the Budget within such period, the Budget shall be deemed to be approved. In the event Owner rejects the Budget, Owner and Manager shall jointly prepare the Budget as soon as may be reasonably possible. Until a new Budget is approved, Manager shall operate on the Budget approved for the prior Fiscal Year, with the exception of expenses for personnel, which must be increased based upon existing competitive conditions, and expenses relating to taxes, insurance and utilities. The Budget shall reflect the schedule of monthly rents proposed for the new fiscal year and shall also constitute a major control under which Manager shall operate the Project, and there shall be no substantial deviations therefrom except as permitted by Section 2.6(a). Consequently, without the prior consent of Owner, no expenses may be incurred or commitments made by Manager in connection with the maintenance and operation of the Project which exceed the total expenses allocated for the period in question in the approved Budget by more than ten percent (10%). The limitation in the preceding sentence, with respect to incurring any expense not covered by the Budget, shall not apply to expenses relating to taxes, insurance or utilities or expenditures required due to emergencies which threaten life or property or could result in civil or criminal liability for Owner and/or Manager. Manager makes no guaranty, warranty or representation whatsoever in connection with the accuracy of any Budget, and Owner agrees that they are intended as good faith estimates only. (b) In the event there shall be a substantial discrepancy between the results of operations for any month and the estimated results of operations for such month as set forth in the Budget, Manager shall upon request furnish to Owner within twenty (20) days after the expiration of such month a written explanation as to why the discrepancy occurred. If substantial variations have occurred or are anticipated by Manager during the course of any Fiscal Year, Manager, upon Owner's reasonable request, shall prepare and submit to Owner a revised forecast of annual income and expenses for the remainder of the Fiscal Year based on actual year-to-date income and expenses and Manager's forecast of income and expenses for the remainder of the Fiscal Year. 4 2.4 Manager and Other Personnel. --------------------------- (a) Manager shall investigate, hire, train, instruct, pay, promote, discharge and supervise the work of the Project Employees and shall supervise, through the Project Employees, the hiring, promotion, discharge and work of all other operating and service employees of Manager performing services in or about the Project, all in the name of Manager. Since some of the Project Employees may need to reside at the Project and be available full time in order to perform properly the duties of his/her employment, it is further understood and agreed that the Project Employees (including his/her spouse and dependent children), in addition to their salary and fringe benefits, may receive the normal maintenance customarily provided managers, assistant managers, leasing agents, and maintenance personnel of an apartment project, including employee housing, use of all Project facilities and reimbursement for any and all expenses which such persons may reasonably incur in the performance of their duties. Any such housing allowance that is provided will be considered as a payroll cost under the Budget, and the amount of housing allowance will be credited as apartment rental income. (b) The Project Employees shall be employees of Manager. Owner shall reimburse Manager monthly, in advance, for the total aggregate compensation, including salary and fringe benefits, payable with respect to the Project Employees, any temporary employees residing at the Project and, on an agreed basis, the Project's proportionate share of such costs relating to roving maintenance, off-site operating staff and similar personnel. The term "fringe benefits" as used herein shall mean and include the employer's contribution of F.I.C.A., unemployment compensation and other employment taxes, workmen's compensation, group life and accident and health insurance premiums, performance bonuses, and disability and other similar benefits paid or payable by the employer with respect to employees in other apartment projects operated by Manager. 2.5 Contracts and Supplies. Manager shall, except as provided herein, ---------------------- in the name of and on behalf of Owner and at Owner's expense, and without compensation directly or indirectly to Manager, except as expressly set forth herein or agreed to by Owner or Manager, consummate arrangements with concessionaires, licensees, tenants or other intended users of the facilities of the Project, shall, except as provided herein, on Owner's behalf, enter into contracts for the furnishing to the Project of electricity, gas, water, steam, telephone, cleaning, vermin extermination, furnace and air conditioning maintenance, security protection, pest control and any other utilities, services and concessions which are provided in connection with the maintenance and operation of an apartment project in accordance with standards comparable to those prevailing in other similar apartment projects, and shall place purchase orders for such equipment, tools, appliances, materials and supplies as are necessary to properly maintain the Project. 2.6 Alterations, Repairs and Maintenance. ------------------------------------ (a) Manager shall make or install, or cause to be made and installed, or do or cause to be done at Owner's expense and in the name of Owner, all necessary or desirable repairs, 5 interior and exterior cleaning, painting and decorating, plumbing, alterations, replacements, improvements and other normal maintenance and repair work on and to the Project as are customarily made by Manager in the operation of apartment projects; provided, however, that no unbudgeted expenditure in excess of $5,000.00 per item or a total of $20,000.00 annually may be made for such purposes without the prior approval of Owner, unless emergency repairs involving manifest danger to life or property are immediately necessary for the preservation of the safety of the Project, or to avoid criminal or civil liability or for the safety of the tenants, or are required to avoid the suspension of any necessary service to the Project, in which event such expenditures may be made by the Manager without prior approval and irrespective of the cost limitations imposed by this Section 2.6, provided that Owner is immediately thereafter given notice of such situation and all costs so incurred. (b) In accordance with the terms of the Budget or after consultation with, and written approval by, Owner (except in the case of emergency, in which case such consultation shall be by telephone), Manager shall, at Owner's expense, from time to time during the term hereof, make all required capital replacements or repairs to the Project. Subject to obtaining Owner's prior written approval in regard to sums necessary to cover costs of such capital replacements or repairs, Manager shall first use any excess funds held pursuant to Section 4.5 and then funds furnished by Owner. 2.7 Licenses and Permits. Manager shall apply for, obtain, and -------------------- maintain, in the name and at the expense of Owner, all licenses and permits (including deposits and bonds) required of Owner or Manager in connection with the management and operation of the Project. Owner agrees to execute and deliver any and all applications and other documents and to otherwise cooperate to the fullest extent with Manager in applying for, obtaining and maintaining such licenses and permits. 2.8 Compliance with Laws. Manager, at Owner's expense, shall use all -------------------- reasonable efforts to cause all such acts and things to be done in and about the Project as Owner and/or Manager shall deem necessary, and Owner covenants throughout the term of this Agreement at its expense to comply with all laws, regulations and requirements of any federal, state or municipal government having jurisdiction respecting the use or manner of use of the Project or the maintenance or operation thereof. 2.9 Legal Proceedings. Manager shall institute, in its own name or ----------------- in the name of Owner, but in any event at the expense of Owner, any and all legal actions or proceedings which Manager deems reasonable to collect charges, rent or other income from the Project or to dispossess tenants or other persons in possession, or to cancel, terminate, or enforce any lease, license or concession agreement for the breach thereof or default thereunder by the tenant, licensee or concessionaire. 2.10 Debts of Owner. In the performance of its duties as Manager, -------------- Manager shall act solely on behalf of Owner in Manager's capacity as an independent contractor. Except as provided in Section 2.1, all debts and liabilities to third persons incurred by Manager (which are 6 consistent with the terms and conditions of this Agreement), in the course of its operation and management of the Project shall be the debts and liabilities of the Owner only, and Manager shall not be liable for (and is hereby indemnified in respect of) any such debts or liabilities, except to the extent Manager has exceeded its authority hereunder. ARTICLE 3 Management Fees --------------- 3.1 Management Fee and Other Reimbursable Expenses. Owner shall pay ---------------------------------------------- to Manager, during the term hereof, the Fee for the month on or before the 10th day of each month. At such time as the Fee is paid, Owner shall also reimburse Manager for the expenses identified on Exhibit B actually incurred by Manager --------- during the prior month. 3.2 Place of Payment. All sums payable by Owner to Manager hereunder ---------------- shall be payable to Manager at the address set forth below Manager's signature, unless the Manager shall from time to time specify a different address in writing. ARTICLE 4 Procedure for Handling Receipts and Operating Capital ----------------------------------------------------- 4.1 Bank Deposits. All monies received by Manager for or on behalf ------------- of Owner shall be deposited by Manager with the Depository. Manager shall maintain separate accounts for such funds consistent with the system of accounting of the Project. All funds on deposit shall be and remain under the sole and exclusive control of Manager, subject to the provisions hereof. Concurrently, with its execution and delivery hereof, Owner has deposited with Manager the Working Capital Reserve. All monies of Owner held by Manager pursuant to the terms hereof shall be held by Manager in trust for the benefit of Owner to be held and disbursed as herein provided, and shall not, unless Owner otherwise has agreed or directed, be commingled with the funds of any other person, including Manager or any affiliate of Manager. However, Owner has specifically approved the use of Manager's Central Disbursement account and the movement of Owner's funds into that account when payments are made. Except as otherwise provided herein, the Manager shall be strictly liable for the proper application of all funds of Owner held by Manager in accordance with the terms of this Agreement. 4.2 Security Deposits. Subject to Owner's direction, a portion of ----------------- security deposits collected in connection with the leasing of apartment units shall be delivered to Owner who shall make same available to Manager for return to tenants in accordance with their respective tenant leases to the extent Gross Receipts are insufficient to repay same. Manager shall comply with all applicable laws with respect to such security deposits. All funds held by Manager representing security deposits shall at all times be the property of Owner, subject to all applicable laws with respect thereto. 7 4.3 Disbursement of Deposits. Manager shall disburse and pay all ------------------------ funds on behalf of and in the name of Owner in such amounts and at such times as the same are required in connection with the ownership, maintenance and operation of the Project on account of all taxes, assessments and charges of every kind imposed by any governmental authority having jurisdiction over the Project, and all costs and expenses of maintaining, operating and supervising the operation of the Project, including, but not limited to, salaries, fringe benefits and expenses of the Project Employees, insurance premiums, legal and external accounting fees and the cost and expense of utilities, services and concessions. If Owner requests Manager to place or create any services for the Project which are not generally provided at other comparable apartment complexes managed by Manager, Owner shall reimburse Manager for any costs of Manager's staff allocable to the placement and/or creation of such services. 4.4 Working Capital. In addition to the funds derived from the --------------- operation of the Project and the Working Capital Reserve, Owner shall furnish and maintain in the operating accounts in the Depository such other funds as may be necessary to discharge financial commitments required to efficiently operate the Project, meet all payrolls and satisfy, before delinquency, all accounts payable. Manager shall have no responsibility or obligation with respect to the furnishing of such funds. 4.5 Excess Funds. Any operating funds in excess of the Working ------------ Capital Reserve shall be utilized at Owner's option, to pay debt service or shall be transferred to a bank account opened and maintained solely by Owner; provided, however, that Manager shall not be required to make any such transfer if the transfer would reduce the balance of operating funds below an amount equal to the Working Capital Reserve. Owner shall designate the bank in which the operating funds are maintained, and Manager shall have no liability for loss of operating funds due to insolvency of such institution, even though the amount of funds maintained exceeds the available federal or other deposit insurance. 4.6 Authorized Signatories. In addition to any signatory designated ---------------------- by Owner, any persons from time to time designated by Manager shall be authorized signatories on all bank accounts established by Manager hereunder and shall have authority to make disbursements from such accounts. Funds may be withdrawn from all bank accounts established by Manager, in accordance with this Article IV, only upon the signature of an individual who has been granted that authority by Manager or Owner. All persons who are authorized signatories or who in any way handle funds for the Project shall be bonded in the minimum amount of $500,000.00. Any expense relating to such bonds for on-site employees shall be borne by Owner and for off-site employees by Manager. 8 ARTICLE 5 Accounting ---------- 5.1 Books and Records. On behalf of Owner, Manager shall keep, or shall ----------------- supervise and direct the keeping, on an accrual basis, of a comprehensive system of office records, books and accounts pertaining to the Project. Manager shall use the computer accounting program designated by Owner or otherwise approved by Owner. Such records shall be subject to examination by Owner or its authorized agents, attorneys and accountants at all reasonable hours at the office where such records are maintained. 5.2 Periodic Statements; Audits. --------------------------- (a) On or before ten (10) days following the end of each calendar month, Manager shall deliver or cause to be delivered to Owner (i) an unaudited income and expense statement showing the results of operation of the Project for the preceding calendar month and the Fiscal Year to-date; (ii) a comparison of actual income and expenses with the income and expenses projected in the Budget; and (iii) cash balances for reserves and operating accounts as of the last day of such month. Manager shall at its option (i) preserve all invoices for a period for four (4) years, or (ii) at the expiration of each Fiscal Year deliver all invoices to Owner. Such statements and computations shall be prepared from the books of account of the Project. (b) Within twenty (20) days after the end of such Fiscal Year, Manager will deliver or cause to be delivered to the Owner an income and expense statement as at the end of such Fiscal Year, and the results of operation of the Project during the preceding Fiscal Year. (c) In the event that Owner or Owner's Mortgagee(s) requires an audit, the Manager shall cooperate with the auditors. Owner shall pay all costs and fees of the external auditors. (d) Owner may request and Manager shall provide without further cost to Owner, when available, such monthly, quarterly and/or annual leasing and management reports that relate to the operations of the property as Manager customarily provides the owners of properties it manages. If additional reports are required, Manager shall quote Owner an additional fee for providing such additional reports and, if Owner thereafter requests such reports, Owner shall pay Manager such additional fee. 5.3 Expenses. All costs and expenses incurred in connection with the -------- preparation of any statements, budgets, schedules, computations and other reports expressly required under this Article 5 or under any other provisions of this Agreement shall be borne by Manager. Any costs and expenses incurred in connections with the preparation of any statement or reports not expressly provided for under this Article V or any other provisions of this Agreement shall be borne by Owner. 9 ARTICLE 6 General Covenants of Owner and Manager -------------------------------------- 6.1 Operating Expenses. Except as otherwise provided herein, Owner ------------------ shall be solely liable for the costs and expenses of maintaining and operating the Project incurred by Owner or by Manager in accordance with the provisions of this Agreement, and shall pay, or Manager shall pay on Owner's behalf, all such costs and expenses, including, without limitation, the salaries of all Project Employees. 6.2 Owner's Right of Inspection and Review. Owner and its accountants, -------------------------------------- attorneys and agents shall have the right to enter upon any part of the Project at all reasonable times during the term of this Agreement for any reason, including, without limitation, examining or inspecting the Project or examining or making extracts of books and records of the Project, but any inspection shall be done with as little disruption to the business of the Project as possible. Books and records of the Project shall be kept, beginning the date hereof, at the Project or at the location where any central accounting and bookkeeping services are performed by Manager, but at all times shall be the property of Owner. 6.3 Indemnity. Owner, at its sole cost and expense, shall defend, --------- indemnify and hold harmless Manager, its partners, employees, agents, contractors and affiliates against and from any and all claims, losses, damages, liabilities and expenses, including, but not limited to, attorneys' fees, arising out of injuries or damages to persons or property, by reason of any cause whatsoever, occurring on or around the Project. If the Owner's general liability policy does not automatically include the manager as an additional insured, Owner agrees to list the Manager as an additional insured on any and all liability insurance policies maintained by Owner with insurance to that effect. The indemnity set forth herein shall not apply if the claim results from either (i) Manager's gross negligence; (ii) Manager's willful misconduct; or (iii) Manager's failure to comply with the provisions of this Agreement; provided that these exceptions shall not apply with respect to any action taken or policy implemented upon the Owner's written request after consultation with the Manager. 6.4 Covenants Concerning Payment of Operating Expenses. Except as -------------------------------------------------- otherwise provided herein, Owner covenants to pay all sums for operating expenses in excess of Gross Receipts required to operate the Project upon written notice and demand from Manager within ten (10) days after receipt of written notice. Owner further recognizes that the Project may be operated in conjunction with other phases and that costs may be allocated or shared between such phases on a more efficient and less expensive method of operation. In such regard, Owner consents to the allocation of costs and/or the sharing of any expenses in an effort to save costs and operate the Project in a more efficient manner. 10 ARTICLE 7 Defaults: Termination Rights ----------------------------- 7.1 Default by Manager. Manager shall be deemed to be in default ------------------ hereunder in the event Manager shall fail to keep, observe or perform any material covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Manager, and such default shall (i) result from Manager's grossly negligent acts or omissions or willful misconduct; (ii) involve Manager's misappropriation or intentional misapplication of funds received or held by Manager hereunder; or (iii) continue for a period of ten (10) days after written notice thereof by Owner to Manager as to any default in payment of money or thirty (30) days after notice thereof by Owner to Manager as to any non-monetary default, or, if such non-monetary default cannot be cured within thirty (30) days, then such additional period as shall be reasonable provided that Manager is capable of curing same and has continuously attempted to cure such default. 7.2 Remedies of Owner. Upon the occurrences of an event of default ----------------- by Manager as specified in Section 7.1 hereof, Owner shall be entitled to terminate this Agreement and Owner shall have the right to pursue any other remedy it may have at law or in equity, it being expressly understood that following such a termination, Owner shall have no further obligation to pay any Fee due hereunder, however, notwithstanding such termination, Manager shall not be relieved of any liability arising as a result of Manager's default and the resulting termination of this Agreement. Upon such termination, Manager shall deliver to Owner such funds, books and records of Owner then in the possession or control of Manager. 7.3 Defaults by Owner. Owner shall be deemed to be in default hereunder ----------------- in the event Owner shall fail to keep, observe or perform any material covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Owner, and such default shall continue for a period of ten (10) days after written notice thereof by Manager to Owner as to any default in payment of money or thirty (30) days after notice thereof by Manager to Owner as to any non- monetary default, or, if such non-monetary default cannot be cured within thirty (30) days, then such additional period as shall be reasonable provided that Owner is capable of curing same and has continuously attempted to cure such default. 7.4 Remedies of Manager. Upon the occurrence of an event of default by ------------------- Owner as specified in Section 7.3 hereof, Manager shall be entitled to terminate this Agreement and upon any such termination by Manager pursuant to this Section 7.4, Manager shall have the right to pursue any other remedy it may have at law or in equity, except that Owner shall continue to be obligated to pay and perform all of its obligations which have accrued as of the date of termination and provided further that Owner shall pay Manager a termination fee for the month in which this Agreement is terminated equal to the Fee paid for the last full calendar month preceding the month in which the Agreement was terminated. 7.5 Expiration of Term. Upon the expiration of the Term hereof pursuant ------------------ to Section 1.10 hereof, or the earlier termination hereof pursuant to any of Sections 7.2, 7.3 and 9.10, 11 Manager shall deliver to Owner all funds, including tenant security deposits, books and records of Owner then in the possession or control of Manager, save and except such sums as are then due and owing to Manager hereunder. Within sixty (60) days following expiration or termination, Manager shall deliver to Owner a final accounting, in writing, with respect to the operations of the Project. ARTICLE 8 Insurance --------- 8.1 Owner's Insurance Coverage. Owner, at its expense, will obtain and -------------------------- keep in force commercially reasonable commercial general liability insurance and insurance against physical damage (e.g., fire and extended coverage endorsement, boiler, and machinery, etc.) and insurance against liability for loss, damage, or injury to property or persons which might arise out of the occupancy, management, operation or maintenance of the Project, all as set forth on Exhibit ------- C attached hereto. Manager will be covered as an additional insured in all liability insurance maintained with respect to the Project. The Manager shall furnish whatever information is requested by Owner for the purpose of establishing the placement of insurance coverages and shall aid and cooperate in every reasonable way with respect to such insurance and any loss thereunder. Owner shall include in its hazard policy covering the Project, the personal property, fixtures, and equipment located thereon (owned by either Manager or Owner), appropriate clauses pursuant to which the insurance carriers shall waive the rights of subrogation with respect to losses payable under such policies. 8.2 Manager's Insurance Coverage. Pursuant to the provisions of Section ---------------------------- 4.3, Manager shall provide and maintain, so long as this Agreement is in force, workmen's compensation insurance in full compliance with all applicable state and federal laws and regulations covering all employees of Manager performing work in respect of the Project operations and liability insurance complying with the terms of Exhibit D. --------- 8.3 Subrogation and Indemnity or Deductible Provisions. -------------------------------------------------- (a) Any insurance which is procured and maintained which in any way is related to the Project or the authorized activities connected therewith is for the sole benefit of the party securing such insurance and others named as insureds, and Manager and Owner hereby release each other from all rights of recovery under or through subrogation or otherwise for any loss or damage insured under policies required by this Agreement, and agree that no insurer shall have a right to recover any amounts paid in respect of a claim from Owner or Manager, as the case may be, by way of subrogation to Manager's or Owner's claim, assignment or otherwise, as the case may be. Any insurance which is procured and maintained by Manager insuring the interest and property of Owner may contain indemnity or deductible provisions and the cost of such provisions shall be borne by the Owner. 12 (b) Each of Owner and Manager hereby waives any and all claims and demands of whatsoever nature against the other for damages, loss or injury to the other's property in, upon or about the Project, except for claims and demands arising out of the gross negligence or willful misconduct of Owner, Manager, or either of their respective agents, employees, officers or contractors. 8.4 Environmental Indemnification. Owner agrees to indemnify, defend ----------------------------- and hold Manager and its partners, officers, employees and agents harmless from any claims, judgments, damages (including consequential damages), penalties, fines, costs, liabilities (including sums paid in settlement of claims) or losses, direct or indirect, known or unknown, including without limit, attorney's fees, consultant fees and expert fees, which Manager may incur as a result of its being named as a "responsible party" or a "potential responsible party" under any federal, state or local law governing or regulating the environment for acts arising solely from its duties as manager under this Agreement. ARTICLE 9 Miscellaneous Provisions ------------------------ 9.1 Governing Law. This Agreement shall be governed by and construed ------------- and interpreted in accordance with the laws of the State wherein jurisdiction of the specific property is applicable. 9.2 Notices. Owner shall designate one person as Owner's representative ------- in all dealings with Manager, who shall, until further notice, be the person whose name is indicated beneath Owner's address set forth on the signature page hereof. Any notice or communication hereunder must be in writing, and may be given by registered or certified mail, and if given by registered or certified mail, same shall be deemed to have been given and received when a registered or certified letter containing such notice, properly addressed, with postage prepaid, is deposited in the United States mail; and if given otherwise than by registered mail, it shall be deemed to have been given when delivered to and received by the party to whom it is addressed. Such notices or communications shall be given to the parties hereto at the addresses set forth opposite the names of the respective parties on the signature page hereof. Any party hereto may at any time by giving ten (10) days' written notice to the other party hereto designate any other address in substitution of the foregoing address to which such notice or communication shall be given. 9.3 Severability. If any term, covenant or condition of this Agreement ------------ or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement or such other documents, or the application of such term, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, covenant or condition of this Agreement or such other documents shall be valid and shall be enforced to the fullest extent permitted by law. 13 9.4 No Joint Venture or Partnership. Owner and Manager hereby agree ------------------------------- that nothing contained herein or in any document executed in connection herewith shall be construed as making Manager and Owner joint venturers or partners. In no event shall Manager have any obligation or liability whatsoever with respect to any debts, obligations or liabilities of Owner. 9.5 Modification; Termination. This Agreement terminates any and all ------------------------- prior management agreements between Owner and Manager, relating to the Project, and any amendment, modification, termination or release hereof may be effected only by a written instrument executed by Manager and Owner. 9.6 Attorneys' Fees. Should either party employ an attorney or --------------- attorneys to enforce any of the provisions hereof or to protect its interest in any manner arising under this Agreement, or to recover damages for the breach of this Agreement, the non-prevailing party in any action (the finality of which is not legally contested) agrees to pay to the prevailing party all reasonable costs, damages and expenses, including attorneys' fees, expended or incurred in connection therewith. 9.7 Total Agreement. This Agreement (including any understanding --------------- referred to in Section 9.14 hereof) is a total and complete integration of any and all undertakings existing between Manager and Owner and supersedes any prior oral or written agreements, promises or representations between them. 9.8 Competitive Projects. Manager agrees that in its management of -------------------- ventures or projects which are competitive with the Project, Manager will exercise good faith towards and deal fairly with Owner and the Project. Manager agrees to notify Owner of any competitive projects. 9.9 Successors and Assigns. Owner has entered into this Agreement with ---------------------- Manager based on Manager's abilities and, accordingly, Manager may not assign this Agreement without the prior written consent of Owner. Notwithstanding the foregoing limitation on assignment, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their permitted successors and assigns. 9.10 Sale of the Project. In the event the Project is sold, conveyed ------------------- or transferred during the term hereof, Owner may assign this Agreement to the purchaser of the Project, subject to obtaining Manager's prior written consent, or Owner may terminate this Agreement, and Owner shall pay to Manager a termination fee equal to the Fee payable hereunder for the month prior to the month of termination. Manager, unless otherwise agreed, shall have no duties in connection with any such sale except reasonable cooperation with brokers and purchasers. 9.11 Termination. The term of this Agreement shall be for a period of ----------- one year, and shall be automatically renewed for successive periods of one year each unless either party provides thirty (30) days' notification of its intent not to renew. Subject to the provisions of the 14 sentences next following, either party may terminate this Agreement at any time with or without cause by giving the other party at least thirty (30) days prior notice in writing. Owner recognizes that Manager will sustain significant start-up and mobilization costs, therefore, in the event that Owner terminates this Agreement without cause within one (1) year from the date hereof, Manager shall be entitled to receive a termination fee as a condition precedent to the effectiveness of such termination, in an amount equal to three (3) times the management fee which accrued during the thirty (30) days immediately prior to the effective date of termination. 9.12 Prior Agreement. This Agreement supersedes and replaces all prior --------------- agreements. 9.13 Limitation of Liability. Owner is a Maryland real estate investment ----------------------- trust, and, in accordance with the declaration of trust of Owner, notice is hereby given that neither the trustees, officers, employees nor shareholders of Owner assume any personal liability for obligations entered into by or on behalf of Owner. ARTICLE 10 Subordination to Mortgages -------------------------- 10.1 Subordination. This Agreement and Manager's interest and rights ------------- hereunder, are and shall be subject and subordinate at all times to the lien of any first or second mortgage, whether now existing or hereafter created on or against the Project, and all amendments, restatements, renewals, modifications, consolidations, refinancings, assignments and extensions thereof ("Security -------- Documents") without the necessity of any further instrument or act on the part - --------- of the Manager. Manager agrees, at the election of the holder of any such Security Documents (the "Secured Party"), to attorn to the Secured Party. The ------------- term "mortgage" as used herein shall be deemed to include deeds of trust, security assignments and any other encumbrances, and any reference to the "holder" of a Security Document shall be deemed to include the beneficiary under a deed of trust. Notwithstanding the foregoing, nothing herein shall obligate the Manager to continue its performance under this Agreement unless it continues to be paid in accordance with the terms of this Agreement. 10.2 Rights after Events of Default. Upon an Event of Default (as such ------------------------------ term is defined in any Security Document), the Manager shall continue to perform its obligation under this Agreement until the earlier to occur of (a) the termination of this Agreement with respect to the Project or the termination of this Agreement in its entirety by the Secured Party, either of which may occur in the Secured Party's sole discretion, or (b) the Secured Party's (or its assignee's or nominee's) acquisition of title to the Project through the foreclosure, a deed-in-lieu thereof, or otherwise. On and after an Event of Default, there shall be no material changes in the terms and conditions of this Agreement without the prior written consent of the Secured Party having been obtained, which consent may be arbitrarily withheld. 15 IN WITNESS WHEREOF, the parties hereto have executed this Management Agreement as of the day and year first above written. OWNER: ADDRESS: SECURITY CAPITAL PACIFIC TRUST 125 Lincoln Avenue, 3rd Floor Santa Fe, NM 87501 By: /s/ Patrick R. Whelan ------------------------------- Name: Patrick R. Whelan Its: Managing Director MANAGER: ADDRESS: SCG REALTY SERVICES INCORPORATED 125 Lincoln Avenue, 3rd Floor Santa Fe, NM 87501 By: /s/ Jeffrey A. Klopf ------------------------------- Name: Jeffrey A. Klopf Its: Senior Vice President 16 EX-10.8 16 AMENDED & RESTATED CREDIT AGREEMENT EXHIBIT 10.8 AMENDED AND RESTATED CREDIT AGREEMENT Dated August 16, 1996 among SECURITY CAPITAL PACIFIC TRUST TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Administrative Agent WELLS FARGO REALTY ADVISORS FUNDING, INCORPORATED, as Co-Agent and the Lenders TABLE OF CONTENTS 1. Definitions.................................................................... 1 ----------- 2. The Loans...................................................................... 15 --------- 2.1 Advances................................................................ 15 -------- 2.2 Term Loan Conversion.................................................... 17 -------------------- 2.3 Payments................................................................ 18 -------- 2.4 Pro Rata Treatment...................................................... 20 ------------------ 2.5 Non-Receipt of Funds by the Agent....................................... 20 --------------------------------- 2.6 Sharing of Payments, Etc................................................ 20 ------------------------- 2.7 Fees.................................................................... 21 ---- 3. Conditions..................................................................... 22 ---------- 3.1 All Loans............................................................... 22 --------- 3.2 First Loan.............................................................. 22 ---------- 3.3 Options Available....................................................... 23 ----------------- 3.4 Designation and Conversion.............................................. 23 -------------------------- 3.5 Special Provisions Applicable to Eurodollar Re Borrowings............... 24 --------------------------------------------------------- 3.6 Funding Offices; Adjustments Automatic.................................. 27 -------------------------------------- 3.7 Funding Sources, Payment Obligations.................................... 27 ------------------------------------ 3.8 Mitigation, Non-Discrimination.......................................... 27 ------------------------------ 4. Representations and Warranties................................................. 28 ------------------------------ 4.1. Organization............................................................ 28 ------------ 4.2 Financial Statements.................................................... 28 -------------------- 4.3 Enforceable Obligations; Authorization.................................. 29 -------------------------------------- 4.4 Other Debt.............................................................. 29 ---------- 4.5 Litigation.............................................................. 29 ---------- 4.6 Taxes................................................................... 29 ----- 4.7 Regulation U............................................................ 29 ------------ 4.8 Subsidiaries............................................................ 30 ------------ 4.9 Securities Act of 1933.................................................. 30 ---------------------- 4.10 No Contractual or Corporate Restrictions................................ 30 ---------------------------------------- 4.11 Investment Company Act Not Applicable................................... 30 ------------------------------------- 4.12 Public Utility Holding Company Act Not Applicable....................... 30 ----------------------------------------------- 4.13 ERISA Not Applicable.................................................... 30 -------------------- 5. Affirmative Covenants.......................................................... 30 --------------------- 5.1 Taxes, Insurance, Existence, Regulations, Property, etc................. 30 ------------------------------------------------------
(i) 5.2 Financial Statements and Information.................................... 31 ------------------------------------ 5.3 Financial Tests......................................................... 31 --------------- 5.4 Inspection.............................................................. 32 ---------- 5.5 Further Assurances...................................................... 32 ------------------ 5.7 Insurance............................................................... 32 --------- 5.8 Notice of Certain Matters............................................... 32 ------------------------- 5.9 Use of Proceeds......................................................... 32 --------------- 5.10 Expenses of and Claims Against the Agent and he Lenders................. 33 ------------------------------------------------------ 5.11 Legal Compliance; Indemnification....................................... 33 --------------------------------- 5.12 Borrower's Performance.................................................. 34 ---------------------- 5.13 Professional Services................................................... 34 --------------------- 5.14 Capital Adequacy........................................................ 34 ---------------- 5.15 Property Pool........................................................... 35 ------------- 6. Negative Covenants............................................................. 36 ------------------ 6.1 Indebtedness............................................................ 36 ------------ 6.2 Mergers, Consolidations and Acquisitions of Assets...................... 36 ------------------------------------------------ 6.3 Redemption.............................................................. 37 ---------- 6.4 Nature of Business; Management.......................................... 37 ------------------------------ 6.5 Transactions with Related Parties....................................... 37 --------------------------------- 6.6 Loans and Investments................................................... 37 --------------------- 6.7 Limiting Agreements..................................................... 39 ------------------- 6.8 Nature of Assets........................................................ 40 ---------------- 7. Events of Default and Remedies................................................. 40 ------------------------------ 7.1. Events of Default....................................................... 40 ----------------- 7.2 Remedies Cumulative..................................................... 42 ------------------- 8. The Agent...................................................................... 42 --------- 8.1 Appointment, Powers and Immunities...................................... 42 ---------------------------------- 8.2 Reliance................................................................ 44 -------- 8.3 Defaults................................................................ 44 -------- 8.4 Rights as a Lender...................................................... 45 ------------------ 8.5 Indemnification......................................................... 45 --------------- 8.6 Non-Reliance on Agent and Other Lenders................................. 45 --------------------------------------- 8.7 Failure to Act.......................................................... 46 -------------- 8.8 Resignation of Agent.................................................... 46 -------------------- 8.9 No Partnership.......................................................... 47 --------------
(ii) 9. Renewal and Extension.......................................................... 47 --------------------- 9.1 Procedure for Consideration of Renewal and Extension Requests........... 47 ------------------------------------------------------------- 9.2 Conditions to Renewal and Extension..................................... 48 ----------------------------------- 9.3 No Obligation to Renew and Extend....................................... 48 --------------------------------- 10. Miscellaneous.................................................................. 49 ------------- 10.1 No Waiver, Amendments................................................... 49 --------------------- 10.2 Notices................................................................. 49 ------- 10.3 Venue................................................................... 49 ----- 10.4 Choice of Law........................................................... 50 ------------- 10.5 Survival; Parties Bound; Successors and Assigns......................... 50 ----------------------------------------------- 10.6 Counterparts............................................................ 52 ------------ 10.7 Usury Not Intended; Refund of Any Excess Payments....................... 52 ------------------------------------------------- 10.8 Captions................................................................ 52 -------- 10.9 Severability............................................................ 52 ------------ 10.10 Disclosures............................................................. 52 ----------- 10.11 NO NOVATION............................................................. 53 ----------- 10.12 LIMITATION OF LIABILITY................................................. 53 ----------------------- 10.13 ENTIRE AGREEMENT........................................................ 53 ----------------
EXHIBITS - -------- A - Officer's Certificate B - Request for Loan C - Note C-1 - Swing Loan Note D - Legal Opinion (iii) AMENDED AND RESTATED CREDIT AGREEMENT ------------------------------------- THIS AMENDED AND RESTATED CREDIT AGREEMENT (the "Agreement") is made and --------- entered into as of August 16, 1996, by and among SECURITY CAPITAL PACIFIC TRUST, a Maryland real estate investment trust (the "Borrower"), the financial -------- institutions (including TCB and Wells Fargo Realty Advisors Funding, Incorporated, the "Lenders") which are now or may hereafter become signatories ------- hereto, TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association ("TCB"), as administrative agent for Lenders (in such capacity, "Agent"), and --- ----- WELLS FARGO REALTY ADVISORS FUNDING, INCORPORATED, as co-agent for Lenders (in such capacity, "Co-Agent"). -------- W I T N E S E T H: - - - - - - - - - WHEREAS, the Borrower, the Agent, the Co-Agent and certain Lenders (the "Existing Lenders") entered into an Amended and Restated Credit Agreement dated - ----------------- as of August 11, 1995 (the "Original Credit Agreement"); and ------------------------- WHEREAS, the Borrower, the Agent, the Co-Agent, and the Lenders desire to amend and restate the Original Credit Agreement upon the terms and conditions hereinafter set forth; NOW, THEREFORE in consideration of the mutual covenants, agreements and undertakings herein contained, the parties hereto agree as follows: 1. Definitions. ----------- Unless a particular word or phrase is otherwise defined or the context otherwise requires, capitalized words and phrases used in Credit Documents have the meanings provided below. Accounts, Equipment and Inventory shall have the respective meanings -------- --------- --------- assigned to them in the Texas Business and Commerce Code in force on the date the document using such term was executed. Adjusted Eurodollar Interbank Rate shall mean, with respect to each ---------------------------------- Interest Period applicable to a Eurodollar Rate Borrowing, a rate per annum equal to the quotient, expressed as a percentage, of (a) the Eurodollar Interbank Rate with respect to such Interest Period divided by (b) 1.0000 minus the Eurodollar Reserve Requirement in effect on each day during such Interest Period. Affiliate shall mean any Person controlling, controlled by or under common --------- control with any other Person. For purposes of this definition, "control" (including "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise. Annual Audited Financial Statements shall mean the annual financial ----------------------------------- statements of a Person, including all notes thereto, which statements shall include a balance sheet as of the end of such fiscal year and an income statement and a statement of cash flows, all setting forth in comparative form the corresponding figures from the previous fiscal year, all prepared in conformity with Generally Accepted Accounting Principles and accompanied by a report and opinion of independent certified public accountants satisfactory to the Agent, which shall state that such financial statements, in the opinion of such accountants, present fairly the financial position of such Person as of the date thereof and the results of its operations for the period covered thereby in conformity with Generally Accepted Accounting Principles. Such statements shall be accompanied by a certificate of such accountants that in making the appropriate audit and/or investigation in connection with such report and opinion, such accountants did not become aware of any Default or, if in the opinion of such accountant any such Default exists, a description of the nature and status thereof. The Annual Audited Financial Statements shall be prepared on a consolidated basis in accordance with Generally Accepted Accounting Principles. Applicable Margin shall mean the following percentage which will be in ----------------- effect whenever and for so long as the Borrower has received the corresponding S&P Rating or Moody's Rating, whichever is lower:
S&P RATING/ APPLICABLE MARGIN ----------- ----------------- MOODY'S RATING EURODOLLAR RATE BASE RATE -------------- ---------------- --------- BORROWING BORROWING ------------- --------- A/A2 or better 0.750% 0 A-/A3 0.875% 0 BBB+/Baa1 1.000% 0 BBB/Baa2 1.125% 0 BBB-/Baa3 1.250% 0 Worse than BBB-/Baa3 1.500% .25%;
Base Rate shall mean for any day a rate per annum equal to the Applicable --------- Margin on that day plus the greater on a daily basis of (a) the Prime Rate for that day, or (b) the Federal Funds Effective Rate for that day plus one-half of one percent (1/2%). -2- Base Rate Borrowing shall mean that portion of the principal balance of the ------------------- Loans at any time bearing interest at the Base Rate. Borrower's REIT Manager shall mean Security Capital Pacific Incorporated, ----------------------- manager to the Borrower, or any successor manager to the Borrower permitted by this Agreement. Business Day shall mean a day other than (a) a day when the main office of ------------ the Agent is not open for business, or (b) a day that is a federal banking holiday in the United States of America. Ceiling Rate shall mean, on any day, the maximum nonusurious rate of ------------ interest permitted for that day by whichever of applicable federal or Texas laws permits the higher interest rate, stated as a rate per annum. On each day, if any, that Chapter One establishes the Ceiling Rate, the Ceiling Rate shall be the "indicated rate ceiling" (as defined in Chapter One) for that day. The Agent may from time to time, as to current and future balances, implement any other ceiling under Chapter One by notice to the Borrower, if and to the extent permitted by Chapter One. Without notice to the Borrower or any other person or entity, the Ceiling Rate shall automatically fluctuate upward and downward as and in the amount by which such maximum nonusurious rate of interest permitted by applicable law fluctuates. Chapter One shall mean Chapter One of Title 79, Texas Revised Civil ----------- Statutes, 1925, as amended. Code shall mean the Internal Revenue Code of 1986, as amended, as now or ---- hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder by the Internal Revenue Service. Commitment shall mean the commitment of the Lenders to lend funds under ---------- Section 2.1 of this Agreement, other than Swing Loans. - ----------- Construction Interest shall mean Borrower's interest expense for the --------------------- construction of projects, which is capitalized in accordance with Generally Accepted Accounting Principles; provided, however, that notwithstanding Generally Accepted Accounting Principles, interest applicable to each building under construction shall be capitalized as to such building only until substantial completion thereof and such building is ready for its intended use and thereafter interest attributable thereto shall be expensed. Conversion Date has the meaning given to it in Section 2.2 hereof. --------------- ----------- -3- Coverage Ratio shall mean the ratio of (a) the Borrower's Funds From -------------- Operations plus all of the Borrower's Interest Expense for the period used to calculate Funds From Operations, to (b) dividends of any kind or character or other proceeds paid or payable with respect to any Disqualified Stock plus all of the Borrower's Interest Expense, in each case for the period used to calculate the Funds From Operations. Credit Documents shall mean this Agreement, the Notes, all instruments, ---------------- certificates and agreements now or hereafter executed or delivered to the Agent or the Lenders pursuant to any of the foregoing, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing. Debt to Tangible Net Worth Ratio shall mean the ratio of Indebtedness to -------------------------------- Tangible Net Worth. Debt to Total Asset Value Ratio shall mean the ratio (expressed as a ------------------------------- percentage) of Indebtedness to Total Asset Value. Determination Date shall mean the date that is one (1) year prior to the ------------------ then existing Revolving Credit Termination Date. Disqualified Stock shall mean any of the Borrower's capital stock which by ------------------ its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) (a) matures or is subject to mandatory redemption, pursuant to a sinking fund obligation or otherwise, (b) is convertible into or exchangeable or exercisable for Indebtedness or Disqualified Stock, (c) is redeemable at the option of the holder of such stock, or (d) otherwise requires any payments by Borrower, in each case on or before the Maturity Date. Eligible Institution shall mean a commercial bank or a finance company, -------------------- insurance company or other financial institution which is regularly engaged in making, purchasing or investing in loans, but shall not include any Person which is an Affiliate of the Borrower or of the Borrower's REIT Manager. Equity Percentage shall mean the following percentage for each ----------------- Unconsolidated Affiliate which will be in effect whenever and for so long as the Unconsolidated Affiliate Ratio for that Unconsolidated Affiliate equals the corresponding amount: -4- Unconsolidated Affiliate Ratio Equity Percentage ------------------------------ ----------------- 1.5:1.0 or less 100% Greater than 1.5:1.0 but less 50% than or equal to 1.86:1.0 Greater than 1.86:1.0 0% Eurodollar Business Day shall mean a Business Day on which transactions in ----------------------- United States dollar deposits between banks may be carried on in the London interbank dollar market. Eurodollar Interbank Rate shall mean, for each Interest Period, the rate of ------------------------- interest per annum, rounded, if necessary, to the next highest whole multiple of one-sixteenth per cent (1/16%), quoted by Agent at or before 11:00 a.m., London time (or as soon thereafter as practicable), on the date two (2) Eurodollar Business Days before the first day of such Interest Period, to be the arithmetic average of the prevailing rates per annum at the time of determination and in accordance with the then existing practice in the London interbank dollar market, for the offering to Agent by one or more prime banks selected by Agent in its sole discretion, in the London interbank dollar market, of deposits in United States dollars for delivery on the first day of such Interest Period and having a maturity equal to the length of such Interest Period and in an amount equal (or as nearly equal as may be) to the Eurodollar Rate Borrowing to which such Interest Period relates. Each determination by Agent of the Eurodollar Interbank Rate shall be prima facie evidence thereof. Eurodollar Rate shall mean for any day a rate per annum equal to the sum of --------------- the Applicable Margin for that day plus the Adjusted Eurodollar Interbank Rate in effect on the first day of the Interest Period for the applicable Eurodollar Rate Borrowing. Each Eurodollar Rate is subject to adjustments for reserves, insurance assessments and other matters as provided for in Section 3.5 hereof. ----------- Eurodollar Rate Borrowing shall mean that portion of the principal balance ------------------------- of the Loans at any time bearing interest at a Eurodollar Rate. Eurodollar Reserve Requirement shall mean, on any day, that percentage ------------------------------ (expressed as a decimal fraction and rounded, if necessary, to the next highest one ten thousandth) which is in effect on such day for determining all reserve requirements (including, without limitation, basic, supplemental, marginal and emergency reserves) applicable to "Eurocurrency liabilities," as -5- currently defined in Regulation D, all as specified by any Governmental Authority, including but not limited to those imposed under Regulation D. Each determination of the Eurodollar Reserve Requirement by Agent shall be prima facie evidence thereof. Event of Default shall mean any of the events specified as an event of ---------------- default in Section 7 of this Agreement, and Default shall mean any of such --------- ------- events, whether or not any requirement for notice, grace or cure has been satisfied. Federal Funds Effective Rate shall to the extent necessary be determined by ---------------------------- the Agent separately for each day and shall for each such day be a rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for each such day (or if any such day is not a Business Day, for the next immediately preceding Business Day) by the Federal Reserve Bank of New York, or if the weighted average of such rates is not so published for any such day which is a Business Day, the average of the quotations for any such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent. Fixed Charge Coverage Ratio shall mean the ratio of (a) the Borrower's --------------------------- Funds From Operations plus all of the Borrower's Interest Expense for the period used to calculate Funds From Operations, less Unit Capital Expenditures, to (b) dividends of any kind or character or other proceeds paid or payable with respect to any Disqualified Stock, plus all of the principal payable and principal paid on the Borrower's Indebtedness other than (i) in the case of the Borrower, any scheduled principal payments on the Term Loans and (ii) any regularly scheduled principal payments on any Indebtedness which pays such Indebtedness in full, to the extent the amount of such final scheduled principal payment is greater than the scheduled principal payment immediately preceding such final scheduled principal payment, plus all of the Borrower's Interest Expense, in each case for the period used to calculate the Funds From Operations. Funding Loss shall mean, with respect to (a) Borrower's payment or ------------ prepayment of principal of a Eurodollar Rate Borrowing on a day other than the last day of the applicable Interest Period; (b) Borrower's failure to borrow a Eurodollar Rate Borrowing on the date specified by Borrower; (c) Borrower's failure to make any prepayment of the Loans (other than Base Rate Borrowings) on the date specified by Borrower, or (d) any cessation of a Eurodollar Rate to apply to the Loans or any part thereof pursuant to Section 3.5, in each case ----------- whether voluntary or involuntary, any direct loss, expense, penalty, premium or liability incurred by any Lender (including but not limited to any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by a Lender to fund or maintain a Loan). -6- Funds From Operations shall mean gross cash revenues (excluding unforfeited --------------------- security deposits) actually received by the Borrower, less all cash disbursements characterized as expenses and all proper charges against income, plus depreciation of Property and deferred taxes, reserves and other non-cash charges, all determined in accordance with Generally Accepted Accounting Principles; provided, that there shall not be included in such revenues (i) any -------- proceeds of any insurance policy other than rental or business interruption insurance received by the Borrower, (ii) any gain which is classified as "extraordinary" in accordance with Generally Accepted Accounting Principles, or (iii) any capital gains. Funds From Operations will be calculated, on an annualized basis, on the four (4) calendar quarters immediately preceding the date of the calculation. Funds From Operations shall not be increased or decreased by gains or losses from sales of Property. Funds From Operations shall be calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles. Generally Accepted Accounting Principles shall mean, as to a particular ---------------------------------------- Person, such accounting practice as, in the opinion of the independent accountants of recognized national standing regularly retained by such Person and acceptable to the Agent, conforms at the time to generally accepted accounting principles, consistently applied. Generally Accepted Accounting Principles means those principles and practices (a) which are recognized as such by the Financial Accounting Standards Board, (b) which are applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the most recent audited financial statements of the relevant Person furnished to the Lenders or where a change therein has been concurred in by such Person's independent auditors, and (c) which are consistently applied for all periods after the date hereof so as to reflect properly the financial condition, and results of operations and changes in financial position, of such Person. If there is a change in such accounting practice as to the Borrower that could affect the Borrower's ability to comply with the terms of this Agreement, the parties hereto agree to review and discuss such changes in accounting practice and the terms of this Agreement for a period of no more than thirty (30) days with a view to amending this Agreement so that the financial measures of the Borrower's operating performance and financial condition are substantially the same after such change as they were immediately before such change. Governmental Authority shall mean any foreign governmental authority, the ---------------------- United States of America, any State of the United States and any political subdivision of any of the foregoing, and any agency, department, commission, board, bureau, court or other tribunal having jurisdiction over the Agent, any Lender or the Borrower or their respective Property. Historical Value shall mean the purchase price of Property (including ---------------- improvements) and ordinary related purchase transaction costs, plus the cost of subsequent capital improvements made -7- by the Borrower, less any provision for losses, all determined in accordance with Generally Accepted Accounting Principles. If the Property is purchased as a part of a group of properties, the Historical Value shall be calculated based upon a reasonable allocation of the aggregate purchase price by the Borrower for all purposes, and consistent with Generally Accepted Accounting Principles. Indebtedness shall mean and include, without duplication (1) all ------------ obligations for borrowed money, (2) all obligations evidenced by bonds, debentures, notes or other similar agreements, (3) all obligations to pay the deferred purchase price of Property or services, except trade accounts payable arising in the ordinary course of business (unless included in (6) below), (4) --- all guaranties, endorsements and other contingent obligations in respect of, or any obligations to purchase or otherwise acquire, Indebtedness of others, (5) all Indebtedness secured by any Lien existing on any interest of the Person with respect to which Indebtedness is being determined in Property owned subject to such Lien whether or not the Indebtedness secured thereby shall have been assumed, and (6) accounts payable, dividends of any kind or character or other proceeds payable with respect to any stock and accrued expenses which in the aggregate are in excess of five percent (5%) of the undepreciated value of the assets of the Borrower, in each case including Non-recourse Debt. Indebtedness shall be calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles. Interest Expense shall mean all of a Person's paid, accrued or capitalized ---------------- interest expense on such Person's Indebtedness (whether direct, indirect or contingent, and including, without limitation, interest on all convertible debt), but excluding Construction Interest. Interest Options shall mean the Base Rate and the Eurodollar Rate, and ---------------- "Interest Option" means either of them. - ---------------- Interest Payment Dates shall mean the first (1st) day of each calendar ---------------------- month and the Maturity Date, for both Base Rate Borrowings and Eurodollar Rate Borrowings. Interest Period shall mean, for each Eurodollar Rate Borrowing, a period --------------- commencing on the date such Eurodollar Rate Borrowing was made and ending on the numerically corresponding day which is, subject to availability, (a) one (1), two (2), three (3) or six (6) months thereafter, or (b) seven (7), fourteen (14) or twenty-one (21) days thereafter for no more than three (3) time periods each calendar year in connection with payments of the Loans because of debt and/or equity sales by the Borrower, changes in the Lender Commitments in connection with an extension pursuant to Section 9.1 hereof or sales of major assets by the ----------- Borrower; provided, (v) any Interest Period which would otherwise end on a day -------- which is not a Eurodollar Business -8- Day shall be extended to the next succeeding Eurodollar Business Day, unless such Eurodollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Eurodollar Business Day; (w) any Interest Period which begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of the appropriate calendar month; (x) no Interest Period shall ever extend beyond the Maturity Date; and (y) Interest Periods shall be selected by Borrower in such a manner that the Interest Period with respect to any portion of the Loans which shall become due shall not extend beyond such due date. Legal Requirement shall mean any law, statute, ordinance, decree, ----------------- requirement, order, judgment, rule, regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority. Lender Commitment means, for any Lender, the amount set forth opposite such ----------------- Lender's name on its signature page of this Agreement, or as may hereafter become a signatory hereto. Lien shall mean any mortgage, pledge, charge, encumbrance, security ---- interest, collateral assignment or other lien or restriction of any kind, whether based on common law, constitutional provision, statute or contract, and shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions. Loans shall mean the Loans described in Sections 2.1 and 2.2 hereof. Loan ----- ------------ --- ---- shall mean any such Loan. Majority Lenders shall mean the Lenders with an aggregate amount of at ---------------- least sixty-six and 67/100 percent (66.67%) of the amount of the Commitment then outstanding. Material Adverse Change shall mean a change which could reasonably be ----------------------- expected to have a Material Adverse Effect. Material Adverse Effect means a material adverse effect on (a) the ----------------------- financial condition, or results of operations of Borrower and its Subsidiaries taken as a whole, (b) the ability of Borrower to perform its obligations under any Credit Document to which it is a party, (c) the validity or enforceability of any of such Credit Documents, or (d) the rights and remedies of Lenders and Agent under any of the Credit Documents. -9- Maturity Date shall mean (a) the Revolving Credit Termination Date prior to ------------- any conversion of the Loans to the Term Loans, and (b) the Termination Date as to the Term Loans. Moody's Rating shall mean the senior unsecured debt rating from time to -------------- time received by the Borrower from Moody's Investor Service. Net Operating Income shall mean, for any income producing operating -------------------- properties, the difference between (a) any cash rentals, proceeds and other income received from such Property (but excluding security or other deposits, late fees, early lease termination or other penalties, or other income of a non- recurring nature) during the determination period, less (b) all cash costs and ---- expenses (excluding interest expense and any expenditures that are capitalized in accordance with Generally Accepted Accounting Principles) incurred as a result of, or in connection with, or properly allocated to, the operation or leasing of such Property during the determination period. Net Operating Income shall be calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles. Non-recourse Debt shall mean any Indebtedness the payment of which the ----------------- Borrower or any of its Subsidiaries is not obligated to make other than to the extent of any security therefor. Notes shall mean the promissory notes of the Borrower described in Section ----- ------- 2.1 hereof, including the Swing Loan Note, any and all renewals, extensions, - --- modifications, rearrangements and replacements thereof and any and all substitutions therefor, and Note shall mean any one of them. ---- Obligations shall mean, as at any date of determination thereof, the sum of ----------- (a) the aggregate amount of Loans outstanding hereunder plus (b) all other liabilities, obligations and Indebtedness of any Parties under any Credit Document. Officer's Certificate shall mean a certificate in the form attached hereto --------------------- as Exhibit A. --------- Operating Sub-Pool Value means, with respect to properties in the Operating ------------------------ Sub-Pool (as defined in Section 5.15 hereof), for the period being measured, the ------------ lesser of (a) the aggregate Historical Value of such properties; and (b) the sum of (i) the aggregate Net Operating Income of such properties that during such measurement period have reached the beginning of the first full calendar quarter after the Stabilization Date (the "Calculation Date") ((1) beginning with the ---------------- Calculation Date until the end of the third full calendar quarter after the Stabilization Date, based on the annualized Net Operating Income from the Calculation Date until the time of measurement, and (2) after the third full calendar quarter after the Stabilization Date, based on the immediately -10- preceding twelve (12) calendar month period) divided by nine and one-fourth percent (9.25%), plus (ii) the Historical Value of such properties that have not reached the Calculation Date during the measurement period. Organizational Documents shall mean, with respect to a corporation, the ------------------------ certificate of incorporation, articles of incorporation and bylaws of such corporation; with respect to a partnership, the partnership agreement establishing such partnership; with respect to a joint venture, the joint venture agreement establishing such joint venture, and with respect to a trust, the instrument establishing such trust; in each case including any and all modifications thereof as of the date of the Credit Document referring to such Organizational Document and any and all future modifications thereof which are consented to by the Lenders. Opinion Letters shall mean the opinion letters of independent counsel for --------------- the Borrower, each in Proper Form. Parties shall mean all Persons other than the Agent, the Co-Agent or any ------- Lender executing any Credit Document. Past Due Rate shall mean, on any day, a rate per annum equal to the Ceiling ------------- Rate for that day, or only if applicable law imposes no maximum nonusurious rate of interest for that day, then the Past Due Rate for that day shall be a rate per annum equal to the Base Rate plus an additional three percent (3%) per annum, but in any event not to exceed the Ceiling Rate. Percentage shall mean the amount, expressed as a percentage, of each Lender ---------- Commitment as compared to the Commitment, set forth opposite the Lender's name on its signature page of this Agreement, or as may hereafter become signatory hereto. Permitted Encumbrances shall mean (a) encumbrances consisting of zoning ---------------------- restrictions, easements, or other restrictions on the use of real property, provided that such items do not materially impair the use of such property for the purposes intended and none of which is violated in any material respect by existing or proposed structures or land use; (b) the following: (i) Liens for taxes not yet due and payable, or being diligently contested in good faith, or where no Material Adverse Effect could reasonably be expected to result from such nonpayment or the imposition of such Lien; or (ii) materialmen's, mechanic's, warehousemen's and other like Liens arising in the ordinary course of business, securing payment of Indebtedness whose payment is not yet due, or that are being contested in good faith by appropriate proceedings diligently conducted, and for or against which the Borrower has established adequate reserves in accordance with Generally Accepted Accounting Principles; (c) Liens for taxes, assessments and -11- governmental charges or assessments that are being contested in good faith by appropriate proceedings diligently conducted, and for or against which the Borrower has established adequate reserves in accordance with Generally Accepted Accounting Principles; (d) Liens on real property which are insured around or against by title insurance; (e) Liens securing assessments or charges payable to a property owner association or similar entity which assessments are not yet due and payable or are being diligently contested in good faith; and (f) Liens securing this Agreement and Indebtedness hereunder. Person shall mean any individual, corporation, trust, unincorporated ------ organization, Governmental Authority or any other form of entity. Prime Rate shall mean, as of a particular date, the prime rate of interest ---------- per annum most recently determined by the Agent and thereafter entered in the minutes of the Agent's Loan and Discount Committee, automatically fluctuating upward or downward with and at the time specified in each such determination without notice to Borrower or any other Person; each change in the Prime Rate shall be effective on the date such change is determined; which Prime Rate may not necessarily represent the Agent's lowest or best rate actually charged to a customer. Proper Form shall mean in form and substance satisfactory to the Lenders. ----------- Property shall mean any interest in any kind of property or asset, whether -------- real, personal or mixed, tangible or intangible. Quarterly Unaudited Financial Statements shall mean the quarterly financial ---------------------------------------- statements of a Person, including all notes thereto, which statements shall include a balance sheet as of the end of such quarter and an income statement for such fiscal quarter, and for the fiscal year to date, a statement of cash flows for such quarter and for the fiscal year to date, subject to normal year- end adjustments, and a detailed listing of the Borrower's Property and the Historical Value thereof, all setting forth in comparative form the corresponding figures for the corresponding fiscal period of the preceding year (or, in the case of the balance sheet, the end of the preceding fiscal year), prepared in accordance with Generally Accepted Accounting Principles except that the Quarterly Unaudited Financial Statements may contain condensed footnotes as permitted by regulations of the United States Securities and Exchange Commission, and certified as true and correct by a managing director or vice president of Borrower's REIT Manager. The Quarterly Unaudited Financial Statements shall be prepared on a consolidated basis in accordance with Generally Accepted Accounting Principles. -12- Rate Designation Date shall mean 12:00 noon, Houston, Texas time, on the --------------------- date three (3) Eurodollar Business Days preceding the first day of any proposed Interest Period. Regulation D shall mean Regulation D of the Board of Governors of the ------------ Federal Reserve System from time to time in effect and shall include any successor or other regulation relating to reserve requirements applicable to member lenders of the Federal Reserve System. Request for Loan shall mean a written request substantially in the form of ---------------- Exhibit B. - --------- Revolving Credit Termination Date shall mean the earlier to occur of (a) --------------------------------- August 13, 1998 as the same may hereafter be accelerated pursuant to the provisions of any of the Credit Documents, and (b) the Conversion Date. S&P Rating shall mean the senior unsecured debt rating from time to time ---------- received by the Borrower from Standard & Poor's Corporation. Stabilization Date shall mean, with respect to a property, the earlier of ------------------ (a) twelve (12) months from the date of acquisition of an income producing property by the Borrower or twelve (12) months after substantial completion of construction or development of a new construction or development property, and (b) the date on which the occupancy level is at least ninety percent (90%). Stated Rate shall, on any day, mean whichever of the Base Rate or the ----------- Eurodollar Rate has been designated and provided pursuant to this Agreement; provided that, if on any day such rate shall exceed the Ceiling Rate for that - -------- day, the Stated Rate shall be fixed at the Ceiling Rate on that day and on each day thereafter until the total amount of interest accrued at the Stated Rate on the unpaid principal balance of the Notes equals the total amount of interest which would have accrued if there had been no Ceiling Rate. If the Notes mature (or are prepaid) before such equality is achieved, then, in addition to the unpaid principal and accrued interest then owing pursuant to the other provisions of the Credit Documents, Borrower promises to pay on demand to the order of the holders of the Notes interest in an amount equal to the excess (if any) of (a) the lesser of (i) the total interest which would have accrued on the Notes if the Stated Rate had been defined as equal to the Ceiling Rate from time to time in effect and (ii) the total interest which would have accrued on the Notes if the Stated Rate were not so prohibited from exceeding the Ceiling Rate, over (b) the total interest actually accrued on the Notes to such maturity (or prepayment) date. -13- Subsidiary shall mean, as to a particular parent entity, any entity of ---------- which more than fifty percent (50%) of the indicia of voting equity or ownership rights (whether outstanding capital stock or otherwise) is at the time directly or indirectly owned by, such parent entity, or by one or more of its other Subsidiaries. Swing Loan shall mean a Loan made pursuant to Section 2.1(c) hereof. ---------- -------------- Swing Loan Note shall mean that certain promissory note dated of even date --------------- herewith in the original principal amount of $75,000,000.00 executed by the Borrower payable to the order of TCB. Tangible Net Worth shall mean total assets (valued at cost without ------------------ deduction for depreciation, and including the book value of equity investments in each Unconsolidated Affiliate multiplied by the Equity Percentage for that Unconsolidated Affiliate), less (1) all intangibles and (2) all liabilities (including contingent and indirect liabilities), all determined in accordance with Generally Accepted Accounting Principles. The term "intangibles" shall include, without limitation, (i) deferred charges, (ii) the amount of any write- up in the book value of any assets contained in any balance sheet resulting from revaluation thereof or any write-up in excess of the cost of such assets acquired, and (iii) the aggregate of all amounts appearing on the assets side of any such balance sheet for franchises, licenses, permits, patents, patent applications, copyrights, trademarks, trade names, goodwill, treasury stock, experimental or organizational expenses and other like intangibles. The term "liabilities" shall include, without limitation, (i) Indebtedness secured by Liens on Property of the Person with respect to which Tangible Net Worth is being computed whether or not such Person is liable for the payment thereof, (ii) deferred liabilities, and (iii) obligations under leases which have been capitalized. Tangible Net Worth shall be calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles. Taxes shall mean any tax, levy, impost, duty, charge or fee. ----- Term Loan has the meaning given it in Section 2.2 hereof. --------- ----------- Termination Date shall mean the date three (3) years after the Conversion ---------------- Date, as the same may hereafter be accelerated pursuant to the provisions of any of the Credit Documents. Total Asset Value shall mean the sum of (a) the Borrower's aggregate Net ----------------- Operating Income (based on the immediately preceding calendar quarter and annualized, and adjusted to exclude the Net Operating Income from any properties not owned for the full quarter and the properties described in (iii) below) ----- divided by eight and three-fourths percent (8.75%), plus (b) -14- the total book value of (i) properties acquired during the immediately preceding calendar quarter, (ii) land not yet being developed, and (iii) land (and any improvements being constructed thereon) on which the construction of new income producing improvements has been commenced and is continuing and for up to six (6) months after completion of all improvements thereon, plus (c) the amount of any cash and cash equivalents, excluding tenant security and other restricted deposits, plus (d) the total book value of all of the Borrower's other assets not described in (a), (b) or (c) above, excluding all intangibles and all equity --- --- --- investments in Unconsolidated Affiliates, plus (e) the total book value of the Borrower's equity investments in each Unconsolidated Affiliate multiplied by the Equity Percentage for that Unconsolidated Affiliate. Total Asset Value shall be calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles. Unconsolidated Affiliate shall mean, in respect of any Person, any other ------------------------ Person in whom such Person holds a voting equity or ownership interest and whose financial results would not be consolidated under Generally Accepted Accounting Principles with the financial results of such Person on the consolidated financial statements of such Person. Unconsolidated Affiliate Ratio shall mean, for each Unconsolidated ------------------------------ Affiliate, the ratio of the Indebtedness of the Unconsolidated Affiliate to the Tangible Net Worth of the Unconsolidated Affiliate. Unit Capital Expenditure shall mean, on an annual basis, an amount equal to ------------------------ the product of (a) the number of apartment units contained in each completed, operating Property owned by Borrower and any Subsidiary as of the last day of each of the immediately preceding five (5) calendar quarters, divided by five (5); and multiplied by (b) $200.00. The following terms shall have the respective meanings ascribed to them in the Uniform Commercial Code as enacted and in force in the State of Texas on the date hereof: accessions, continuation statement, fixtures, general intangibles, proceeds, security interest and security agreement. 2. The Loans. --------- 2.1 Advances. (a) Subject to the terms and conditions of this -------- Agreement, each Lender severally agrees to make Loans (other than Swing Loans) prior to the Revolving Credit Termination Date to the Borrower not to exceed an amount (in the aggregate, the "Commitment") at any one time outstanding equal to ---------- the Lender's Lender Commitment. Each such request for a Loan by Borrower shall be deemed a request for a Loan from each Lender equal to such -15- Lender's Percentage of the aggregate amount so requested, and such aggregate amount shall be in an amount at least equal to $1,000,000.00 and equal to a multiple of $250,000.00, or the difference between the Commitment and the aggregate principal balance of the Notes, whichever is less. Each repayment of the Loans shall be deemed a repayment of each Lender's Loan equal to such Lender's Percentage of the amount so repaid. The obligations of the Lenders hereunder are several and not joint, and the preceding two sentences will give rise to certain inappropriate results if special provisions are not made to accommodate the failure of a Lender to fund a Loan as and when required by this Agreement; therefore, notwithstanding anything herein to the contrary, (A) no Lender shall be required to make Loans at any one time outstanding in excess of such Lender's Percentage of the Commitment and (B) if a Lender fails to make a Loan as and when required hereunder and Borrower subsequently makes a repayment on the Loans, such repayment shall be split among the non-defaulting Lenders ratably in accordance with their respective Percentages until each Lender has its Percentage of all of the outstanding Loans, and the balance of such repayment shall be divided among all of the Lenders in accordance with their respective Percentages. Notwithstanding the foregoing, borrowings and payments --------------- of Swing Loans shall be for TCB's own account. The Loans (other than Swing Loans) shall be evidenced by the Notes substantially in the form of Exhibit C --------- attached hereto. The Borrower, the Agent and the Lenders agree that Chapter 15 of the Texas Credit Code shall not apply to this Agreement, the Notes or any Loan. (b) The Borrower shall give the Agent notice of each borrowing to be made hereunder as provided in Section 3.1 hereof, and the Agent shall deliver ----------- same to each Lender promptly thereafter. Not later than 11:00 a.m., Houston, Texas time, on the date specified for each such borrowing hereunder other than Swing Loans, each Lender shall make available the amount of the Loan, if any, to be made by it on such date to the Agent at the Agent's principal office in Houston, Texas, in immediately available funds, for the account of the Borrower. Such amounts received by the Agent will be held in Agent's general ledger account. The amounts so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by wiring or otherwise transferring, in immediately available funds not later than 12:00 noon, Houston, Texas time, such amount to an account designated by the Borrower and maintained with Texas Commerce Bank National Association in El Paso, Texas or any other account or accounts which the Borrower may from time to time designate to the Agent by a written notice as the account or accounts to which borrowings hereunder are to be wired or otherwise transferred. TCB shall make available the amount of each Swing Loan by depositing the same in immediately available funds, in the foregoing account by 2:00 p.m., Houston, Texas time, on the date of the borrowing. -16- (c) Subject to the terms and conditions hereof, if necessary to meet the Borrower's funding deadlines, TCB agrees to make Swing Loans to the Borrower at any time on or prior to the Revolving Credit Termination Date, not to exceed an amount at any one time outstanding equal to the lesser of (i) $75,000,000.00, or (ii) the difference between the Commitment and the unpaid principal balance of all Loans. Swing Loans shall constitute "Loans" for all purposes hereunder. Notwithstanding the foregoing, the aggregate amount of all Loans (including, without limitation, all Swing Loans) shall not at any time exceed the Commitment. Each request for a Swing Loan shall be in an amount at least equal to $1,000,000.00 and equal to a multiple of $250,000.00. If necessary to meet the Borrower's funding deadlines, the Agent may treat any Request for Loan as a request for a Swing Loan from TCB and TCB may fund it as a Swing Loan. Within two (2) Business Days after each Swing Loan is funded, TCB shall request that each Lender, and each Lender shall, on the first Business Day after such request is made, purchase a portion of any one or more Swing Loans in an amount equal to that Lender's Percentage of such Swing Loans by funding under such Lender's Note, such purchase to be made in accordance with the terms of Section 2.1(b) of -------------- this Agreement just as if the Lender were funding directly to the Borrower under its Note (such that all Lenders other than TCB shall fund only under their respective Note and not under the Swing Loan Note). Unless the Agent knew or should have known when TCB funded a Swing Loan that the Borrower had not satisfied the conditions in this Agreement to obtain a Loan, each Lender's obligation to purchase an interest in the Swing Loans shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender or any other Person may have against TCB or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or Event of Default or the termination of any Lender Commitment; (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any of its Subsidiaries; (iv) any breach of this Agreement or any other Credit Documents by the Borrower, any of its Subsidiaries, the Agent or any other Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. Any portion of a Swing Loan not so purchased and converted may be treated by TCB as a Loan which was not funded by the non-purchasing Lenders as contemplated in Section 2.1(a) of this Agreement, and as a funding by -------------- TCB under the Commitment in excess of TCB's Percentage. Each Swing Loan, once so sold, shall cease to be a Swing Loan for the purposes of this Agreement, but shall be a Loan made under the Commitment and each Lender's Lender Commitment. The Swing Loans shall be evidenced by the Swing Loan Note substantially in the form of Exhibit C-1 attached hereto. ----------- 2.2 Term Loan Conversion. -------------------- -17- (a) Subject to the terms and conditions of this Agreement, if any Extension Request (as defined in Section 9) shall be denied, the Borrower --------- may elect to convert the aggregate unpaid principal amount of the Loans (other than the Swing Loans) outstanding on the date (if the conversion election is chosen, the "Conversion Date") one (1) year prior to the then existing Revolving --------------- Credit Termination Date into a term loan owing to each of the Lenders (each a "Term Loan"), so long as (i) the Borrower has given the Agent at least fifteen --------- (15) days prior written notice of the Borrower's intention to so convert the Loans, (ii) no amounts remain unpaid under the Swing Loan Note, and (iii) the conditions to make a Loan set forth in Section 3 are satisfied as of the --------- Conversion Date. After the Conversion Date, the Borrower shall have no further right to receive, and no Lender shall have the obligation to make, any advances of Loans. (b) The Borrower shall repay the principal balance of each Term Loan in quarterly installments due on November 13 first following the Conversion Date, and continuing on the thirteenth (13th) day of each subsequent February, May, August and November until the Termination Date. The amount of each quarterly principal installment shall be equal to the following amount during the corresponding period: PERIOD PAYMENT AMOUNT ------ -------------- During the first year after Quarterly amount necessary to amortize the Conversion Date the unpaid principal balance of the Term Loan on the Conversion Date over a seven (7) year period During the second year after Quarterly amount necessary to amortize the the Conversion Date unpaid principal balance of the Term Loan on the Conversion Date over seven (5) year period During the third year after Quarterly amount necessary to amortize the Conversion Date the unpaid principal balance of the Term Loan on the Conversion Date over a seven (3) year period Accrued and unpaid interest on the unpaid principal balance of the Term Loans shall continue to be due and payable on the Interest Payment Dates. The entire unpaid principal balance, and all accrued and unpaid interest thereon, of the Term Loans, together with all other amounts due under this Agreement, shall be due and payable in full on the Termination Date. 2.3 Payments. (a) Except to the extent otherwise provided herein, all -------- payments of principal, interest and other amounts to be made by the Borrower hereunder, under the Notes and -18- under the other Credit Documents shall be made in immediately available funds to the Agent at its principal office in Houston, Texas (or in the case of a successor Agent, at the principal office of such successor Agent in the United States), not later than 12:00 noon Houston, Texas time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) The Borrower may, at the time of making each payment hereunder, under any Note or under any other Credit Document, specify to the Agent the Loans or other amounts payable by the Borrower hereunder or thereunder to which such payment is to be applied (and in the event that it fails so to specify, such payment shall be applied to the Loans (first to the Swing Loans) or, if no Loans are outstanding, to other amounts then due and payable, provided that if -------- no Loans or other amounts are then due and payable or an Event of Default has occurred and is continuing, the Agent may apply such payment to the Obligations in such order as it may elect in its sole discretion, but subject to the other terms and conditions of this Agreement, including without limitation Section 2.4 ----------- hereof). Each payment received by the Agent hereunder, under any Note or under any other Credit Document for the account of a Lender shall be paid promptly to such Lender, in immediately available funds. If the Agent receives a payment for the account of a Lender prior to 12:00 noon Houston, Texas time, such payment must be delivered to the Lender on that same day and if it is not so delivered due to the fault of the Agent, the Agent shall pay to the Lender entitled to the payment the interest accrued on the amount of the payment pursuant to said Lender's Note from the date the Agent receives the payment to the date the Lender received the payment. The Agent may apply payments received from the Borrower to pay any unpaid principal and interest on the Swing Loans before making payment to each Lender of amounts due under the Notes other than the Swing Loan Note. (c) If the due date of any payment hereunder or under any Note falls on a day which is not a Business Day or a Eurodollar Business Day, as the case may be, the due date for such payments shall be extended to the next succeeding Business Day or Eurodollar Business Day, respectively, and interest shall be payable for any principal so extended for the period of such extension; provided, however, that with respect to Eurodollar Rate Borrowings if such extension would cause the Eurodollar Business Day of payment to fall in another calendar month, the payment shall be due on the Eurodollar Business Day next preceding the due date of the payment. (d) The Borrower shall give the Agent at least one (1) Business Day's prior written notice of the Borrower's intent to make any payment of principal or interest under the Credit Documents not scheduled to be paid under the Credit Documents. Any such notification of payment shall be irrevocable after it is made by the Borrower. Upon receipt by the Agent of such notification of payment, it shall deliver same to the other Lenders. -19- 2.4 Pro Rata Treatment. Except to the extent otherwise provided herein: ------------------ (a) each borrowing from the Lenders under Section 2.1(a) hereof shall be made -------------- ratably from the Lenders on the basis of their respective Percentages, each payment of the Fee (hereinafter defined) shall be made for the account of the Lenders, and shall be applied, pro rata, according to the Lenders' respective -------- Lender Commitment; and (b) each payment by the Borrower of principal or interest on the Loans other than the Swing Loans, of any other sums advanced by the Lenders pursuant to the Credit Documents, and of any other amount owed to the Lenders other than the Fee, payments of Swing Loans, or any other sums designated by this Agreement as being owed to a particular Lender, shall be made to the Agent for the account of the Lenders pro rata in accordance with the respective unpaid principal amounts of the Loans (other than Swing Loans) held by the Lenders. Payments of Swing Loans shall be for TCB's own account. 2.5 Non-Receipt of Funds by the Agent. Unless the Agent shall have been --------------------------------- notified by a Lender or the Borrower (the "Payor") prior to the date on which such Lender is to make payment to the Agent of the proceeds of a Loan (or purchase of a portion of a Swing Loan) to be made by it hereunder or the Borrower is to make a payment to the Agent for the account of one or more of the Lenders, as the case may be (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Agent, the recipient of such payment shall, on demand, pay to the Agent the amount made available by the Agent together with interest thereon in respect of the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (a) the Past Due Rate for such period if the recipient returning a Required Payment is the Borrower, or (b) the Federal Funds Effective Rate for such period if the recipient returning a Required Payment is the Agent or a Lender. 2.6 Sharing of Payments, Etc. The Borrower agrees that, in addition to ------------------------- (and without limitation of) any right of set-off, bankers' lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option, to offset balances held by it for the account of the Borrower at any of its offices, against any principal of or interest on any of such Lender's Loans to the Borrower hereunder, or other Obligations of the Borrower hereunder, which is not paid (regardless of whether such balances are then due to the Borrower), in which case it shall promptly notify the Borrower and the Agent thereof, provided -------- that such Lender's failure to give such notice shall not affect the validity thereof. If a Lender shall obtain payment of any principal of or interest on any Loan made by it under this Agreement (other than Swing Loans made by TCB), or other Obligation then due to such Lender hereunder, through the exercise of any right -20- of set-off, banker's lien, counterclaim or similar right, or otherwise, it shall promptly purchase from the other Lenders portions of the Loans made or other Obligations held (other than Swing Loans made by TCB), by the other Lenders in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Lenders shall share the benefit of such payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such benefit) pro rata in accordance with the unpaid principal and interest on the Obligations then due to each of them. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower. 2.7 Fees. The Borrower shall pay to the Agent for the account of each ---- Lender fees (collectively, the "Fee") equal to (a) an amount payable as a --- commitment fee by the Borrower to the Agent for the account of each Lender equal to the portion of the daily unused amount of the Commitment (Swing Loans shall be deemed to be a utilization of the Commitment solely for the purposes of this Section 2.7(a)) listed below multiplied by the corresponding rate per annum - -------------- applicable to that portion: Unused Commitment Rate ----------------- ---- Up to but not including $115,000,000 0.1250% $115,000,000 up to and including $230,000,000 0.1875% Over $230,000,000 0.2500% such commitment fee to be payable in arrears on or before the tenth (10th) day of each April, July, October and January, (b) if the Revolving Credit Termination Date is extended pursuant to Section 9 of this Agreement, an amount --------- payable as an extension fee by the Borrower to the Agent for the account of each Lender that extends its Loans equal to 0.1500% of each Lender's Lender Commitment at that time payable on the Determination Date, and (c) if the Loans are converted to the Term Loans pursuant to Section 2.2 of this Agreement, an ----------- amount payable as a conversion fee by the Borrower to the Agent for the account of each Lender that converts its Loans equal to one-fourth of one percent (1/4%) of the aggregate unpaid principal balance of each Loan on the date one (1) year after the Conversion Date payable to each Lender on the date one (1) year after -21- the Conversion Date, plus one-fourth of one percent (1/4%) of the aggregate unpaid principal balance of each Loan on the date (2) years after the Conversion Date payable to each Lender on the date two (2) years after the Conversion Date if any portion of the Term Loan is unpaid on that date. The Fee shall not be refundable (except as required by Section 3.1(c) of this Agreement). Any -------------- portion of the Fee which is not paid by the Borrower when due shall bear interest at the Past Due Rate from the date due until the date paid by the Borrower. The Fee shall be calculated on the actual number of days elapsed in a year deemed to consist of 360 days. 3. Conditions. ---------- 3.1 All Loans. The obligation of any Lender to make any Loan is subject --------- to the accuracy of all representations and warranties of the Borrower on the date of such Loan, to the performance by the Borrower of its obligations under the Credit Documents and to the satisfaction of the following further conditions: (a) the Agent shall have received the following, all of which shall be duly executed and in Proper Form: (1) a Request for Loan (i) by 11:00 a.m., Houston, Texas time, one (1) Business Day before the date (which shall also be a Business Day) of the proposed Loan which is to be a Base Rate Borrowing (other than Swing Loans), (ii) by 11:00 a.m., Houston, Texas time, on the same Business Day of any proposed Swing Loan, provided that by 11:00 a.m., Houston, Texas time on the date of the proposed Swing Loan, Borrower shall also have notified TCB by telephone of its request for a Swing Loan, or (iii) by the Rate Designation Date of the proposed Loan which is to be a Eurodollar Rate Borrowing; and (2) such other documents as the Agent may reasonably require to satisfy itself or the request of any Lender; (b) no Default or Event of Default shall have occurred and be continuing; (c) the making of the Loan shall not be prohibited by any Legal Requirement (in which event the applicable portion of the Fee will not be charged to the Borrower); (d) the Borrower shall have paid all legal fees and expenses of the type described in Section 5.10 hereof through the date of such ------------ Loan; and (e) in the case of a Loan other than a Swing Loan, all Swing Loans then outstanding shall have been paid or shall be paid with the proceeds of such Loan. 3.2 First Loan. In addition to the matters described in Section 3.1 ---------- ----------- hereof, the obligation of the Lenders to make the first Loan under this Agreement is subject to the receipt by the Lenders of each of the following, in Proper Form: (a) the Notes, executed by the Borrower; (b) a certificate executed by the Secretary of the Borrower dated as of the date hereof; (c) a certificate from the Secretary of State or other appropriate public official of Maryland as to the continued existence and good standing of the Borrower; (d) a certificate from the appropriate public official of every state where the location of the Borrower's Property requires it to be qualified to do business as to the due qualification and good standing of the Borrower; (e) a legal opinion from independent counsel for the Borrower as to the matters set forth on Exhibit D --------- -22- acceptable to the Lenders; (f) policies of insurance addressed to the Agent reflecting the insurance required by Section 5.7 hereof; and (g) an Officer's ----------- Certificate in the form of Exhibit A; and to the further condition that, at the --------- time of the initial Loan, all legal matters incident to the transactions herein contemplated shall be satisfactory to Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., counsel for the Agent. 3.3 Options Available. The outstanding principal balance of the Notes ----------------- shall bear interest at the Base Rate; provided, that (1) all past due amounts, -------- both principal and accrued interest, shall bear interest at the Past Due Rate, and (2) subject to the provisions hereof, Borrower shall have the option of having all or any portion of the principal balance of the Notes, other than the Swing Loan Note, from time to time outstanding bear interest at a Eurodollar Rate. The records of the Lenders with respect to Interest Options, Interest Periods and the amounts of Loans to which they are applicable shall be prima facie evidence thereof. Interest on the Loans shall be calculated at the Base Rate except where it is expressly provided pursuant to this Agreement that a Eurodollar Rate is to apply. 3.4 Designation and Conversion. Borrower shall have the right to -------------------------- designate or convert its Interest Options in accordance with the provisions hereof. Provided no Event of Default has occurred and is continuing and subject -------- to the provisions of Section 3.5, Borrower may elect to have a Eurodollar Rate ----------- apply or continue to apply to all or any portion of the principal balance of the Notes, other than the Swing Loan Note. Each change in Interest Options shall be a conversion of the rate of interest applicable to the specified portion of the Loans, but such conversion shall not change the respective outstanding principal balance of the Notes. The Interest Options shall be designated or converted in the manner provided below: (a) Borrower shall give Agent a Request for Loan. Each such written notice shall specify the amount of Loan which is the subject of the designation, if any; the amount of borrowings into which such borrowings are to be converted or for which an Interest Option is designated; the proposed date for the designation or conversion and the Interest Period, if any, selected by Borrower. The Request for Loan shall be irrevocable and shall be given to Agent no later than the applicable Rate Designation Date. The Agent shall promptly deliver the Request for Loan to the Lenders. (b) No more than twelve (12) Eurodollar Rate Borrowings with twelve (12) Interest Periods shall be in effect at any time. (c) Each designation or conversion of a Eurodollar Rate Borrowing shall occur on a Eurodollar Business Day. -23- (d) Except as provided in Section 3.5 hereof, no Eurodollar Rate Borrowing ----------- shall be converted on any day other than the last day of the applicable Interest Period. (e) Unless a Request for Loan to the contrary is received as provided in this Agreement, each Eurodollar Rate Borrowing will convert to a Base Rate Borrowing after the expiration of the Interest Period. 3.5 Special Provisions Applicable to Eurodollar Rate Borrowings. ----------------------------------------------------------- (a) Options Unlawful. If the adoption of any applicable Legal Requirement ---------------- or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by the Lenders with any request or directive (whether or not having the force of law) of any central bank or other Governmental Authority shall at any time make it unlawful or impossible for any Lender to permit the establishment of or to maintain any Eurodollar Rate Borrowing, the commitment of the Lenders to establish or maintain such Eurodollar Rate Borrowing shall forthwith be suspended until such condition shall cease to exist and Borrower shall forthwith, upon demand by Agent to Borrower, (1) convert the Eurodollar Rate Borrowing with respect to which such demand was made to a Base Rate Borrowing; (2) pay all accrued and unpaid interest to date on the amount so converted; and (3) pay any amounts required to compensate the Lenders for any additional cost or expense which the Lenders may incur as a result of such adoption of or change in such Legal Requirement or in the interpretation or administration thereof and any Funding Loss which the Lenders may incur as a result of such conversion. If, when Agent so notifies Borrower, Borrower has given a Request for Loan specifying a Eurodollar Rate Borrowing but the selected Interest Period has not yet begun, such Request for Loan shall be deemed to be of no force and effect, as if never made, and the balance of the Loans specified in such Request for Loan shall bear interest at the Base Rate until a different available Interest Option shall be designated in accordance herewith. (b) Increased Cost of Borrowings. If the adoption of any applicable Legal ---------------------------- Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by any Lender with any request or directive of general applicability (whether or not having the force of law) of any central bank or Governmental Authority shall at any time as a result of any portion of the principal balance of the Notes being maintained on the basis of a Eurodollar Rate: (1) subject any Lender (or make it apparent that any Lender is subject) to any Taxes, or any deduction or withholding for any Taxes, on or from any payment due under any Eurodollar Rate Borrowing or other amount due -24- hereunder, other than income and franchise taxes of the United States and its political subdivisions; or (2) change the basis of taxation of payments due from Borrower to any Lender under any Eurodollar Rate Borrowing (otherwise than by a change in the rate of taxation of the overall net income of a Lender); or (3) impose, modify, increase or deem applicable any reserve requirement (excluding that portion of any reserve requirement included in the calculation of the applicable Eurodollar Rate), special deposit requirement or similar requirement (including, but not limited to, state law require ments and Regulation D) imposed, modified, increased or deemed applicable by any Governmental Authority against assets held by any Lender, or against deposits or accounts in or for the account of any Lender, or against loans made by any Lender, or against any other funds, obligations or other property owned or held by any Lender; or (4) impose on any Lender any other condition regarding any Eurodollar Rate Borrowing; and the result of any of the foregoing is to increase the cost to any Lender of agreeing to make or of making, renewing or maintaining such Eurodollar Rate Borrowing, or reduce the amount of principal or interest received by any Lender, then, upon demand by Agent, Borrower shall pay to such Lender, from time to time as specified by such Lender, additional amounts which shall compensate such Lender for such increased cost or reduced amount. Agent will promptly notify Borrower in writing of any event which will entitle any Lender to additional amounts pursuant to this paragraph. A Lender's determination of the amount of any such increased cost, increased reserve requirement or reduced amount shall be prima facie evidence thereof. Borrower shall have the right, if it receives from Agent any notice referred to in this paragraph, upon three Business Days' notice to Agent, either (i) to repay in full (but not in part) any borrowing with respect to which such notice was given, together with any accrued interest thereon, or (ii) to convert the Eurodollar Rate Borrowing which is the subject of the notice to a Base Rate Borrowing; provided, that any such repayment or conversion shall be -------- accompanied by payment of (x) the amount required to compensate a Lender for the increased cost or reduced amount referred to in the preceding paragraph; (y) all accrued and unpaid interest to date on the amount so repaid or converted, and -25- (z) any Funding Loss which any Lender may incur as a result of such repayment or conversion. (c) Inadequacy of Pricing and Rate Determination. If for any -------------------------------------------- reason with respect to any Interest Period Agent shall have determined (which determination shall be prima facie evidence thereof) that: (1) Agent is unable through its customary general practices to determine any applicable Eurodollar Rate, or (2) by reason of circumstances affecting the applicable market generally, Agent is not being offered deposits in United States dollars in such market, for the applicable Interest Period and in an amount equal to the amount of any applicable Eurodollar Rate Borrowing requested by Borrower, or (3) any applicable Eurodollar Rate will not adequately and fairly reflect the cost to the Lenders of making and maintaining such Eurodollar Rate Borrowing hereunder for any proposed Interest Period, then Agent shall give Borrower notice thereof and thereupon, (A) any Request for Loan previously given by Borrower designating the applicable Eurodollar Rate Borrowing which has not commenced as of the date of such notice from Agent shall be deemed for all purposes hereof to be of no force and effect, as if never given, and (B) until Agent shall notify Borrower that the circumstances giving rise to such notice from Agent no longer exist, each Request for Loan requesting the applicable Eurodollar Rate shall be deemed a request for a Base Rate Borrowing, and any applicable Eurodollar Rate Borrowing then outstanding shall be converted, without any notice to or from Borrower, upon the termination of the Interest Period then in effect with respect to it, to a Base Rate Borrowing. (d) Funding Losses. Borrower shall indemnify the Agent and each Lender -------------- against and hold the Agent and each Lender harmless from any Funding Loss. This agreement shall survive the payment of the Notes. A certificate as to any additional amounts payable pursuant to this subsection and setting forth the reasons for the Funding Loss submitted by Agent to Borrower shall be prima facie evidence thereof. -26- 3.6 Funding Offices; Adjustments Automatic. Any Lender may, if it so -------------------------------------- elects, fulfill its obligation as to any Eurodollar Rate Borrowing by causing a branch or affiliate of such Lender to make such Loan and may transfer and carry such Loan at, to, or for the account of, any branch office or affiliate of such Lender; provided, that in such event for the purposes of this Agreement such -------- Loan shall be deemed to have been made by such Lender and the obligation of Borrower to repay such Loan shall nevertheless be to such Lender and shall be deemed held by it for the account of such branch or affiliate. Without notice to Borrower or any other person or entity, each rate required to be calculated or determined under this Agreement shall automatically fluctuate upward and downward in accordance with the provisions of this Agreement. 3.7 Funding Sources, Payment Obligations. Notwithstanding any provision ------------------------------------ of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of the Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if each Lender had actually funded and maintained each Eurodollar Rate Borrowing during each Interest Period through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the Eurodollar Rate for such Interest Period. Notwithstanding the foregoing, Funding Losses, increased costs and other obligations relating to Eurodollar Rate Borrowings described in Section ------- 3.5 of this Agreement will only be paid by the Borrower as and when actually - --- incurred by the Lenders. 3.8 Mitigation, Non-Discrimination. (a) Each Lender will notify the ------------------------------ Borrower through the Agent of any event occurring after the date of this Agreement which will require or enable such Lender to take the actions described in Sections 3.5(a) or (b) of this Agreement as promptly as practicable after it --------------- --- obtains knowledge thereof and determines to request such action, and (if so requested by the Borrower through the Agent) will designate a different lending office of such Lender for the applicable Eurodollar Rate Borrowing or will take such other action as the Borrower reasonably requests if such designation or action is consistent with the internal policy of such Lender and legal and regulatory restrictions, can be undertaken at no additional cost, will avoid the need for, or reduce the amount of, such action and will not, in the sole opinion of such Lender, be disadvantageous to such Lender (provided that such Lender -------- will have no obligation to designate a different lending office which is located in the United States of America). (b) None of the Lenders shall be able to pass through to the Borrower changes and costs under Section 3.5 of this Agreement on a discriminating basis, ----------- such that such changes and costs are not also passed through by each Lender to other customers of such Lender similarly situated where such customer is subject to documents providing for such pass through. -27- (c) If any Lender elects under Section 3.5 of this Agreement to ----------- suspend or terminate the availability of Eurodollar Rate Borrowings for any material period of time, and the event giving rise to such election is not generally applicable to all of the Lenders, the Borrower may within sixty (60) days after notification of such Lender's election, and so long as no Event of Default is then in existence, either (i) demand that such Lender, and upon such demand, such Lender shall promptly, assign its Lender Commitment to another financial institution subject to and in accordance with the provisions of Section 10.5 of this Agreement for a purchase price equal to the unpaid balance - ------------ of principal, accrued interest, the unpaid balance of the Fee and expenses owing to such Lender pursuant to this Agreement, or (ii) pay such Lender the unpaid balance of principal, accrued interest, the unpaid balance of the Fee and expenses owing to such Lender pursuant to this Agreement, whereupon, such Lender shall no longer be a party to this Agreement or have any rights or obligations hereunder or under any other Credit Documents, and the Commitment shall immediately and permanently be reduced by an amount equal to the Lender Commitment of such Lender. 4. Representations and Warranties. ------------------------------ To induce the Lenders to enter into this Agreement and to make the Loans, the Borrower represents and warrants to the Agent and the Lenders as follows: 4.1. Organization. The Borrower is duly organized, validly existing ------------ and in good standing as a real estate investment trust under the laws of the state of Maryland; has all power and authority to conduct its business as presently conducted; and is duly qualified to do business and in good standing in every state where the location of its Property requires it to be qualified to do business, unless the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect. 4.2 Financial Statements. The financial statements delivered to the -------------------- Agent fairly present, in accordance with Generally Accepted Accounting Principles (provided, however, that the Quarterly Unaudited Financial Statements are subject to normal year-end adjustments and may contain condensed footnotes as permitted by regulations of the United States Securities and Exchange Commission), the financial condition and the results of operations of the Borrower as at the dates and for the periods indicated. No Material Adverse Change has occurred since the dates of such financial statements. The Borrower is not subject to any instrument or agreement which would materially prevent it from conducting its business as it is now conducted or as it is contemplated to be conducted. -28- 4.3 Enforceable Obligations; Authorization. The Credit Documents are -------------------------------------- legal, valid and binding obligations of the Parties, enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency and other laws affecting creditors' rights generally and by general equitable principles. The execution, delivery and performance of the Credit Documents have all been duly authorized by all necessary action; are within the power and authority of the Parties; do not and will not contravene or violate any Legal Requirement or the Organizational Documents of the Parties; do not and will not result in the breach of, or constitute a default under, any agreement or instrument by which the Parties or any of their respective Property may be bound or affected, except where such breach or default could not reasonably be expected to have a Material Adverse Effect; and do not and will not result in the creation of any Lien upon any Property of any of the Parties except as expressly contemplated therein. All necessary permits, registrations and consents for such making and performance have been obtained except where the lack thereof could not reasonably be expected to have a Material Adverse Effect. 4.4 Other Debt. The Borrower is not in default in the payment of any ---------- other Indebtedness or under any agreement, mortgage, deed of trust, security agreement or lease to which it is a party which default could reasonably be expected to have a Material Adverse Effect. 4.5 Litigation. There is no litigation or administrative proceeding ---------- pending or, to the knowledge of the Borrower, threatened against, or any outstanding judgment, order or decree affecting, the Borrower before or by any Governmental Authority which is not adequately covered by insurance or which, if determined adversely to the Borrower could reasonably be expected to have a Material Adverse Effect. The Borrower is not in default with respect to any judgment, order or decree of any Governmental Authority which default could reasonably be expected to have a Material Adverse Effect. 4.6 Taxes. The Borrower has filed all tax returns required to have been ----- filed and paid all taxes shown thereon to be due, except those for which extensions have been obtained, those which are being contested in good faith and those for which the Borrower's failure to file a return or pay could not reasonably be expected to have a Material Adverse Effect. 4.7 Regulation U. None of the proceeds of any Loan will be used for the ------------ purpose of purchasing or carrying directly or indirectly any margin stock or for any other purpose that would constitute this transaction a "purpose credit" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. -29- 4.8 Subsidiaries. The Borrower has no Subsidiaries which individually ------------ or in the aggregate own more than twenty-five percent (25%) in value of the Borrower's and the Subsidiaries' consolidated assets determined in accordance with Generally Accepted Accounting Principles. Each of the Borrower's Subsidiaries is a "qualified REIT subsidiary" under Section 856 of the Code. 4.9 Securities Act of 1933. Other than the Agent's efforts in ---------------------- syndicating the Loans (for which the Agent is responsible) neither the Borrower nor any agent acting for it has offered the Notes or any similar obligation of the Borrower for sale to or solicited any offers to buy the Notes or any similar obligation of the Borrower from any Person other than the Agent or any Lender, and neither the Borrower nor any agent acting for it will take any action which would subject the sale of the Note to the provisions of Section 5 of the Securities Act of 1933, as amended. 4.10 No Contractual or Corporate Restrictions. The Borrower is not a ---------------------------------------- party to, or bound by, any contract, agreement or charter or other corporate restriction materially and adversely affecting its business, Property, assets, operations or condition, financial or otherwise. 4.11 Investment Company Act Not Applicable. The Borrower is not an ------------------------------------- "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 4.12 Public Utility Holding Company Act Not Applicable. The Borrower is ------------------------------------------------- not a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", or an affiliate of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. 4.13 ERISA Not Applicable. The Borrower is not subject to any -------------------- requirements of the Employee Retirement Income Security Act of 1974 as amended from time to time, or any rules, regulations, rulings or interpretations adopted by the Internal Revenue Service or the Department of Labor thereunder. 5. Affirmative Covenants. --------------------- The Borrower covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will do, and if necessary cause to be done, each and all of the following: 5.1 Taxes, Insurance, Existence, Regulations, Property, etc. At all ------------------------------------------------------- times (a) pay when due all taxes and governmental charges of every kind upon it or against its income, profits or -30- Property, unless and only to the extent that the same shall be contested in good faith and reserves which are adequate under Generally Accepted Accounting Principles have been established therefor, or unless such failure to pay could not reasonably be expected to have a Material Adverse Effect; (b) do all things necessary to preserve its existence, qualifications, rights and franchises in all States where such qualification is necessary or desirable, except where failure to obtain the same could not reasonably be expected to have a Material Adverse Effect; (c) comply with all applicable Legal Requirements in respect of the conduct of its business and the ownership of its Property except where failure to so comply could not reasonably be expected to have a Material Adverse Effect; and (d) cause its Property to be protected, maintained and kept in good repair (reasonable wear and tear excepted) and make all replacements and additions to its Property as may be reasonably necessary to conduct its business. 5.2 Financial Statements and Information. Furnish to the Agent each of ------------------------------------ the following: (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, Annual Audited Financial Statements of the Borrower (which shall include an unaudited statement of Funds From Operations); (b) as soon as available and in any event within 45 days after the end of each quarter (except the last quarter) of each fiscal year of the Borrower, Quarterly Unaudited Financial Statements of the Borrower (which shall include a statement of Funds From Operations); (c) concurrently with the financial statements provided for in Subsections 5.2(a) and (b) hereof, an ------------------ --- Officer's Certificate, together with such schedules, computations and other information (including, without limitation, if provided to Borrower information as to Unconsolidated Affiliates of the Borrower), in reasonable detail, as may be required by the Agent to demonstrate compliance with the covenants set forth herein or reflecting any non-compliance therewith as of the applicable date, all certified as true, correct and complete by a managing director, vice president or controller of Borrower's REIT Manager; (d) promptly after the filing thereof, all reports to or filings made by the Borrower or any of its Subsidiaries with the Securities and Exchange Commission, including, without limitation, registration statements and reports on Forms 10-K, 10-Q and 8-K (or their equivalents); (e) within two (2) Business Days after the receipt thereof, a copy of the notification to the Borrower of the Borrower's S&P Rating or Moody's Rating, or change therein, and (f) such other information relating to the financial condition and affairs of the Borrower as from time to time may be reasonably requested by any Lender. The Agent will send to each Lender the information received by the Agent pursuant to this Section 5.2 promptly after ----------- the receipt thereof by Agent. 5.3 Financial Tests. Have and maintain, on a consolidated basis in --------------- accordance with Generally Accepted Accounting Principles: (a) a Debt to Tangible Net Worth Ratio no greater than 1.0:1.0 at all times; (b) a Coverage Ratio of not less than 2.0:1.0 at all times; (c) a Fixed Charge Coverage Ratio of not less than 1.4:1.0 at all times; (d) a Tangible Net Worth of at least -31- One Billion Dollars ($1,000,000,000.00) at all times; and (e) a Debt to Total Asset Value Ratio no greater than (i) fifty-five percent (55%) during the first year after the Conversion Date, if any, and (ii) fifty percent (50%) thereafter. 5.4 Inspection. In order to permit the Agent to ascertain compliance ---------- with the Credit Documents, during normal business hours permit the Agent to inspect its Property, to examine its files, books and records and make and take away copies thereof, and to discuss its affairs with its officers and accountants, all at such times and intervals and to such extent as a Lender may reasonably desire. 5.5 Further Assurances. Promptly execute and deliver any and all other ------------------ and further instruments which may be requested by the Agent to cure any defect in the execution and delivery of any Credit Document or more fully to describe particular aspects of the Borrower's agreements set forth in the Credit Documents or so intended to be. 5.6 Books and Records. Maintain books of record and account in ----------------- accordance with Generally Accepted Accounting Principles. 5.7 Insurance. Maintain insurance with such insurers, on such of its --------- properties, in such amounts and against such risks as is consistent with insurance maintained by businesses of comparable type and size in the industry, and furnish the Agent satisfactory evidence thereof promptly upon request. 5.8 Notice of Certain Matters. Notify the Agent promptly upon acquiring ------------------------- knowledge of the occurrence of any of the following: the institution or threatened institution of any lawsuit or administrative proceeding affecting the Borrower in which the claim exceeds $250,000.00 and if determined adversely could have a Material Adverse Effect; when the Borrower believes that there has been a Material Adverse Change; or the occurrence of any Event of Default or any Default. The Borrower will notify the Agent in writing at least thirty (30) Business Days prior to the date that the Borrower changes its name or the location of its chief executive office or principal place of business or the place where it keeps its books and records. 5.9 Use of Proceeds. The proceeds of the Loans will be used for general --------------- business purposes including (without limitation) for acquisition of multi-family real estate properties, for the development and enhancement of multi-family real estate properties, for investment in convertible mortgages issued by Homestead Village Properties Incorporated or for the costs of construction of multi-family real estate projects owned or to be acquired by the Borrower. -32- Notwithstanding the foregoing, none of the proceeds of the Loans will be used to finance, fund or complete any hostile acquisition of any Person. 5.10 Expenses of and Claims Against the Agent and the Lenders. To the -------------------------------------------------------- extent not prohibited by applicable law, the Borrower will pay all reasonable costs and expenses incurred to third parties and reimburse the Agent and each Lender, as the case may be, for any and all reasonable expenditures of every character incurred or expended from time to time, in connection with (a) regardless of whether a Default or Event of Default shall have occurred, the Agent's preparation, negotiation and completion of the Credit Documents, and (b) during the continuance of an Event of Default, all costs and expenses relating to the Agent's and such Lender's exercising any of its rights and remedies under this or any other Credit Document, including, without limitation, attorneys' fees, legal expenses, and court costs; provided, that no rights or option -------- granted by the Borrower to the Agent or any Lender or otherwise arising pursuant to any provision of this or any other instrument shall be deemed to impose or admit a duty on the Agent or any Lender to supervise, monitor or control any aspect of the character or condition of any property or any operations conducted in connection with it for the benefit of the Borrower or any other person or entity other than the Agent or such Lender. Notwithstanding the foregoing, the Borrower shall not be charged with any cost or expense incurred by the Agent or any Lender relating to disputes or claims among or between the Agent, the Lenders, or any of them unless during the continuance of an Event of Default and related to details of enforcement of the Lenders' rights under the Credit Documents. 5.11 Legal Compliance; Indemnification. The Borrower shall operate its --------------------------------- Property and businesses in full compliance with all Legal Requirements. It shall not constitute an Event of Default if there is a failure to comply with any Legal Requirement which failure could not reasonably be expected to have a Material Adverse Effect. The Borrower shall indemnify the Agent and each Lender, their directors, officers, employees and shareholders (the "Indemnified ----------- Parties") for and defend and hold the Indemnified Parties harmless against any - ------- and all claims, demands, liabilities, causes of action, penalties, obligations, damages, judgments, deficiencies, losses, costs or expenses (including, without limitation, interest, penalties, attorneys' fees, and amounts paid in settlement) threatened or incurred by reason of, arising out of or in any way related to any failure of the Borrower to so comply with the provisions of any Legal Requirement, this Agreement or the other Credit Documents, and any and all matters arising out of any act, omission, event or circumstance, regardless of whether the act, omission, event or circumstance constituted a violation of any such Legal Requirement, this Agreement or the other Credit Documents at the time of its existence or occurrence. THE BORROWER SHALL INDEMNIFY THE AGENT AND EACH LENDER PURSUANT TO THIS SECTION REGARDLESS OF WHETHER THE ACT, OMISSION, FACTS, CIRCUMSTANCES OR -33- CONDITIONS GIVING RISE TO SUCH INDEMNIFICATION WERE CAUSED IN WHOLE OR IN PART BY THE AGENT'S OR SUCH LENDER'S NEGLIGENCE (SIMPLE, BUT NOT GROSS NEGLIGENCE). The Borrower will comply with all Legal Requirements to maintain, and will at all times qualify as and maintain, its status as a real estate investment trust under Section 856(c)(1) of the Code. 5.12 Borrower's Performance. If the Borrower should fail to comply with ---------------------- any of the agreements, covenants or obligations of the Borrower under this Agreement or any other Credit Document, then the Agent (in the Borrower's name or in Agent's name) may perform them or cause them to be performed for the account of the Borrower and at the Borrower's sole expense, but shall not be obligated to do so. Any and all expenses thus incurred or paid by the Agent and by any Lender shall be the Borrower's demand obligations to the Agent or such Lender and shall bear interest from the date of demand therefor until the date that the Borrower repays it to the Agent or the applicable Lender at the Past Due Rate. Upon making any such payment or incurring any such expense, the Agent or the applicable Lender shall be fully subrogated to all of the rights of the Person receiving such payment. Any amounts owing by the Borrower to the Agent or any Lender pursuant to this provision or any other provision of this Agreement shall automatically and without notice be secured by any collateral provided by the Credit Documents. The amount and nature of any such expense and the time when paid shall, absent manifest error, be fully established by the affidavit of the Agent or the applicable Lender or any of the Agent's or the applicable Lender's officers or agents. 5.13 Professional Services. Promptly upon the Agent's request to satisfy --------------------- itself or the request of any Lender, the Borrower, at the Borrower's sole cost and expense, provided, however, that so long as no Event of Default has occurred and is continuing, such items will not be at the Borrower's expense, shall: (a) allow an inspection and/or appraisal of the Borrower's Property to be made by a Person approved by the Agent in its sole discretion; and (b) if the Agent believes that an Event of Default has occurred or is about to occur, cause to be conducted or prepared any other written report, summary, opinion, inspection, review, survey, audit or other professional service relating to the Borrower's Property or any operations in connection with it (all as designated in the Agent's request), including, without limitation, any accounting, auctioneering, architectural, consulting, engineering, design, legal, management, pest control, surveying, title abstracting or other technical, managerial or professional service relating to such property or its operations. 5.14 Capital Adequacy. (a) If after the date of this Agreement, the ---------------- Agent or any Lender shall have determined that the adoption or effectiveness of any applicable law, rule or regulation regarding capital adequacy of general applicability, or any change therein, or any change in the -34- interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Agent or any Lender with any request or directive regarding capital adequacy of general applicability (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Agent's or any Lender's capital as a consequence of its obligations hereunder to a level below that which the Agent or such Lender could have achieved but for such adoption, change or compliance (taking into consideration the Agent's or such Lender's policies with respect to capital adequacy) by an amount deemed by the Agent or such Lender to be material, then from time to time, the Borrower shall pay to the Agent or such Lender such additional amount or amounts as will compensate the Agent or such Lender for such reduction. (b) A certificate of the Agent or such Lender setting forth such amount or amounts as shall be necessary to compensate the Agent or such Lender as specified in Section 5.14(a) hereof and making reference to the applicable --------------- law, rule or regulation shall be delivered as soon as practicable to the Borrower and shall be prima facie evidence thereof. The Borrower shall pay the Agent or such Lender the amount shown as due on any such certificate within fourteen (14) Business Days after the Agent or such Lender delivers such certificate. In preparing such certificate, the Agent or such Lender may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method. 5.15 Property Pool. The Borrower will at all times own fee simple title ------------- to real estate properties that are not mortgaged, pledged, hypothecated, or encumbered in any manner other than Permitted Encumbrances (the "Pool") with an ---- aggregate Historical Value (plus all cash balances held by the Borrower if and whenever the unpaid balance of the Loans is zero) of at least one hundred seventy-five percent (175%) of the Borrower's unsecured Indebtedness outstanding from time to time, with the following characteristics: (a) the Pool must include income producing operating properties (the "Operating Sub-Pool") with an ------------------ aggregate Operating Sub-Pool Value of at least one hundred fifty percent (150%) of the Borrower's unsecured Indebtedness outstanding from time to time, (b) each individual property in the Operating Sub-Pool must have an occupancy level of at least eighty percent (80%), where such occupancy level is the average of the actual occupancy level for each of the immediately preceding three (3) months, (c) any properties added to the Operating Sub-Pool after the date of this Agreement must be multifamily properties, and (d) the Borrower must have received from third party independent environmental consultants, written assessments for each property in, or to be added to, the Operating Sub-Pool that do not disclose any material environmental conditions or risks related to such properties. If requested by the Agent and\or the Co-Agent, the Borrower will provide to the Agent and the Co-Agent -35- written assessments from third party independent environmental consultants for all real estate properties acquired after the date of this Agreement. If the Agent determines that there are material environmental conditions existing on or risks to such properties, the properties will be excluded from the Pool. 6. Negative Covenants. ------------------ The Borrower covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will not do any of the following: 6.1 Indebtedness. Create, incur, suffer or permit to exist, or assume ------------ or guarantee, directly or indirectly, contingently or otherwise, or become or remain liable with respect to any Indebtedness with a final maturity of five (5) years or less (not including any renewal or extension options) in excess of $400,000,000.00 in the aggregate, in all cases whether direct, indirect, absolute, contingent or otherwise; except (a) Indebtedness incurred by Borrower which has an S&P Rating of BBB- or better and a Moody's Rating of Baa3 or better at the time of issuance, (b) Non-recourse Debt, (c) Indebtedness in the final five (5) years or less of a full payment amortization schedule providing for periodic payments over the remaining life where no more than fifty percent (50%) of the original loan amount is amortized in said final five (5) year or less period, (d) credit enhancement provided by or on behalf of the Borrower for tax exempt bonds if said credit enhancement has an expiration date or a maturity date of one (1) year or more, and (e) Indebtedness secured by multifamily real estate properties and assumed by Borrower in connection with the purchase of said properties by Borrower (but not incurred or assumed in anticipation of such purchase) not to exceed $50,000,000.00 in the aggregate. For the purposes of the foregoing calculation under (c) above, simultaneously issued tranches of --- Indebtedness under the same indenture shall be combined and treated as a single debt issuance. 6.2 Mergers, Consolidations and Acquisitions of Assets. In any single -------------------------------------------------- transaction or series of related transactions, directly or indirectly: (a) liquidate or dissolve; (b) other than a merger or consolidation in which the Borrower is the surviving entity and the value of the assets of the other party to such merger or consolidation is less than twenty percent (20%) of the value of the assets of the Borrower on a consolidated basis (in accordance with Generally Accepted Accounting Principles) after such merger or consolidation, be a party to any merger or consolidation; (c) other than an acquisition in which the Borrower acquires all or substantially all of the assets of another Person and the value of the assets acquired is less than twenty percent (20%) of the value of the assets of the Borrower on a consolidated basis (in accordance with Generally Accepted Accounting Principles) after such acquisition, acquire all or substantially all of the assets of any Person; or (d) except for periodic sales not exceeding twenty-five percent -36- (25%) of the Borrower's total assets on a consolidated basis (in accordance with Generally Accepted Accounting Principles) in any calendar year, or sales or leases executed in the ordinary course of business, sell, convey or lease all or any substantial part of its assets. 6.3 Redemption. At any time redeem, retire or otherwise acquire, ---------- directly or indirectly, any shares of its capital stock if such action would cause the Borrower to not be in compliance with this Agreement. 6.4 Nature of Business; Management. Change the nature of its business ------------------------------ or enter into any business which is substantially different from the business in which it is presently engaged; amend the Borrower's agreements with Borrower's REIT Manager if such amendments would materially increase amounts payable thereunder to Borrower's REIT Manager or which would violate any provision of the Credit Documents; or terminate or allow the termination (whether voluntary or involuntary) of the Borrower's agreements with Borrower's REIT Manager unless within thirty (30) days thereafter Borrower's REIT Manager is replaced by an advisor or management team pursuant to an agreement which is in compliance with the requirements of the North American Security Administrators Association's Statement of Policy for Real Estate Investment Trusts and which is otherwise satisfactory to the Agent and the Majority Lenders. 6.5 Transactions with Related Parties. Enter into any transaction or --------------------------------- agreement with any officer, director, or holder of more than five percent (5%) (based on voting rights) of the issued and outstanding capital stock of the Borrower (or any Affiliate of the Borrower), unless the same is upon terms substantially similar to those obtainable from qualified wholly unrelated sources, or complies with the requirements of the Statement of Policy for Real Estate Investment Trusts promulgated by the North American Security Administrators Association, as amended from time to time. Agent and each Lender hereby consent to (a) the contribution to Homestead Village Properties Incorporated of all of the Homestead Village assets owned by the Borrower in exchange for common stock and warrants to be transferred to the Borrower's shareholders promptly after receipt by the Borrower, and (b) the retention by Borrower of mortgages convertible into common stock of Homestead Village Properties Incorporated securing amounts funded by the Borrower (irrespective of the face amount of the convertible mortgages) which do not exceed $230,000,000.00, in each case to the extent not on terms substantially similar to those obtainable from unrelated sources. 6.6 Loans and Investments. Make any loan, advance, extension of credit --------------------- or capital contribution to, or make or have any investment in, any Person, or make any commitment to make any such extension of credit or investment, except (a) travel advances in the ordinary course of business to officers, employees and agents; (b) readily marketable securities issued or fully -37- guaranteed by the United States of America (or investments or money market accounts consisting of the same); (c) commercial paper rated "Prime 1" by Moody's Investors Service, Inc. or A-1 by Standard and Poor's Corporation (or investments or money market accounts consisting of the same); (d) certificates of deposit or repurchase certificates issued by financial institutions acceptable to the Agent (or investments or money market accounts consisting of the same), all of the foregoing b, c and d not having a maturity of more than - - - one (1) year from the date of issuance thereof; (e) securities received in settlement of liabilities created in the ordinary course of business, or securities in Persons engaged primarily in the business of investment in and operation of commercial real estate properties received in exchange for Property sold to such Persons so long as the market value of such securities does not exceed ten percent (10%) of the value of the assets of the Borrower on a consolidated basis (in accordance with Generally Accepted Accounting Principles) prior to such investment; (f) investments in Subsidiaries through which the Borrower invests in real estate assets and acquisition and/or construction loans encumbered by Property of or to be acquired by the Borrower; (g) the Borrower's existing forty percent (40%) joint venture interest investment in KP/M PTA Joint Venture I and investments in Unconsolidated Affiliates that are engaged primarily in the business of investment in and operation of multifamily real estate properties, so long as the aggregate amount of such investments described in this (g) does not exceed fifteen percent (15%) of the value of the assets of the Borrower on a consolidated basis (in accordance with Generally Accepted Accounting Principles) after giving effect to such investments; (h) equity investments or capital contributions in, and loans, advances, and extensions of credit to, PTR Development Services, so long as (1) the equity investments or capital contributions do not exceed $10,000,000.00, (2) the loans, advances and extensions of credit are secured by valid and enforceable first priority liens on real estate, (3) the Borrower shall at all times beneficially own at least ninety percent (90%) of the economic interest in PTR Development Services, and (4) the financial condition and results of operations of PTR Development Services shall be consolidated with those of the Borrower for purposes of the Borrower's financial statements; (i) loans, advances, and extensions of credit to Persons (who are not Affiliates of the Borrower) secured by valid and enforceable first priority liens on real estate for the purpose of acquiring and developing multifamily properties for eventual ownership by, or to be acquired by, the Borrower prior to, or within a reasonable period of time consistent with a business purpose after, the completion of construction or development of such multifamily property; (j) investments permitted under Section 6.2 of this ----------- Agreement, and (k) loans, advances and extensions of credit to Homestead Village Properties Incorporated secured by mortgages convertible into common stock ownership of Homestead Village Properties Incorporated, so long as the aggregate amount which is funded by the Borrower (irrespective of the face amount of the convertible mortgages) does not exceed the lesser of $230,000,000.00 or 20% of the value of the assets of the Borrower on a consolidated basis (in accordance with Generally Accepted Accounting -38- Principles). The Borrower will not mortgage, pledge, hypothecate or encumber in any manner the loans, advances or extensions of credit made pursuant to Sections 6.6(h), (i) or (k). - --------------- --- --- 6.7 Limiting Agreements. Without affecting the provisions of Section ------------------- ------- 5.15 of this Agreement, but cumulative of and in addition thereto: - ----- (a) Except for the Indenture dated February 1, 1994 between the Borrower and Morgan Guaranty Trust Company of New York, as Trustee, neither Borrower nor any of its Subsidiaries has entered into, and after the date hereof, neither Borrower nor any of its Subsidiaries shall enter into, any agreement, instrument or transaction which has or may have the effect of prohibiting or limiting Borrower's ability to pledge to Agent as security for the Loans assets now or hereafter owned by Borrower up to the value described in this Section 6.7. ----------- Borrower shall take, and shall cause its Subsidiaries to take, such actions as are necessary (including, without limitation, otherwise limiting the amount of secured indebtedness of the Borrower and its Subsidiaries) to preserve the right and ability of Borrower to pledge assets up to the value described in this Section 6.7 as security for the Loans without any such pledge after the date - ----------- hereof causing or permitting the acceleration (after the giving of notice or the passage of time, or otherwise) of any other indebtedness of Borrower or any of its Subsidiaries. For the purpose of this paragraph, the Historical Value of the assets to be kept available by Borrower to be pledged as security for the Loans shall be assets having an aggregate Historical Value of not less than one hundred thirty-three percent (133%) of the Commitment; provided however that the -------- ------- foregoing shall not be construed as a maximum amount of collateral which could be required or accepted by the Lenders under any other agreement or in any proceeding. (b) Borrower shall, upon demand, provide to the Lenders such evidence as the Lenders may reasonably require to evidence Borrower's compliance with this covenant, which evidence shall include, without limitation (i) copies of any agreements or instruments which would in any way restrict or limit Borrower's ability to pledge assets as security for indebtedness, or which provide for the occurrence of a default (after the giving of notice or the passage of time, or otherwise) if assets are pledged in the future as security for indebtedness of the Borrower or any of its Subsidiaries, (ii) a summary of the total debt of Borrower and its Subsidiaries, and (iii) a summary of any of such debt which is secured by any mortgage, pledge, lien, charge, encumbrance or other security interest. (c) Nothing in this covenant shall be construed as an obligation of Borrower to, or request by the Lenders that Borrower, grant any mortgage, pledge or security interest in any of its properties. -39- 6.8 Nature of Assets. (a) In its own name or the name of any of its ---------------- Subsidiaries, own or lease, directly or indirectly, land not improved for multifamily use, other than land that is either under development or planned for commencement of development within one (1) year from the date it was acquired, with an aggregate Historical Value in excess of ten percent (10%) of the value of the assets of the Borrower on a consolidated basis (in accordance with Generally Accepted Accounting Principles), or (b) allow the Historical Value of the income producing properties owned or leased, directly or indirectly, by the Borrower and its Subsidiaries which are not multifamily properties and not corporate affordable or extended stay lodging properties (such as Homestead Village or the related convertible mortgages), to exceed five percent (5%) of the value of the assets of the Borrower on a consolidated basis (in accordance with Generally Accepted Accounting Principles). 7. Events of Default and Remedies. ------------------------------ 7.1. Events of Default. If any of the following events shall occur, ----------------- then, as to the events described in Sections 7.1(b), (c), and (d), if the event --------------- --- --- has not been waived, cured or remedied within twenty (20) days after the Agent gives the Borrower notice of such event, at any time thereafter, and as to all of the other events described herein, at any time, the Agent may do any or all of the following: (1) without notice to the Borrower, declare the Notes to be, and thereupon the Notes shall forthwith become, immediately due and payable, together with all accrued interest thereon, without notice of any kind, notice of acceleration or of intention to accelerate, presentment and demand or protest, all of which are hereby expressly waived; (2) without notice to the Borrower, terminate the Commitment; (3) exercise, as may any other Lender, its rights of offset against each account and all other Property of the Borrower in the possession of the Agent or any such Lender, which right is hereby granted by the Borrower to the Agent and each Lender; and (4) exercise any and all other rights pursuant to the Credit Documents: (a) The Borrower shall fail to pay or prepay any principal of or interest on the Notes or any fee or any other obligation hereunder within five (5) days after it was due; or (b) The Borrower shall (i) fail to pay when due, or within any applicable period of grace, any principal of or interest on any other Indebtedness other than Non-recourse Debt or Disqualified Stock in excess of $10,000,000.00 in principal amount, or Non-recourse Debt in excess of $25,000,000.00 in principal amount; or (ii) fail to comply with Section 1004 of the Indenture dated February 1, 1994 between the Borrower and Morgan -40- Guaranty Trust Company of New York, as Trustee, as said Section 1004 may be amended with the consent of the Majority Lenders; or (c) Any written representation or warranty made in any Credit Document by or on behalf of the Borrower, when taken as a whole shall prove to have been incorrect, false or misleading in any material respect; or (d) Default shall occur in the punctual and complete performance of any covenant of the Borrower or any other Person other than the Agent or the Lenders contained in any Credit Document not specifically set forth in this Section; or (e) A final judgment or judgments in the aggregate for the payment of money in excess of $5,000,000.00 shall be rendered against the Borrower and the same shall remain undischarged for a period of thirty (30) days during which execution shall not be effectively stayed; or (f) Any court shall finally determine, that the Agent or any Lender does not have a valid Lien as provided for herein on any security which may have been provided to the Agent or any Lender by the Borrower under the Credit Documents, or such other Person; or (g) Any order shall be entered in any proceeding against the Borrower decreeing the dissolution, liquidation or split-up thereof, and such order shall remain in effect for more than thirty (30) days; or (h) The Borrower shall make a general assignment for the benefit of creditors or shall petition or apply to any tribunal for the appointment of a trustee, custodian, receiver or liquidator of all or any substantial part of its business, estate or assets or shall commence any proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect; or (i) Any such petition or application shall be filed or any such proceeding shall be commenced against the Borrower and the Borrower by any act or omission shall indicate approval thereof, consent thereto or acquiescence therein, or an order shall be entered appointing a trustee, custodian, receiver or liquidator of all or any substantial part of the assets of the Borrower or granting relief to the Borrower or approving the petition -41- in any such proceeding, and such order shall remain in effect for more than ninety (90) days; or (j) The Borrower shall fail generally to pay its debts as they become due or suffer any writ of attachment or execution or any similar process to be issued or levied against it or any substantial part of its Property which is not released, stayed, bonded or vacated within thirty (30) days after its issue or levy; or (k) The Borrower shall have concealed, removed, or permitted to be concealed or removed, any part of its Property, with intent to hinder, delay or defraud its creditors or any of them, or made or suffered a transfer of any of its Property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its Property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid. 7.2 Remedies Cumulative. No remedy, right or power conferred upon the ------------------- Agent or the Lenders is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative. 8. The Agent. --------- 8.1 Appointment, Powers and Immunities. (a) Each Lender hereby ---------------------------------- irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Credit Documents with such powers as are specifically delegated to the Agent by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto. The Agent (i) shall not have any duties or responsibilities except those expressly set forth in this Agreement and the other Credit Documents, and shall not by reason of this Agreement or any other Credit Document be a trustee for any Lender; (ii) shall not be responsible to any Lender for any recitals, statements, representations or warranties contained in this Agreement or any other Credit Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Credit Document, or for the value, validity, effectiveness, genuineness, enforceability, execution, filing, registration, collectibility, recording, perfection, existence or sufficiency of this Agreement or any other Credit Document or any other document referred to or provided for herein or therein or any property covered thereby or for any failure by any Party or any other Person to perform any of its obligations hereunder or thereunder, and shall not have any duty to inquire into or pass upon any of the foregoing matters; (iii) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or any other -42- Credit Document except to the extent requested by the Majority Lenders; (iv) SHALL NOT BE RESPONSIBLE FOR ANY MISTAKE OF LAW OR FACT OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO OR PROVIDED FOR HEREIN OR THEREIN OR IN CONNECTION HEREWITH OR THEREWITH, INCLUDING, WITHOUT LIMITATION, PURSUANT TO ITS OWN NEGLIGENCE, BUT NOT INCLUDING AND EXCEPT FOR THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE AGENT; (v) shall not be bound by or obliged to recognize any agreement among or between the Borrower, the Agent, and any Lender other than this Agreement and the other Credit Documents, regardless of whether the Agent has knowledge of the existence of any such agreement or the terms and provisions thereof; (vi) shall not be charged with notice or knowledge of any fact or information not herein set out or provided to the Agent in accordance with the terms of this Agreement or any other Credit Document; (vii) shall not be responsible for any delay, error, omission or default of any mail, telegraph, cable or wireless agency or operator, and (viii) shall not be responsible for the acts or edicts of any Governmental Authority. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. (b) Without the prior written consent of Agent and all of the Lenders, Agent shall not (i) modify or amend in any respect whatsoever the interest rate provisions of the Credit Documents, (ii) increase the Commitment above $350,000,000.00, (iii) extend the Maturity Date other than in accordance with the express provisions of the Credit Documents, (iv) extend or reduce the due date for or the amount of the scheduled payments of principal or interest on the Loans or the Fee, (v) amend the definition of Majority Lenders or any requirement that certain actions be taken only with the consent of a certain number of the Lenders, or (vi) amend Section 5.15 of this Agreement. From time ------------ to time upon Agent's request, each Lender shall execute and deliver such documents and instruments as may be reasonably necessary to enable Agent to effectively administer and service the Loan in its capacity as lead lender and servicer and in the manner contemplated by the provisions of this Agreement. (c) All information provided to the Agent under or pursuant to the Credit Documents, and all rights of the Agent to receive or request information, or to inspect information or Property, shall be by the Agent on behalf of the Lenders. If any Lender requests that it be able to receive or request such information, or make such inspections, in its own right rather than through the Agent, the Borrower will cooperate with the Agent and such Lender in order to obtain such information or make such inspection as such Lender may reasonably require. -43- (d) The Borrower shall be entitled to rely upon a written notice or a written response from the Agent as being pursuant to concurrence or consent of the Majority Lenders unless otherwise expressly stated in the Agent's notice or response. 8.2 Reliance. The Agent shall be entitled to rely upon any certification, -------- notice or other communication (including any thereof by telephone, telex, telecopy, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (which may be counsel for the Borrower), independent accountants and other experts selected by the Agent. The Agent shall not be required in any way to determine the identity or authority of any Person delivering or executing the same. As to any matters not expressly provided for by this Agreement or any other Credit Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and thereunder in accordance with instructions of the Majority Lenders, and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. If any order, writ, judgment or decree shall be made or entered by any court affecting the rights, duties and obligations of the Agent under this Agreement or any other Credit Document, then and in any of such events the Agent is authorized, in its sole discretion, to rely upon and comply with such order, writ, judgment or decree which it is advised by legal counsel of its own choosing is binding upon it under the terms of this Agreement, the relevant Credit Document or otherwise; and if the Agent complies with any such order, writ, judgment or decree, then it shall not be liable to any Lender or to any other Person by reason of such compliance even though such order, writ, judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated. 8.3 Defaults. The Agent shall not be deemed to have constructive -------- knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on Loans) unless it has received notice from a Lender or the Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default, or whenever the Agent has actual knowledge of the occurrence of a Default, the Agent shall give prompt written notice thereof to the Lenders (and shall give each Lender prompt notice of each such non-payment). The Agent shall (subject to Section 8.7 hereof) take such action with respect to ----------- such Default as shall be directed by the Majority Lenders and within its rights under the Credit Documents and at law or in equity, provided that, unless and -------- until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, permitted hereby with respect to such Default as it shall deem advisable in the best interests of the Lenders and within its rights under the Credit Documents in order to preserve, protect or enhance the collectibility of the Loans, at law or in equity. Provided, however, that if there is an occurrence of an Event of -------- Default, then in no event or under any circumstances shall any of the actions described in Section 8.1(b)(i) through (vi) of ----------------- ---- -44- this Agreement be taken, without in each instance the written consent of Agent and all of the Lenders. 8.4 Rights as a Lender. With respect to the Commitment and the Loans ------------------ made, Agent, in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting in its agency capacity, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may (without having to account therefor to any other Lender) as a Lender, and to the same extent as any other Lender, accept deposits from, lend money to and generally engage in any kind of banking, trust, letter of credit, agency or other business with the Borrower (and any of its Affiliates) as if it were not acting as the Agent but solely as a Lender. The Agent may accept fees and other consideration from the Borrower (in addition to the fees heretofore agreed to between the Borrower and the Agent) for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 8.5 Indemnification. The Lenders agree to indemnify the Agent, its --------------- officers, directors, agents and Affiliates, ratably in accordance with each Lender's respective Percentage, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever (INCLUDING BUT NOT LIMITED TO, THE CONSEQUENCES OF THE NEGLIGENCE OF THE AGENT) which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement or any other Credit Document or any other documents contemplated by or referred to herein or therein, or the transactions contemplated hereby or thereby (including, without limitation, interest, penalties, reasonable attorneys' fees and amounts paid in settlement in accordance with the terms of this Section 8, but excluding, unless a Default has --------- occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, INCLUDING BUT NOT LIMITED TO THE NEGLIGENCE OF THE AGENT, provided that no Lender shall be liable -------- for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified, or from the Agent's default in the express obligations of the Agent to the Lenders provided for in this Agreement. The obligations of the Lenders under this Section 8.5 shall survive ----------- the termination of this Agreement and the repayment of the Obligations. 8.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it --------------------------------------- has received current financial information with respect to the Borrower and that it has, independently and without reliance on the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter -45- into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Credit Documents. The Agent shall not be required to keep itself informed as to the performance or observance by any Party of this Agreement or any of the other Credit Documents or any other document referred to or provided for herein or therein or to inspect the properties or books of the Borrower or any Party except as specifically required by the Credit Documents. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder or the other Credit Documents, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower or any other Party (or any of their affiliates) which may come into the possession of the Agent. Each Lender assumes all risk of loss in connection with its Percentage in the Loans to the full extent of its Percentage therein. The Agent assumes all risk of loss in connection with its Percentage in the Loans to the full extent of its Percentage therein. 8.7 Failure to Act. Except for action expressly required of the Agent, as -------------- the case may be, hereunder, or under the other Credit Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction by the Lenders of their indemnification obligations under Section 8.5 hereof against ----------- any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. 8.8 Resignation of Agent. Subject to the appointment and acceptance of a -------------------- successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, (i) the Majority Lenders without the consent of the Borrower shall have the right to appoint a successor Agent so long as such successor Agent is also a Lender at the time of such appointment and (ii) the Majority Lenders shall have the right to appoint a successor Agent that is not a Lender at the time of such appointment so long as the Borrower consents to such appointment (which consent shall not be unreasonably withheld). If no successor Agent shall have been so appointed by the Majority Lenders and accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, and with the consent of the Borrower which shall not be unreasonably withheld, appoint a successor Agent. Any successor Agent shall be a bank which has an office in the United States and a combined capital and surplus of at least $250,000,000.00. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be -46- discharged from its duties and obligations as Agent thereafter arising hereunder and under any other Credit Documents, but shall not be discharged from any liabilities for its actions as Agent prior to the date of discharge. Such successor Agent shall promptly specify by notice to the Borrower its principal office referred to in Section 2.1 and Section 2.3 hereof. After any retiring ----------- ----------- Agent's resignation hereunder as Agent, the provisions of this Section 8 shall --------- continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. 8.9 No Partnership. Neither the execution and delivery of this Agreement -------------- nor any of the other Credit Documents nor any interest the Lenders, the Agent or any of them may now or hereafter have in all or any part of the Obligations shall create or be construed as creating a partnership, joint venture or other joint enterprise between the Lenders or among the Lenders and the Agent. The relationship between the Lenders, on the one hand, and the Agent, on the other, is and shall be that of principals and agent only, and nothing in this Agreement or any of the other Credit Documents shall be construed to constitute the Agent as trustee or other fiduciary for any Lender or to impose on the Agent any duty, responsibility or obligation other than those expressly provided for herein and therein. 9. Renewal and Extension. --------------------- Neither the Agent nor any Lenders have any agreement or obligation to extend or renew the Revolving Credit Termination Date. But in the event such an extension is requested by the Borrower and any Lender decides to consider such renewal and extension request, such request and consideration will be governed by the following terms and conditions: 9.1 Procedure for Consideration of Renewal and Extension Requests. ------------------------------------------------------------- (a) The Borrower may request the Agent and the Lenders to extend the current Revolving Credit Termination Date by successive one (1) year intervals by executing and delivering to the Agent a written request for extension (the "Extension Request") at least seventy-five (75) days (but not more than ninety - ------------------ (90) days) prior to the Determination Date. If all of the Lenders shall have notified the Agent on or prior to the date which is forty-five (45) days prior to the Determination Date that they accept such Extension Request, the Revolving Credit Termination Date shall be extended for one (1) year. If any Lender shall not have notified Agent on or prior to the date which is forty-five (45) days prior to the Determination Date that it accepts such Extension Request, the Revolving Credit Termination Date shall not be extended. The Agent shall promptly notify the Borrower whether the Extension Request has been accepted or rejected -47- as well as which Lender or Lenders rejected the Borrower's Extension Request (each such Lender a "Rejecting Lender"). ---------------- (b) Notwithstanding the preceding subsection (a), within thirty (30) days after notification from the Agent that the Extension Request has been rejected (a "Notice of Rejection"), and provided that the aggregate amount of Lender ------------------- Commitments of the Rejecting Lenders does not exceed twenty percent (20%) of the Commitment, the Borrower may either (i) demand that the Rejecting Lender, and upon such demand the Rejecting Lender shall promptly, assign its Lender Commitment to another financial institution subject to and in accordance with the provisions of Section 10.5 of this Agreement for a purchase price equal to ------------ the unpaid balance of principal, accrued interest, the unpaid balance of the Fee and expenses owing to the Rejecting Lender pursuant to this Agreement, or (ii) pay to the Rejecting Lender the unpaid balance of principal, accrued interest, the unpaid balance of the Fee and expenses owing to the Rejecting Lender pursuant to this Agreement, whereupon the Rejecting Lender shall no longer be a party to this Agreement or have any rights or obligations hereunder or under any other Credit Documents, and the Commitment shall immediately and permanently be reduced by an amount equal to the Lender Commitment of the Rejecting Lender. If all Rejecting Lenders have either assigned their Lender Commitments to other financial institutions as contemplated by the preceding clause (i) or have been paid the amounts specified in the preceding clause (ii), then the Borrower's Extension Request which was initially rejected shall be deemed to have been granted and accordingly the Revolving Credit Termination Date shall be extended by one (1) year, otherwise the Revolving Credit Termination Date shall not be extended. If the aggregate of Lender Commitments of the Rejecting Lenders exceeds twenty percent (20%) of the Commitment, the Revolving Credit Termination Date shall not be extended. 9.2 Conditions to Renewal and Extension. Any agreement of the Lenders to ----------------------------------- extend the Revolving Credit Termination Date under Section 9.1 of this Agreement ----------- shall be conditioned upon, among other things, the following terms and conditions (which shall be in addition to those required by Sections 2.7, 3 and ------------ - 9.1 of this Agreement): - --- (a) Execution by the Borrower of a renewal and extension agreement for each Note in Proper Form. (b) Such other documents, instruments and items as Agent or any Lender shall require in its sole discretion. 9.3 No Obligation to Renew and Extend. Notwithstanding the procedures and --------------------------------- terms and conditions for any renewal and extension of the Revolving Credit Termination Date, neither -48- the Agent nor any Lender has any obligation, commitment or present intent to extend the Revolving Credit Termination Date, and the Revolving Credit Termination Date may not be extended except in accordance with a written agreement signed by the Agent, the Lenders, the Borrower and any other Person to be charged with compliance therewith. 10. Miscellaneous. ------------- 10.1 No Waiver, Amendments. No waiver of any Default shall be deemed to --------------------- be a waiver of any other Default. No failure to exercise or delay in exercising any right or power under any Credit Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any further or other exercise thereof or the exercise of any other right or power. Except as may be prohibited by Section 8.1 hereof, no amendment, modification or ----------- waiver of any Credit Document shall be effective unless the same is in writing and signed by the Borrower, the Agent and the Majority Lenders. No notice to or demand on the Borrower or any other Person shall entitle the Borrower or any other Person to any other or further notice or demand in similar or other circumstances. 10.2 Notices. All notices under the Credit Documents shall be in writing ------- and either (i) delivered against receipt therefor, or (ii) mailed by registered or certified mail, return receipt requested, in each case addressed as set forth herein, or to such other address as a party may designate. Notices shall be deemed to have been given (whether actually received or not) when delivered (or, if mailed, on the next Business Day). Provided, however, that as between the -------- ------- Agent and the Lenders and among the Lenders, notice may be given by telecopy or facsimile effective upon the earlier of actual receipt or confirmation of receipt by telephone. 10.3 Venue. HARRIS COUNTY, TEXAS SHALL BE A PROPER PLACE OF VENUE TO ----- ENFORCE PAYMENT OR PERFORMANCE OF THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS, UNLESS THE AGENT SHALL GIVE ITS PRIOR WRITTEN CONSENT TO A DIFFERENT VENUE. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS IN THE STATE OF TEXAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY PROCEEDING ARISING OUT OF ANY OF THE CREDIT DOCUMENTS BY SERVICE OF PROCESS AS PROVIDED BY TEXAS LAW. THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY OF THE CREDIT DOCUMENTS IN THE DISTRICT COURTS OF HARRIS COUNTY, TEXAS, -49- OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION, AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIMS THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE BORROWER (A) AGREES TO DESIGNATE AND MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN THE STATE OF TEXAS IN CONNECTION WITH ANY SUCH SUIT, ACTION OR PROCEEDING AND TO DELIVER TO THE AGENT EVIDENCE THEREOF AND (B) IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY NOTICE GIVEN AS PROVIDED FOR IN THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR THE LENDERS TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY APPLICABLE LAW. THE BORROWER HEREBY IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST THE AGENT OR ANY LENDER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER CREDIT DOCUMENTS SHALL BE BROUGHT AND MAINTAINED IN THE DISTRICT COURTS OF HARRIS COUNTY, TEXAS, OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION. 10.4 Choice of Law. THIS AGREEMENT, THE NOTES AND THE OTHER CREDIT ------------- DOCUMENTS HAVE BEEN NEGOTIATED, EXECUTED AND DELIVERED IN THE STATE OF TEXAS AND SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, INCLUDING ALL APPLICABLE FEDERAL LAW, FROM TIME TO TIME IN FORCE IN THE STATE OF TEXAS. 10.5 Survival; Parties Bound; Successors and Assigns. (a) All ----------------------------------------------- representations, warranties, covenants and agreements made by or on behalf of the Borrower in connection herewith shall survive the execution and delivery of the Credit Documents, shall not be affected by any investigation made by any Person, and shall bind the Borrower and its successors, trustees, receivers and assigns and inure to the benefit of the successors and assigns of the Agent and the Lenders; provided, however, that the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Agent and all of the Lenders, and any such assignment or transfer without such consent shall be null and void. -50- (b) Subject to Sections 10.5(d) and (e) of this Agreement, a Lender ---------------- --- may assign part of its Lender Commitment to an Eligible Institution so long as such assignment shall (1) include the voting rights and all other rights and obligations attributable thereto, and include a written assumption by the assignee of the assigning Lender's obligations under the Credit Documents, (2) require the written consent of the Borrower and the Agent, such consent not to be unreasonably withheld, (3) be in a minimum amount of $15,000,000.00 if assigned to a Person not already a Lender, (4) not reduce the Lender's Lender Commitment to an amount less than $15,000,000.00, and (5) include payment to the Agent by the Lender of a service fee for each assignment equal to $3,000.00. (c) Subject to Section 10.5(d) and (e) of this Agreement, a Lender --------------- --- may sell participating interests in any of its Loans to an Eligible Institution so long as such participation shall (1) limit the voting rights of the participant, if any, to the ability to vote for changes in the amount of the Commitment, the interest rate on the Loans, and the Maturity Date, (2) if the participant is not an Affiliate of the participating Lender, require the written consent of the Borrower and the Agent, such consent not to be unreasonably withheld and, if the participant is an Affiliate of the participating Lender, require written notice to the Agent and the Borrower but not any consent of the Agent, the Borrower or any other Lender, (3) be in a minimum principal amount of at least $10,000,000.00 if participated to a Person not already a Lender, and (4) not reduce the Lender's Lender Commitment which has not been participated to less than $10,000,000.00. In connection with any sale of a participating interest made in compliance with this Agreement, (i) the participating Lender shall continue to be liable for its Lender Commitment and its other obligations under the Credit Documents, (ii) the Agent, the Borrower and the other Lenders shall continue to deal solely and directly with the participating Lender in connection with such Lender's rights and obligations under the Credit Documents, and (iii) the participant may not require the participating Lender to take or refrain from taking any action under the Credit Documents that is in conflict with the terms and provisions of the Credit Documents. (d) A Lender may assign all or any part of its Loans or its Lender Commitment to an Affiliate of the Lender with written consent of the Agent and the Borrower, such consent not to be unreasonably withheld. (e) Notwithstanding any provision hereof to the contrary, (i) any Lender may assign and pledge all or any portion of its Lender Commitment and Loans to a Federal Reserve Bank; provided, however, that any such assignment or pledge shall not relieve such Lender from its obligations under the Credit Documents; (ii) the Agent may not assign or participate $30,000,000.00 of its Lender Commitment to any Person other than an Affiliate of the Agent without the prior written consent of all of the Lenders and the Borrower; and (iii) TCB may -51- assign, sell or participate all or any portion of the Swing Loan without the consent of the Agent, the Borrower or any other Lender. (f) The term of this Agreement shall be until the final maturity of the Notes and the payment of all amounts due under the Credit Documents. 10.6 Counterparts. This Agreement may be executed in several identical ------------ counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument, and all such separate counterparts shall constitute but one and the same instrument. 10.7 Usury Not Intended; Refund of Any Excess Payments. It is the intent ------------------------------------------------- of the parties in the execution and performance of this Agreement to contract in strict compliance with the usury laws of the State of Texas and the United States of America from time to time in effect. In furtherance thereof, the Agent, the Lenders and the Borrower stipulate and agree that none of the terms and provisions contained in this Agreement or the other Credit Documents shall ever be construed to create a contract to pay for the use, forbearance or detention of money with interest at a rate in excess of the Ceiling Rate and that for purposes hereof "interest" shall include the aggregate of all charges which constitute interest under such laws that are contracted for, reserved, taken, charged or received under this Agreement. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Ceiling Rate, the Borrower, the Agent and the Lenders shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) "spread" the total amount of interest throughout the entire contemplated term of the Loans. The provisions of this paragraph shall control over all other provisions of the Credit Documents which may be in apparent conflict herewith. 10.8 Captions. The headings and captions appearing in the Credit Documents -------- have been included solely for convenience and shall not be considered in construing the Credit Documents. 10.9 Severability. If any provision of any Credit Documents shall be ------------ invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired thereby. 10.10 Disclosures. Every reference in the Credit Documents to disclosures ----------- of the Borrower to the Agent and the Lenders in writing, to the extent that such references refer to -52- disclosures at or prior to the execution of this Agreement, shall be deemed strictly to refer only to written disclosures delivered to the Agent and the Lenders in an orderly manner concurrently with the execution hereof. 10.11 NO NOVATION. THE PARTIES HERETO HAVE ENTERED INTO THIS AGREEMENT AND ----------- THE OTHER CREDIT DOCUMENTS SOLELY TO AMEND, RESTATE AND RESTRUCTURE THE TERMS OF, AND THE OBLIGATIONS TO THE EXISTING LENDERS OWING UNDER AND IN CONNECTION WITH, THE ORIGINAL CREDIT AGREEMENT. THE PARTIES DO NOT INTEND THIS AGREEMENT NOR THE TRANSACTIONS CONTEMPLATED HEREBY TO BE, AND THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL NOT BE CONSTRUED TO BE, A NOVATION OF ANY OF THE OBLIGATIONS OWING BY THE BORROWER UNDER OR IN CONNECTION WITH THE ORIGINAL CREDIT AGREEMENT. 10.12 LIMITATION OF LIABILITY. NO OBLIGATION OR LIABILITY WHATSOEVER OF ----------------------- THE BORROWER WHICH MAY ARISE AT ANY TIME UNDER THIS AGREEMENT OR ANY OBLIGATION OR LIABILITY WHICH MAY BE INCURRED BY IT PURSUANT TO ANY OTHER CREDIT DOCUMENT SHALL BE PERSONALLY BINDING UPON, NOR SHALL RESORT FOR THE ENFORCEMENT THEREOF BE HAD TO THE PRIVATE PROPERTY OF, ANY OF THE BORROWER'S TRUSTEES OR SHAREHOLDERS REGARDLESS OF WHETHER SUCH OBLIGATION OR LIABILITY IS IN THE NATURE OF CONTRACT, TORT OR OTHERWISE. 10.13 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS ---------------- TOGETHER CONSTITUTE A WRITTEN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. -53- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. SECURITY CAPITAL PACIFIC TRUST By:/s/ James W. KLUBER ----------------------------------------- Name: James W. KLUBER --------------------------------------- Title: VP Address: 7777 Market Center Avenue El Paso, Texas 79912 Attention: Secretary -54- Lender Commitment: $55,000,000.00 TEXAS COMMERCE BANK Percentage: 15.714285714% NATIONAL ASSOCIATION, as Agent and as a Lender By:/s/Brian M. Kouns ------------------------------------ Name:Brian M. Kouns ---------------------------------- Title: Vice President --------------------------------- Address: 712 Main Street Houston, Texas 77002 Attention: Manager, Real Estate Group Telecopy No.: 713-216-7713 Telephone No.: Brian Kouns 713-216-5133 -55- Lender Commitment: $55,000,000.00 WELLS FARGO REALTY ADVISORS Percentage: 15.714285714% FUNDING, INCORPORATED, as Co-Agent and as a Lender By:/s/ Mary Ann Kelly ------------------------------------ Name: MARY ANN KELLY ---------------------------------- Title: VICE PRESIDENT --------------------------------- By:/s/ Priscilla A. Forbes ------------------------------------ Name: Priscilla A. Forbes ---------------------------------- Title: Assistant Secretary --------------------------------- Address: 2859 Paces Ferry Road Suite 1210 Atlanta, Georgia 30339 Attention: Bob Belson Telecopy No: 770-435-2262 Telephone No. Bob Belson 770-435-3800 -56- Lender Commitment: $30,000,000.00 GUARANTY FEDERAL BANK, F.S.B. Percentage: 8.571428571% By: /s/ Phyllis Milstead ------------------------------------ Name: PHYLLIS MILSTEAD ---------------------------------- Title: VICE PRESIDENT -------------- Address: 301 Congress, Suite 1075 Austin, Texas 78701 Attention: Phyllis Milstead Telecopy No.: 512-320-1041 Telephone No.: Phyllis Milstead 512-320-1007 -57- Lender Commitment: $20,000,000.00 NORWEST BANK NEW MEXICO, Percentage: 5.714285714% NATIONAL ASSOCIATION By: /s/ Dan Shannon ------------------------------------ Name: Dan Shannon ---------------------------------- Title: President & Managing Officer --------------------------------- Address: 1048 Paseo de Peralta Santa Fe, New Mexico 87501 Attention: Dan Shannon Telecopy No.: 505-983-6232 Telephone No.: Dan Shannon 505-984-8500 -58- Lender Commitment: $25,000,000.00 COMMERZBANK Percentage: 7.142857143% AKTIENGESELLSCHAFT, LOS ANGELES BRANCH By: /s/ Christian Jagenberg ------------------------------------ Name: Christian Jagenberg ---------------------------------- Title: SVP and Manager --------------------------------- By: /s/ Steven F. Larsen ------------------------------------ Name: Steven F. Larsen ---------------------------------- Title: Vice President --------------------------------- Address: 660 S. Figueroa, Suite 1450 Los Angeles, California 90017 Attention: Steven F. Larsen Telecopy No.: 213-623-0039 Telephone No.: Steven F. Larsen 213-623-8223 -59- Lender Commitment: $30,000,000.00 BANK OF AMERICA NATIONAL TRUST Percentage: 8.571428571% AND SAVINGS ASSOCIATION By: /s/ Kelly M. Allred ------------------------------------ Name: Kelly M. Allred ---------------------------------- Title: Vice President --------------------------------- Address: 555 South Flower Street 6th Floor Los Angeles, California 90071 Attention: Kelly M. Allred Telecopy No.: 213-228-5389 Telephone No.: Kelly M. Allred 213-228-4027 -60- Lender Commitment: $30,000,000.00 FLEET NATIONAL BANK Percentage: 8.571428571% By: /s/ Mark E. Dalton --------------------------------- Name: MARK E. DALTON ------------------------------- Title: VICE PRESIDENT ------------------------------ Address: 111 Westminster, Suite 800 Providence, Rhode Island 02903 Attention: Mark Dalton Telecopy No: 401-278-5166 Telephone No. Mark Dalton 401-278-5605 -61- Lender Commitment: $20,000,000.00 THE NIPPON CREDIT BANK, LTD. Percentage: 5.714285714% By: /s/ Neil J. Crawford --------------------------------- Name: Neil J. Crawford ------------------------------- Title: VP ------------------------------ Address: 245 Park Avenue 30th Floor New York, New York 10167 Attention: Neil Crawford Telecopy No: 212-490-3895 Telephone No. Neil Crawford 212-984-1319 -62- Lender Commitment: $22,500,000.00 BANK HAPOALIM, B.M., Percentage: 6.428571429% Los Angeles Branch By: /s/ Kalman Schiff -------------------------------- Name: KALMAN SCHIFF ------------------------------ Title: FIRST VICE PRESIDENT ----------------------------- By: /s/ Lori Lake -------------------------------- Name: LORI LAKE ------------------------------ Title: ASSISTANT VICE PRESIDENT ----------------------------- Address: 6222 Wilshire Blvd. Los Angeles, California 90048 Attention: Shohre Afshar or Lori Lake Telecopy No: 213-937-1439 Telephone No. Shohre Afshar or Lori Lake 213-937-2322 -63- Lender Commitment: $25,000,000.00 CORESTATES BANK, N.A. Percentage: 7.142857143% By: /s/ R. Scott Relick -------------------------------- Name: R. Scott Relick ------------------------------ Title: Vice President ----------------------------- Address: 1339 Chestnut Street Real Estate Department Philadelphia, Pennsylvania 19107 Attention: R. Scott Relick Telecopy No: 215-786-6381 Telephone No. R. Scott Relick 215-786-4224 -64- Lender Commitment: $20,000,000.00 BANK ONE, ARIZONA, NA Percentage: 5.714285714% By: /s/ Deborah L. Bliss --------------------------------- Name: DEBORAH L. BLISS ------------------------------- Title: VICE PRESIDENT ------------------------------ Address: Real Estate Banking Group 241 N. Central, 20th Floor Phoenix, Arizona 85004 Attention: Deborah L. Bliss Telecopy No: 602-221-1372 Telephone No. Deborah L. Bliss 602-221-2342 -65- Lender Commitment: $17,500,000.00 UNION BANK OF CALIFORNIA Percentage: 5.000000000% By: /s/ Annette Billingsley ---------------------------------- Name: ANNETTE BILLINGSLEY -------------------------------- Title: VICE PRESIDENT ------------------------------- By: /s/ Gary L. Roberts ---------------------------------- Name: GARY L. ROBERTS -------------------------------- Title: Vice President ------------------------------- Address: Capital Markets Division 350 California, 7th Floor San Francisco, California 94104 Attention: Annette Billingsley Telecopy No: 415-705-7367 Telephone No. Annette Billingsley 415-705-5075 -66- OFFICER'S CERTIFICATE --------------------- Security Capital Pacific Trust (the "Borrower"), Texas Commerce Bank National Association, as Agent (the "Agent") and certain other Lenders (the "Lenders") entered into that certain Amended and Restated Credit Agreement (as amended, supplemented and restated from time to time, the "Agreement") dated as of AUGUST , 1996. Any term used herein and no otherwise defined shall have the - ----------------- meaning ascribed to it in the Agreement. The undersigned hereby certifies that. I. I am a Vice President of the Borrower. -------------- II. The attached financial statements were prepared in conformity with generally accepted accounting principles consistently applied (except for the omission of footnote disclosures and appropriately disclosed consistency exceptions) and present fairly the financial position of the Borrower as of the date thereof and the results of its operations for the period covered thereby subject to normal year-end adjustments. III. As of the end of the period covered by the attached financial statements dated _________. 19 : ---- 1. Tangible Net Worth Calculation (Section 5.3 (d)) ------------------------------ (a) Assets, as defined $ _________ (b) Liabilities $ _________ (c) Tangible Net Worth ((a) - (b)) $ _________ $ 1 Billion Required: 2. Ratio of Debt to Tangible Net Worth Ratio ----------------------------------------- Calculation (Section 5.3 (a)) ----------- (a) Indebtedness $ _________ (b) Tangible Net Worth $ _________ (c) Debt to Tangible Net Worth Ratio ___ : 1.0 (Ratio of (a) to (b)) Required: Maximum of 1.0 to 1.0 EXHIBIT A Page 1 of 5 3. Coverage Ratio Calculation (Section 5.3 (b)) -------------------------- (a) Borrower's Funds from Operations $ ______ (b) Borrower's Interest Incurred $ ______ (c) Construction Interest $ ______ (d) Interest Expense $ ______ (e) FFO plus Interest Expense $ ______ (f) Payments and Payables on Disqualified Stock $ ______ (g) Interest Expense $ ______ (h) Payments and Payables on Disqualified Stock plus Interest Expense $ ______ (i) Coverage Ratio (Ratio of (e) to (h)) ___ : 1.0 Required: Minimum of 2.0 to 1.0 4. Fixed Charge Coverage Ratio Calculation --------------------------------------- (Section 5.3 (c)) (a) Borrower's Funds from Operations $ ______ (b) Borrower's Interest Expense $ ______ (c) Unit Capital Expenditures $ ______ (d) FFO plus Interest Expense minus Unit Capital Expenditures $ ______ (e) Payments and Payables on Disqualified Stock $ ______ (f) Regularly Scheduled Principal Paid and Payable $ ______ (g) Payments and Payables on Disqualified Stock Plus Interest Expense plus Regularly Scheduled Principal Paid and Payable $ ______ (h) Fixed Charge Coverage Ratio (Ratio of (d) to (g)) ___ : 1.0 Required: Minimum of 1.4 to 1.0 5. Maximum Recourse Indebtedness Calculation ----------------------------------------- (Section 6.1) (a) Indebtedness with a Final Maturity of Five Years or less $ ______ (b) Investment Grade Debt included in 5 (a) $ ______ ----- (c) Non-recourse Debt included in 5 (a) ----- excluded from 5 (b) $ ______ ----- EXHIBIT A Page 2 of 5 (d) Amortizing Debt included in 5 (a), ----- excluded from 5 (b) or 5 (c) $ ______ ----- ----- (e) Credit Enhancement included in 5 (a), ----- excluded from 5 (b) or 5 (c) or 5 (d) $ ______ ----- ----- -------- (f) Acquisition Indebtedness included in 5 (a), ----- excluded from 5 (b) or 5 (c) or 5 (d) or 5 (e) $ ______ ----- ----- ----- ----- (g) Recourse Indebtedness as Calculated using (a) through (f) (may not exceed $400,000,000) $ ______ 6. Asset Maintenance Calculation as of Quarter-End ----------------------------------------------- (a) Historical Value of Pool (attached list of each Property) (must equal at least 6 (c)) --------------------------- $ ______ (b) Outstanding Unsecured Indebtedness $ ______ x1.75 (c) Minimum Historical Value of Pool $ ______ (d) Historical Value of Operating Sub-Pool $ ______ (e) Net Operating Income of Operating Sub-Pool Properties Owned Through at least one complete calendar quarter from the Stabilization Date/1/ $ ______ Divided by .0925 (f) Value of (e) $ ______ (g) Historical Value of Operating Sub-Pool Properties Owned less than at least one complete calendar quarter from the Stabilization Date $ ______ (h) (f) + (g) $ ______ (i) Operating Sub-Pool Value (lesser of (d) and (h) must equal at least 6 (k) $ ______ (j) Outstanding Unsecured Indebtedness $ ______ (k) Minimum Operating Sub-Pool Value $ ______ 7. Debt to Total Asset Value Ratio Conversion (only required after the Conversion Date) (a) Indebtedness $ ______ (b) Net Operating Income for Properties Owned During the Preceding Quarter divided by 8.75% $ ______ EXHIBIT A Page 3 of 5 ____________________________ /1/NOI may be annualized in this calculation. (c) Value of (b) $ ______ (d) Book Value of Properties Acquired During the Preceding Quarter $ ______ (e) Book Value of Undeveloped Land $ ______ (f) Book Value of Land Under Development for $ ______ up to 6 Months after Completion $ ______ (d) Book Value of Properties Acquired During the Preceding Quarter $ ______ (e) Book Value of Undeveloped Land $ ______ (f) Book Value of Land Under Development for up to 6 Months after Completion $ ______ (g) Cash and Cash Equivalents Excluding Restricted Deposits $ ______ (h) Book Value of All Others Assets Not Included in (b) through (g) above, Excluding Intangibles and Equity Investments in Unconsolidated Affiliates $ ______ (i) Book Value of Equity Investments in Unconsolidated Affiliates Multiplied by the Equity Percentage $ ______ (j) Total Asset Value ((c)+(d)+(e)+(f)+(g)+(h)+(i)) $ ______ (k) Debt to Total Asset Value Ratio (as a percentage, (a) divided by (j)) $ ______ IV. Attached hereto is a statement of Funds from Operations for the Borrower as of the most recent date required by the Agreement. V. A review of the activities of the Borrower during the period covered by the attached financial statements has been made under my supervision and with a view to determining whether during such period the Borrower has kept, observed, performed and fulfilled all of its obligations under the Agreement. VI. (Check either (a) or (b)) [X] (a) The Borrower has kept, observed, performed and fulfilled each and every one of its obligations under the Agreement during the period covered by the attached financial statements. [_] (b) The Borrower has kept, observed, performed and fulfilled each and every one of its obligations under the Agreement during the period covered by the attached financial statements except for the following matters: [Describe all such defaults, specifying the nature, duration and status thereof and what action the Borrower has taken or proposes to take with respect thereto:] EXHIBIT A Page 4 of 5 VII. With regard to Section 1004 of the Indenture dated as of February 1, 1994 between the Borrower and Morgan Guaranty Trust Company of New York, as Trustee (and using the terms defined therein), a certificate required thereunder showing compliance with Section 1004 is attached (only required for the fourth quarter Officer's Certificate), and as at the end of the period covered by the attached financial statements: 1. (a) Sum of Total Assets, Aggregate Purchase Price of Real Estate Assets, or Mortgages Receivable Acquired, and Securities Offering Proceeds Received to Purchase said Assets $ ______ x.60 (b) Maximum Amount of Debt $ ______ (c) Debt $ ______ 2. (a) Consolidated Income Available for Debt Service $ ______ (b) Annual Service Charge $ ______ (c) Ratio of Consolidated Income Available for Debt Service to Annual Service Charge (must be equal to or greater than 1.5:1.0 ___ : 1.0 3. (a) Total Assets $ ______ x.40 (b) Maximum Secured Debt $ ______ (c) Secured Debt $ ______
Date:_________________, 1996 ______________________________ Name:_________________________ EXHIBIT A Page 5 of 5 POOL PROPERTY LIST List each property separately showing the Historical Value and the components, the city, the state, the occupancy level for the past 3 months, the number of units, the age of the property and net operating income. REQUEST FOR LOAN ---------------- Date: _________________, 199__ Texas Commerce Bank National Association, as Agent 712 Main Street Houston, Texas 77002 ("Lender") RE: Request for Loan Under Amended and Restated Credit Agreement (as amended from time to time, the "Credit Agreement") dated as of August ---------------- 13, 1996, among Security Capital Pacific Trust (the "Borrower"), the Agent and the Lenders as signatory to the Credit Agreement Gentlemen: Borrower hereby requests [check as applicable] [_] a conversion of an existing Loan as provided below, and/or [_] an advance under the Credit Agreement, which is allowed pursuant to Section 5.9 of the Credit Agreement, in the amount of $___________ [minimum of $1,000,000.00 and in multiples of $250,000.00]. Maximum Principal Amount $350,000,000.00 Less the amount outstanding under the Credit Agreement (including Swing Loans) ($_________.__) Available amount $_________.__ Less amount requested ($_________.__) Amount remaining to be advanced $_________.__
EXHIBIT B --------- Page 1 of 3 Pages The advance or conversion is to be made as follows: A. Base Rate Borrowing. ------------------- 1. Amount of Base Rate Borrowing: $___________.__ 2. Date of Base Rate Borrowing ________, 199_ B. Eurodollar Rate Borrowing: ------------------------- 1. Amount of Eurodollar Rate Borrowing: $___________.__ 2. Amount of conversion of existing Loan to Eurodollar Rate Borrowing: $___________.__ 3. Number of Eurodollar Rate Borrowing(s) now in effect: ______________ [cannot exceed 12] 4. Date of Eurodollar Rate Borrowing or conversion: ________, 199_ 5. Interest Period: ______________ 6. Expiration date of current Interest Period as to this conversion: ________, 199_ C. Swing Loan. ---------- 1. Amount of Swing Loan: $___________.__ [minimum of $1,000,000.00 and in multiples of $250,000.00] 2. Date of Swing Loan: ________, 199_
Borrower hereby represents and warrants that the amounts set forth above are true and correct, that the amount above requested has actually been incurred, that the representations and warranties contained in the Credit Agreement are true and correct as if made EXHIBIT B --------- Page 2 of 3 Pages as of this date, and that Borrower has kept, observed, performed and fulfilled each and every one of its obligations under the Credit Agreement as of the date hereof [except as follows:] Very truly yours, SECURITY CAPITAL PACIFIC TRUST By:______________________________ Name:____________________________ Title:___________________________ EXHIBIT B --------- Page 3 of 3 Pages $[___________________] [__________________], 1996 FOR VALUE RECEIVED SECURITY CAPITAL PACIFIC TRUST, a Maryland real estate investment trust (herein called "Maker") promises to pay to the order of ----- [_____________________________________________________________________________], a [___________________________________] ("Payee"), at the offices of Texas ----- Commerce Bank National Association, a national banking association, as "Agent" ----- under the Credit Agreement, at 712 Main Street, Houston, Texas 77002, or at such other place as the holder (the "Holder", whether or not Payee is such holder) of ------ this note may hereafter designate in writing, in immediately available funds and in lawful money of the United States of America, the principal sum of [_________________________________] Dollars ($[___________________________] (or the unpaid balance of all principal advanced against this note, if that amount is less), together with interest on the unpaid principal balance of this note from time to time outstanding at the Stated Rate and interest on all past due amounts, both principal and accrued interest, at the Past Due Rate; provided, -------- that for the full term of this note the interest rate produced by the aggregate of all sums paid or agreed to be paid to the Holder of this note for the use, forbearance or detention of the debt evidenced hereby (including, but not limited to, all interest on this note at the Stated Rate) shall not exceed the Ceiling Rate. 1. Definitions. Any terms not defined herein shall have the meaning ----------- given to them in the Amended and Restated Credit Agreement dated of even date herewith among the Maker, the Payee, the Agent and certain other Lenders (as the same may be amended or modified the "Credit Agreement"). ---------------- 2. Rates Change Automatically and Without Notice. Without notice to --------------------------------------------- Maker or any other person or entity and to the full extent allowed by applicable law from time to time in effect, the Prime Rate and the Ceiling Rate shall each automatically fluctuate upward and downward as and in the amount by which Agent's said prime rate, and such maximum nonusurious rate of interest permitted by applicable law, respectively, fluctuate. 3. Calculation of Interest. Interest shall be computed for the actual ----------------------- number of days elapsed in a year (up to 365, or 366 in a leap year) deemed to consist of 360 days, unless the Ceiling Rate would thereby be exceeded, in which event, to the extent necessary to avoid exceeding the Ceiling Rate, interest INITIALLED FOR IDENTIFICATION:_______ Page 1 of 6 Pages EXHIBIT C --------- shall be computed on the basis of the actual number of days elapsed in the applicable calendar year in which it accrued. 4. Excess Interest Will be Refunded or Credited. If, for any reason -------------------------------------------- whatever, the interest paid or received on this note during its full term produces a rate which exceeds the Ceiling Rate, the Holder of this note shall refund to the payor or, at the Holder's option, credit against the principal of this note such portion of that interest as shall be necessary to cause the interest paid on this note to produce a rate equal to the Ceiling Rate. 5. Interest Will be Spread. All sums paid or agreed to be paid to the ----------------------- Holder of this note for the use, forbearance or detention of the indebtedness evidenced hereby, to the extent permitted by applicable law and to the extent necessary to avoid violating applicable usury laws, shall be amortized, prorated, allocated and spread in equal parts throughout the full term of this note, so that the interest rate is uniform throughout the full term of this note. 6. Payment Schedule. The principal of this note shall be due and payable ---------------- on the Maturity Date. Accrued and unpaid interest shall be due and payable on each Interest Payment Date. All payments shall be applied first to accrued interest, the balance to principal. 7. Prepayment. Maker may prepay this note only as provided in the Credit ---------- Agreement. 8. Revolving Credit. Upon and subject to the terms and conditions of the ---------------- Credit Agreement and the other provisions of this note, Maker may borrow, repay and reborrow against this note at any time unless and until a default (however designated) or event (an "Event of Potential Default") which, if not cured after -------------------------- notice or before the lapse of time (or both) would develop into a default under this note, the Credit Agreement or any other Credit Documents has occurred which the Holder has not declared to have been fully cured or waived, and (except as the Credit Agreement or any of the other Credit Documents may otherwise provide) there is no limit on the number of advances against this note so long as the total unpaid principal of this note at any time outstanding does not exceed the Payee's Lender Commitment. Interest on the amount of each advance against this note shall be computed on the amount of the unpaid balance of that advance from the date it is made until the date it is repaid. If Maker's right (if any) to borrow against this note shall ever lapse because of the occurrence of any default, it shall not be reinstated (or INITIALLED FOR IDENTIFICATION:_____ Page 2 of 6 Pages EXHIBIT C --------- construed from any course of conduct or otherwise to have been reinstated) unless and until the Holder shall declare in a signed writing that it has been cured or waived. The unpaid principal balance of this note at any time shall be the total of all principal lent against this note to Maker or for Maker's account less the sum of all principal payments and permitted prepayments on this note received by the Holder. Absent manifest error, the Holder's computer records shall on any day conclusively evidence the unpaid balance of this note and its advances and payments history posted up to that day. All loans and advances and all payments and permitted prepayments made on this note may be (but are not required to be) endorsed by the Holder on the schedule attached hereto (which is hereby made a part hereof for all purposes) or otherwise recorded in the Holder's computer or manual records; provided; that any Holder's -------- failure to make notation of (a) any principal advance or accrual of interest shall not cancel, limit or otherwise affect Maker's obligations or any Holder's rights with respect to that advance or accrual, or (b) any payment or permitted prepayment of principal or interest shall not cancel, limit or otherwise affect Maker's entitlement to credit for that payment as of the date of its receipt by the Holder. Maker and Payee expressly agree, as expressly allowed by Article 15.10(b) of Chapter 15 ("Chapter 15") of the Texas Credit Code, that Chapter 15 ---------- (which relates to open-end line of credit revolving loan accounts) shall not apply to this note or to any loan evidenced by this note and that neither this note nor any such loan shall be governed by Chapter 15 or subject to its provisions in any manner whatsoever. 9. Credit Agreement. This note has been issued pursuant to the terms of ---------------- the Credit Agreement, to which reference is made for all purposes. Advances against this note by Payee or other Holder hereof shall be governed by the Credit Agreement. Payee is entitled to the benefits of the Credit Agreement. As additional security for this note, Maker hereby grants to Payee and all other present and future Holders an express lien against, security interest in and contractual right of setoff in and to, all property and any and all deposits (general or special, time or demand, provisional or final) at any time held by the Payee or other Holder for any Maker's credit or account. INITIALLED FOR IDENTIFICATION:______ Page 3 of 6 pages EXHIBIT C --------- 10. Defaults and Remedies. Time is of the essence. Maker's failure to pay --------------------- any principal or accrued interest owing on this note when due and after expiration of any applicable period for notice and right to cure such a default which is specifically provided for in the Credit Agreement or any other provision of this note, or the occurrence of any default under the Credit Agreement or any other Credit Documents shall constitute default under this note, whereupon the Holder may elect to exercise any or all rights, powers and remedies afforded (a) under the Credit Agreement and all other papers related to this note and (b) by law, including the right to accelerate the maturity of this entire note. In addition to and cumulative of such rights, the Holder is hereby authorized at any time and from time to time after any such default, at Holder's option, without notice to Maker or any other person or entity (all rights to any such notice being hereby waived), to set off and apply any and all of any Maker's deposits at any time held by the Holder, and any other debt at any time owing by the Holder to or for the credit or account of any Maker, against the outstanding balance of this note, in such order and manner as Holder may elect in its sole discretion. The Holder's right to accelerate this note on account of any late payment or other default shall not be waived or deemed waived by the Holder by reason of the Holder's having previously accepted one or more late payments or by reason of any Holder's otherwise not accelerating this note or exercising other remedies for any default, and no Holder shall ever be obligated or deemed obligated to notify Maker or any other person that Holder is requiring strict compliance with this note or any papers securing or otherwise relating to it before such Holder may accelerate this note or exercise any other remedy. Nothing in this Section or elsewhere shall be construed as diminishing Holder's absolute right to demand payment of all or any part of this note at any time. 11. Legal Costs. If any Holder of this note retains an attorney in ----------- connection with any such default or to collect, enforce or defend this note or any papers intended to secure or guarantee it in any lawsuit or in any probate, reorganization, bankruptcy or other proceeding, or if Maker sues any Holder in connection with this note or any such papers and does not prevail, then Maker agrees to pay to each such Holder, in addition to principal and interest, all reasonable costs and expenses incurred by such Holder in trying to collect this note INITIALLED FOR IDENTIFICATION:_____ Page 4 of 6 Pages EXHIBIT C --------- or in any such suit or proceeding, including reasonable attorneys' fees. 12. Waivers. Except only for any notices which are specifically required ------- by the Credit Agreement, Maker and any and all co-makers, endorsers, guarantors and sureties severally waive notice (including, but not limited to, notice of intent to accelerate and notice of acceleration, notice of protest and notice of dishonor), demand, presentment for payment, protest, diligence in collecting and the filing of suit for the purpose of fixing liability and consent that the time of payment hereof may be extended and re-extended from time to time without notice to any of them. Each such person agrees that his, her or its liability on or with respect to this note shall not be affected by any release of or change in any guaranty or security at any time existing or by any failure to perfect or maintain perfection of any lien against or security interest in any such security or the partial or complete unenforceability of any guaranty or other surety obligation, in each case in whole or in part, with or without notice and before or after maturity. 13. Rate of Return Maintenance Covenant. If at any time after the date of ----------------------------------- this note, any Holder determines that (a) any applicable law, rule or regulation regarding capital adequacy of general applicability has been adopted or changed, or (b) its interpretation or administration by any governmental authority, central bank or comparable agency has changed, and determines that such change or the Holder's compliance with any request or directive regarding capital adequacy of general applicability (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Holder's capital as a consequence of its obligations under this note or any related papers to a level below that which the Holder could have achieved but for such adoption, change or compliance (taking into consideration the Holder's own capital adequacy policies) by an amount the Holder deems to be material, then Maker promises to pay from time to time to the order of the Holder such additional amount or amounts as will compensate the Holder for such reduction. A certificate of any Holder setting forth the amount or amounts necessary to compensate the Holder as specified above shall be given to Maker as soon as practicable after the Holder has made such determination and shall be conclusive and binding, absent manifest error. Maker shall pay the Holder the amount shown as due on any such certificate within 15 days after the Holder gives it. In preparing such certificate, the Holder may employ such assumptions and make such allocations of costs and expenses as INITIALLED FOR IDENTIFICATION:_____ Page 5 of 6 Pages EXHIBIT C --------- the Holder in good faith deems reasonable and may use any reasonable averaging and attribution method. 14. Governing Law, Jurisdiction and Venue. This note shall be governed by ------------------------------------- and construed in accordance with the laws of the State of Texas and the United States of America from time to time in effect. 15. General Purpose of Loan. Maker warrants and represents to Payee and ----------------------- all other Holders that all loans evidenced by this note are and will be for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use, as such terms are used in Chapter One. 16. Participations and Assignments. Payee and each other Holder reserves ------------------------------ the right, exercisable in such Holder's discretion and without notice to Maker or any other person, to sell participations, assign interests or both, in all or any part of this note or the debt evidenced by this note, in accordance with the Credit Agreement. 17. Limitation of Liability. No obligation or liability whatsoever of ----------------------- Maker which may arise at any time under this promissory note or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction or undertaking contemplated hereby shall be personally binding upon, nor shall resort for the enforcement thereof be had to the private property of, any of Maker's trustees or shareholders regardless of whether such obligation or liability is in the nature of contract, tort or otherwise. SECURITY CAPITAL PACIFIC TRUST By:___________________________ Name:_________________________ Title:________________________ Page 6 of 6 Pages EXHIBIT C --------- SWING LOAN NOTE --------------- $75,000,000.00 _______________, 1996 FOR VALUE RECEIVED SECURITY CAPITAL PACIFIC TRUST, a Maryland real estate investment trust (herein called "Maker") promises to pay to the order of TEXAS ----- COMMERCE BANK NATIONAL ASSOCIATION, a national banking association, at 712 Main Street, Houston, Texas 77002, or at such other place as the holder (the "Holder", whether or not Payee is such holder) of this note may hereafter ------ designate in writing, in immediately available funds and in lawful money of the United States of America, the principal sum of Seventy-Five Million Dollars ($75,000,000.00) (or the unpaid balance of all principal advanced against this note, if that amount is less), together with interest on the unpaid principal balance of this note from time to time outstanding at the Stated Rate and interest on all past due amounts, both principal and accrued interest, at the Past Due Rate; provided, that for the full term of this note the interest rate -------- produced by the aggregate of all sums paid or agreed to be paid to the Holder of this note for the use, forbearance or detention of the debt evidenced hereby (including, but not limited to, all interest on this note at the Stated Rate) shall not exceed the Ceiling Rate. 1. Definitions. Any terms not defined herein shall have the meaning ----------- given to them in the Amended and Restated Credit Agreement dated of even date herewith among the Maker, the Payee and certain other Lenders (as the same may be amended or modified the "Credit Agreement"). ---------------- 2. Rates Change Automatically and Without Notice. Without notice to --------------------------------------------- Maker or any other person or entity and to the full extent allowed by applicable law from time to time in effect, the Prime Rate and the Ceiling Rate shall each automatically fluctuate upward and downward as and in the amount by which Holder's said prime rate, and such maximum nonusurious rate of interest permitted by applicable law, respectively, fluctuate. 3. Calculation of Interest. Interest shall be computed for the actual ----------------------- number of days elapsed in a year (up to 365, or 366 in a leap year) deemed to consist of 360 days, unless the Ceiling Rate would thereby be exceeded, in which event, to the extent necessary to avoid exceeding the Ceiling Rate, interest shall be computed on the basis of the actual number of days elapsed in the applicable calender year in which it accrued. INITIALLED FOR EXHIBIT C-1 IDENTIFICATION:_________ ----------- Page 1 of 6 Pages 4. Excess Interest Will be Refunded or Credited. If for any reason -------------------------------------------- whatever, the interest paid or received on this note during its full term produces a rate which exceeds the Ceiling Rate, the Holder of this note shall refund to the payor or, at the Holder's option, credit against the principal of this note such portion of that interest as shall be necessary to cause the interest paid on this note to produce a rate equal to the Ceiling Rate. 5. Interest Will be Spread. All sums paid or agreed to be paid to the ----------------------- Holder of this note for the use, forbearance or detention of the indebtedness evidenced hereby, to the extent permitted by applicable law and to the extent necessary to avoid violating applicable usury laws, shall be amortized, prorated, allocated and spread in equal parts throughout the full term of this note, so that the interest rate is uniform throughout the full term of this note. 6. Payment Schedule. The principal of this note shall be due and payable ---------------- on the Revolving Credit Termination Date. Accrued and unpaid interest shall be due and payable on each Interest Payment Date. All payments shall be applied first to accrued interest, the balance to principal. 7. Prepayment. Maker may prepay this note only as provided in the Credit ---------- Agreement. 8. Revolving Credit. Upon and subject to the terms and conditions of the ---------------- Credit Agreement and the other provisions of this note, Maker may borrow, repay and reborrow against this note at any time unless and until a default (however designated) or event (an "Event of Potential Default") which, if not cured after -------------------------- notice or before the lapse of time (or both) would develop into a default under this note, the Credit Agreement or any other Credit Documents has occurred which the Holder has not declared to have been fully cured or waived, and (except as the Credit Agreement or any of the other Credit Documents may otherwise provide) there is no limit on the number of advances against this note so long as the total unpaid principal of this note at any time outstanding does not exceed $75,000,000.00. Interest on the amount of each advance against this note shall be computed on the amount of the unpaid balance of that advances from the date it is made until the date it is repaid. If Maker's right (if any) to borrow against this note shall ever lapse because of the occurrence of any default, it shall not be reinstated (or construed from any course of conduct or otherwise to have been reinstated) unless and until the Holder shall declare in a signed writing that it has been cured or waived. The unpaid principal balance of this note at INITIALLED FOR EXHIBIT C-1 IDENTIFICATION:________ ----------- Page 2 of 6 Pages any time shall be the total of all principal lent against this note to Maker or for Maker's account less the sum of all principal payments and permitted prepayments on this note received by the Holder. Absent manifest error, the Holder's computer records shall on any day conclusively evidence the unpaid balance of this note and its advances and payments history posted up to that day. All loans and advances and all payments and permitted prepayments made on this note may be (but are not required to be) endorsed by the Holder on the schedule attached hereto (which is hereby made a part hereof for all purposes) or otherwise recorded in the Holder's computer or manual records; provided, -------- that any Holder's failure to make notation of (a) any principal advance or accrual of interest shall not cancel, limit or otherwise affect Maker's obligations or any Holder's rights with respect to that advance or accrual, or (b) any payment or permitted prepayment of principal or interest shall not cancel, limit or otherwise affect Maker's entitlement to credit for that payment as of the date of its receipt by the Holder. Maker and Payee expressly agree, as expressly allowed by Article 15.10(b) of Chapter 15 ("Chapter 15") of the Texas ---------- Credit Code, that Chapter 15 (which relates to open-end line of credit revolving loan accounts) shall not apply to this note or to any loan evidenced by this note and that neither this note nor any such loan shall be governed by Chapter 15 or subject to its provisions in any manner whatsoever. 9. Credit Agreement. This note has been issued pursuant to the terms of ---------------- the Credit Agreement, to which reference is made for all purposes. Advances against this note by Payee or other Holder hereof shall be governed by the Credit Agreement. Payee is entitled to the benefits of the Credit Agreement. As additional security for this note, Maker hereby grants to Payee and all other present and future Holders an express lien against, security interest in and contractual right of setoff in and to, all property and any and all deposits (general or special, time or demand, provisional or final) at any time held by the Payee or other Holder for any Maker's credit or account. INITIALLED FOR EXHIBIT C-1 IDENTIFICATION:________ ----------- Page 3 of 6 Pages 10. Defaults and Remedies. Time is of the essence. Maker's failure to pay --------------------- any principal or accrued interest owing on this note when due and after expiration of any applicable period for notice and right to cure such a default which is specifically provided for in the Credit Agreement or any other provision of this note, or the occurrence of any default under the Credit Agreement or any other Credit Documents shall constitute default under this note, whereupon the Holder may elect to exercise any or all rights, powers and remedies afforded (a) under the Credit Agreement and all other papers related to this note and (b) by law, including the right to accelerate the maturity of this entire note. In addition to and cumulative of such rights, the Holder is hereby authorized at any time and from time to time after any such default, at Holder's option, without notice to Maker or any other person or entity (all rights to any such notice being hereby waived), to set off and apply any and all of any Maker's deposits at any time held by the Holder, and any other debt at any time owing by the Holder to or for the credit or account of any Maker, against the outstanding balance of this note, in such order and manner as Holder may elect in its sole discretion. The Holder's right to accelerate this note on account of any late payment or other default shall not be waived or deemed waived by the Holder by reason of the Holder's having previously accepted one or more late payments or by reason of any Holder's otherwise not accelerating this note or exercising other remedies for any default, and no Holder shall ever be obligated or deemed obligated to notify Maker or any other person that Holder is requiring strict compliance with this note or any papers securing or otherwise relating to it before such Holder may accelerate this note or exercise any other remedy. Nothing in this Section or elsewhere shall be construed as diminishing Holder's absolute right to demand payment of all or any part of this note at any time. 11. Legal Costs. If any Holder of this note retains an attorney in ----------- connection with any such default or to collect, enforce or defend this note or any papers intended to secure or guarantee it in any lawsuit or in any probate, reorganization, bankruptcy or other proceeding, or if Maker sues any Holder in connection with this note or any such papers and does not prevail, then Maker agrees to pay to each such Holder, in addition to principal and interest, all reasonable costs and expenses incurred by such Holder in trying to collect this note INITIALLED FOR EXHIBIT C-1 IDENTIFICATION_____ ----------- Page 4 of 6 Pages or in any such suit or proceeding, including reasonable attorneys' fees. 12. Waivers. Except only for any notices which are specifically required ------- by the Credit Agreement, Maker and any and all co-makers, endorsers, guarantors and sureties severally waive notice (including, but not limited to, notice of intent to accelerate and notice of acceleration, notice of protest and notice of dishonor), demand, presentment for payment, protest, diligence in collecting and the filing of suit for the purpose of fixing liability and consent that the time of payment hereof may be extended and re-extended from time to time without notice to any of them. Each such person agrees that his, her or its liability on or with respect to this note shall not be affected by any release of or change in any guaranty or security at any time existing or by any failure to perfect or maintain perfection of any lien against or security interest in any such security or the partial or complete unenforceability of any guaranty or other surety obligation, in each case in whole or in part, with or without notice and before or after maturity. 13. Rate of Return Maintenance Covenant. If at any time after the date of ----------------------------------- this note, any Holder determines that (a) any applicable law, rule or regulation regarding capital adequacy of general applicability has been adopted or changed, or (b) its interpretation or administration by any governmental authority, central bank or comparable agency has changed, and determines that such change or the Holder's compliance with any request or directive regarding capital adequacy of general applicability (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Holder's capital as a consequence of its obligations under this note or any related papers to a level below that which the Holder could have achieved but for such adoption, change or compliance (taking into consideration the Holder's own capital adequacy policies) by an amount the Holder deems to be material, then Maker promises to pay from time to time to the order of the Holder such additional amount or amounts as will compensate the Holder for such reduction. A certificate of any Holder setting forth the amount or amounts necessary to compensate the Holder as specified above shall be given to Maker as soon as practicable after the Holder has made such determination and shall be conclusive and binding, absent manifest error. Maker shall pay the Holder the amount shown as due on any such certificate within 15 days after the Holder gives it. In preparing such certificate, the Holder may employ such assumptions and make such allocations of costs and expenses as INITIALLED FOR IDENTIFICATION:_______ EXHIBIT C-1 ----------- Page 5 of 6 Pages the Holder in good faith deems reasonable and may use any reasonable averaging and attribution method. 14. Governing Law, Jurisdiction and Venue. This note shall be governed by ------------------------------------- and construed in accordance with the laws of the State of Texas and the United States of America from time to time in effect. 15. General Purpose of Loan. Maker warrants and represents to Payee and ----------------------- all other Holders that all loans evidenced by this note are and will be for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use, as such terms are used in Chapter One. 16. Participations and Assignments. Payee and each other Holder reserves ------------------------------ the right, exercisable in such Holder's discretion and without notice to Maker or any other person, to sell participations, assign interests or both, in all or any part of this note or the debt evidenced by this note. 17. Limitation of Liability. No obligation or liability whatsoever of ----------------------- Maker which may arise at any time under this promissory note or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction or undertaking contemplated hereby shall be personally binding upon, nor shall resort for the enforcement thereof be had to the private property of, any of Maker's trustees or shareholders regardless of whether such obligation or liability is in the nature of contract, tort or otherwise. SECURITY CAPITAL PACIFIC TRUST By:___________________________ Name:_________________________ Title:________________________ EXHIBIT C-1 ----------- Page 6 of 6 Pages OPINION OF COUNSEL ------------------ 1. The Borrower (a) is duly organized, validly existing and in good standing under the laws of the states of Maryland and Texas; (b) has all requisite power and authority and all material governmental licenses, authorizations, permits and approvals to own its Property and to carry on its business as, and in the places where, such Property is owned or such business is now conducted and (c) is duly qualified to do business and is in good standing in every jurisdiction in which such qualification is necessary or desirable. 2. The execution, delivery and performance of the Credit Agreement and the other Credit Documents (a) have all been duly authorized by all necessary action by the Borrower; (b) are within the power and authority of the Borrower; (c) will not contravene or violate any Legal Requirement or the Organizational Documents of the Borrower; (d) to the best of our knowledge, will not result in the breach of, or constitute a default under, any agreement, instrument, judgment, license, order or permit to which the Borrower is a party or by which the Borrower or any of its Property may be bound or affected, and (e) to the best of our knowledge, do not result in the creation of any Lien upon any Property of the Borrower except as expressly contemplated by the Credit Documents. 3. All authorizations, consents, approvals, licenses, permissions and registrations, if any, of or with any Governmental Authority, or to the best of our knowledge, any other Person, required in connection with the execution, delivery and performance of the Credit Agreement, the Note and the Other Credit Documents have been obtained. 4. The Credit Documents are legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 5. To the best of our knowledge and except as heretofore disclosed to the Agent, there is no litigation or administrative proceeding pending or threatened against, or any outstanding judgment, order decree or award affecting, the Borrower before or by any Governmental Authority or arbitral body which in the aggregate have, or if adversely determined could have, any material adverse effect on the condition, business or prospects, financial or otherwise, of the Borrower. 6. The Borrower is not an "investment company", or a copy "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. EXHIBIT D --------- Page 1 of 1 Page EX-10.9 17 5TH AMEND. & RESTATED REIT MGMT. AGRMT. EXHIBIT 10.9 FIFTH AMENDED AND RESTATED REIT MANAGEMENT AGREEMENT ---------------------------------------------------- THIS FIFTH AMENDED AND RESTATED REIT MANAGEMENT AGREEMENT (this "Agreement") is made and entered into as of May 21, 1996, by and between Security Capital Pacific Trust, a Maryland real estate investment trust (the "Trust"), and Security Capital Pacific Incorporated, a Delaware corporation (the "REIT Manager"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Trust is organized under the laws of the State of Maryland pursuant to a Restated Declaration of Trust dated as of June 18, 1991, as amended and supplemented (the "Declaration of Trust"), and currently qualifies as a "real estate investment trust" as defined in the Internal Revenue Code of 1986, as amended (the "Code"), to make investments of the type permitted for qualified real estate investment trusts under the Code and not inconsistent with the Declaration of Trust and the By-Laws of the Trust (the "By-Laws"); WHEREAS, the Trust, desiring to avail itself of the experience, sources of information, advice, assistance and certain facilities of, or available to, the REIT Manager and to have the REIT Manager undertake the duties and responsibilities hereinafter set forth, on behalf of and subject to the supervision of the Board of Trustees of the Trust (the "Board"), entered into a Fourth Amended and Restated REIT Management Agreement dated as of June 30, 1995, as amended (the "Prior Agreement"), with the REIT Manager; and WHEREAS, the REIT Manager and the Trust desire to amend and restate the Prior Agreement to extend the term thereof and to clarify certain ambiguities and to more fully give effect to the intentions of the parties thereto; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the Trust and the REIT Manager agree that the Prior Agreement is hereby amended and restated in its entirety as follows: I. DEFINITIONS ----------- 1.1 DEFINITIONS. As used in this Agreement, the following capitalized ----------- terms shall have the meanings set forth below. (a) "Affiliate" means as to any person, (i) any other person directly or indirectly controlling, controlled by or under common control with such person, (ii) any other person that owns beneficially, directly or indirectly, 10% or more of the outstanding capital stock, shares or equity interests of such person, or (iii) any officer, director, employee, general partner or trustee of such person or of any other person controlling, controlled by or under common control with such person (excluding trustees or directors and persons serving in similar capacities who are not otherwise an Affiliate of such person). (b) "Average Invested Assets" for any period shall mean the average of the aggregate book value of the assets of the Trust 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. (c) "Board" shall have the meaning set forth in the recitals hereto. (d) "By-Laws" shall have the meaning set forth in the recitals hereto. (e) "Cash Equivalent Investments" means assets of the Trust that consist of cash, interest-bearing deposits in banks, repurchase agreements with banks and readily-marketable securities. (f) "Cash Flow" for any period means the sum of (i) Funds Available from Operations for such period (after deducting all income from Cash Equivalent Investments), plus (ii) the REIT Management Fees payable pursuant to Section 3.1 ----------- hereof, plus (iii) any expenses incurred by the Trust that are unusual in light of the Trust's historical experience prior to the incurrence thereof and are incurred at the request of a majority of the Independent Trustees, plus (iv) 33% of the interest paid during such period on any subordinated debentures that are (x) issued after the execution of this Agreement and (y) convertible into shares of beneficial interest of the Trust, provided, however, that this definition -------- ------- shall be equitably adjusted by mutual agreement in the event of a recapitalization or other event which results in a reclassification of the equity securities of the Trust. (g) "Cause" means (i) an act of fraud, embezzlement or theft constituting a felony or an act intentionally against the interests of the Trust which causes it material injury, (ii) a final determination by a court of competent jurisdiction that the REIT Manager has committed a material breach of this Agreement, (iii) a petition shall have been filed against the REIT Manager for an involuntary proceeding under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, and such petition shall not have been dismissed within 60 days of filing; or a court having jurisdiction shall have appointed a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the REIT Manager for any substantial portion of its property, or ordered the winding up or liquidation of its affairs, or (iv) the REIT Manager shall have commenced a voluntary proceeding under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall have made any general assignment for the benefit of creditors, or shall have failed generally to pay its debts as they become due. (h) "Code" shall have the meaning set forth in the recitals hereto. -2- (i) "Declaration of Trust" shall have the meaning set forth in the recitals hereto. (j) "Exchange Act" shall have the meaning set forth in Section 2.13 ------------ hereof. (k) "Funds Available from Operations" for any period means the dollar amount equal to the sum of (i) net earnings of the Trust for such period, determined in accordance with generally accepted accounting principles, but excluding (A) interest income and/or dividends received from PTR Development Services Incorporated, and (B) from and after the consummation of the transactions contemplated by that certain Merger and Distribution Agreement (the "Merger Agreement") among the Trust, Security Capital Atlantic Incorporated, a Maryland corporation, Security Capital Group Incorporated, a Maryland corporation, and Homestead Village Properties Incorporated, a Maryland corporation, dated as of May 21, 1996, interest income received in connection with promissory notes now outstanding or hereafter issued pursuant to the Funding Commitment Agreement entered into by the Trust in connection with the Merger Agreement from PTR Homestead Village Limited Partnership or PTR Homestead Village Incorporated to the Trust, plus (ii) interest actually paid on the Trust's senior unsecured long term debt instruments, plus (iii) non-cash items deducted in calculating net earnings for such period (including but not limited to depreciation) which are generally added to net earnings in determining funds from operations for distribution to shareholders pursuant to prevailing practice among publicly-held real estate investments trusts, minus (iv) regularly scheduled principal payments (excluding prepayments or balloon payments) on mortgage indebtedness which has a commercially reasonable amortization schedule, minus (v) an assumed amount of payments of principal and interest which would have been paid by the Trust during such periods under senior unsecured long term debt instruments of the Trust, if payments were equal to payments on a 20-year fully amortizing mortgage of equal principal amount and effective interest rate with a payment schedule requiring equal annual payments of combined principal and interest (but not costs of issuance), minus (vi) distributions actually paid with respect to any non-convertible preferred shares of beneficial interest of the Trust. For calculations under clause (v) of the preceding sentence, all ---------- tranches of long term debt issued simultaneously shall be viewed collectively and shall be treated as one mortgage financing with an interest rate equal to the Trust's weighted average effective interest rate for such tranches after giving effect to any interest rate protection or similar agreements. For example, the attached Exhibit A shows the assumed effective interest rate and --------- monthly payment schedules on the $200 million of senior notes issued by the Trust in February 1994, which will be deducted in calculating Funds Available from Operations. Funds Available from Operations will not be increased or decreased by virtue of any of the following: realized gains or losses, capital expenditures or principal payments, except for principal payments under the Trust's long term debt instruments as contemplated by clauses (iv) and (v) of -------------------- the foregoing sentence. (l) "Indemnified Party" shall have the meaning set forth in Section ---------- 6.2(a) hereof. - ------ -3- (m) "Independent Trustee" means a Trustee who (i) is not affiliated, directly or indirectly, with the 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, the REIT Manager or a business entity that is an Affiliate of the REIT Manager, (ii) is not serving as a trustee or director for more than three real estate investment trusts organized by a Sponsor of the Trust and (iii) performs no other services for the Trust, except as Trustee. An indirect relationship shall include circumstances in which a member of the immediate family of a Trustee has one of the foregoing relationships with the REIT Manager or the Trust. (n) "Investment Policies" at any time shall have the meaning given thereto either in (i) the Declaration of Trust or By-Laws as then in effect or (ii) a written statement adopted by the Board and delivered to the REIT Manager by the Trust. (o) "Net Income" for any period means total revenues (excluding gains or losses from the sale of Trust assets) applicable to such period, less the expenses applicable to such period other than additions to reserves for depreciation or bad debts or other similar non-cash reserves. (p) "REIT Management Fee" shall have the meaning set forth in Section ------- 3.1 hereof. - --- (q) "Renewal Term" shall have the meaning set forth in Section 4.2 ----------- hereof. (r) "Sponsor" means any person directly or indirectly instrumental in organizing, wholly or in part, a real estate investment trust, or any person who will manage or participate in the management of a real estate investment trust, and any Affiliate of any such person, but excluding (i) any person whose only relationship with such real estate investment trust is that of an independent property manager whose only compensation is for property management services and (ii) independent third parties such as attorneys, accountants and underwriters whose only compensation is for professional services. (s) "Total Operating Expenses" for any period means all operating and general and administrative expenses of the Trust as determined under generally accepted accounting principles but excluding (i) the expenses of raising capital and financing, including, without limitation, financing for Trust Properties, including related investment banking and legal fees, (ii) interest payments on all debt of the Trust, (iii) taxes, (iv) non-cash expenditures and (v) the costs related directly to Trust Property acquisition, development, operation and disposition. The exclusion for costs related directly to Trust Property acquisition, development, operation and disposition permits exclusion of expenses incurred with respect to specific individual Trust Properties but does not permit the exclusion of operating, general and administrative expenses for the Trust's operations in general. (t) "Trust Property" means any real property or interest therein and associated personal property owned by the Trust. -4- (u) "Trustees" means the Trustees holding office under the Declaration of Trust at any particular time. 1.2 ACCOUNTING PRINCIPLES. Except as otherwise provided herein, all --------------------- accounting and financial terms used herein shall be determined in accordance with generally accepted accounting principles. II. DUTIES OF THE REIT MANAGER -------------------------- 2.1 GENERAL. The REIT Manager shall use its best efforts to perform ------- each of the duties set forth in this Agreement and shall have the authority to take all actions and to execute all documents and instruments that it deems necessary or advisable in connection with the management and operations of the Trust and the fulfillment of its duties as set forth herein, subject in each matter to the supervision of the Board and to the Investment Policies of the Trust, and with respect to the acquisition, development, financing and disposition of real property, to the prior approval of the Board. 2.2 ANNUAL STRATEGIC PLAN. The REIT Manager will prepare annually a --------------------- strategic plan that incorporates a specific business strategy, an annual operating budget, investment and disposition objectives and capitalization and funding strategies. This plan will be presented in the fourth quarter of the year prior to the year for which such plan applies to the Board for its review and approval. Consistent with the annual strategic plan, and subject to supervision by the Board, the REIT Manager will provide acquisition, development and disposition services including the following: (a) Investigation and selection of possible acquisitions and developments, property analysis, market and economic surveys, on-site physical inspections, review and projection of income and operating expenses and, when desired, supervising and negotiating the arrangement of financing; (b) Conducting negotiations with real estate brokers, owners of property and their agents, investment bankers and owners of privately and publicly held real estate companies; (c) Engaging and supervising, on behalf of the Trust, independent contractors which provide real estate brokerage, investment banking (as to which an Affiliate of the REIT Manager may be used if there is no charge to the Trust for its services, other than the REIT Management Fee) and leasing services, mortgage brokerage and other financial services and such other services as may be required relating to the Trust Properties, provided, however, that the REIT Manager shall not share in any ------- ------- brokerage, investment banking or similar fees paid to any person engaged by the REIT Manager to perform such services for the Trust; and -5- (d) Negotiating on behalf of the Trust for the sale, exchange or other disposition of any Trust Properties. 2.3 ASSET MANAGEMENT. The REIT Manager may retain third-party property ---------------- managers and leasing agents for administration, leasing and management of Trust Properties. Subject to the approval of a majority of the Board, including a majority of the Independent Trustees, the REIT Manager may provide property management and/or leasing services for Trust Properties through an Affiliate of the REIT Manager on terms and conditions no less favorable to the Trust than those available from qualified unaffiliated third parties; provided, however, -------- ------- that such services may not be provided through an Affiliate of the REIT Manager if doing so would jeopardize the Trust's qualification as a real estate investment trust under Sections 856 through 860 of the Code. The Trust and the REIT Manager will negotiate in good faith the terms of any future management agreements between the Trust and Affiliates of the REIT Manager which are permitted pursuant to this Section 2.3. ----------- 2.4 GENERAL ADMINISTRATIVE DUTIES. The REIT Manager shall perform, or ----------------------------- supervise the performance of, the necessary administrative functions in the day- to-day management of the Trust and its operations, including, without limitation, internal and external financial reporting, property accounting, shareholder relations, supervision of stock registrar and transfer services and other necessary services, all in a manner consistent with the Trust's current practice, subject to changes approved by a majority of the Board. 2.5 REAL ESTATE INVESTMENT ADVICE. The REIT Manager shall advise the ----------------------------- Trust with respect to policy decisions to be made by the Board, shall investigate and evaluate investment opportunities consistent with the real estate investment policies and the objectives of the Trust and recommend them to the Board, and shall provide research, economic and statistical data in connection with the Trust's real estate investments and policies. 2.6 SHORT-TERM INVESTMENTS. The REIT Manager may invest and reinvest ---------------------- any monies and securities of the Trust in short-term investments pending investment in Trust Properties. Unless a specific new policy is developed by the REIT Manager and approved by the Board, the REIT Manager may invest and reinvest any monies and securities of the Trust, pending investment in Trust Properties, in accordance with current practice and past policies developed by the REIT Manager and approved by the Board. 2.7 AGENCY. The REIT Manager shall act as agent of the Trust in making, ------ acquiring, financing and disposing of investments, disbursing and collecting the Trust's funds, paying the debts and fulfilling the obligations of the Trust, supervising the performance of the managers of the Trust Properties and handling, prosecuting and settling any claims of or against the Trust, the Board, holders of the Trust's securities or the Trust's representatives or properties. -6- 2.8 RETENTION OF SERVICES. The REIT Manager shall retain for and on --------------------- behalf of the Trust such services of accountants, legal counsel, appraisers, insurers, brokers, transfer agents, registrars, developers, banks and other lenders and others as the REIT Manager deems necessary or advisable in connection with the management and operations of the Trust and the fulfillment of the REIT Manager's duties as set forth herein. 2.9 OFFICE AND PERSONNEL. The REIT Manager shall maintain on behalf of -------------------- the Trust such office space, equipment and personnel, including officers and employees of the REIT Manager or its Affiliates, as it deems necessary or advisable in connection with the management and operations of the Trust and the fulfillment of the REIT Manager's duties as set forth herein. 2.10 BANK ACCOUNTS. The REIT Manager may establish one or more bank ------------- accounts in the name of the Trust or in its own name and may deposit into and disburse from such accounts any monies on behalf of the Trust, provided that no funds in any such account shall be commingled with funds of the REIT Manager, and the REIT Manager shall as requested by the Board render appropriate accountings to the Board of such deposits and disbursements. 2.11 BOOKS AND RECORDS. The REIT Manager shall maintain all accounting ----------------- and reporting systems, books and records of the Trust, including books of account and records relating to services performed by the REIT Manager, in form and quality at least equivalent to the Trust's current practice, and shall make such books and records accessible for inspection by the Board at any time during ordinary business hours. 2.12 APPRAISALS AND REPORTING. As frequently as may be required by the ------------------------ Board or as the REIT Manager may deem necessary or advisable, the REIT Manager shall prepare, or cause to be prepared, with respect to each of the Trust Properties (i) an appraisal prepared by an independent real estate appraiser, (ii) reports and information on Trust operations and asset performance at least equivalent, with respect to quality and clarity of information, to the Trust's current practice and (iii) other information reasonably requested by the Board. 2.13 REPORTS, ETC. The REIT Manager shall prepare, or cause to be ------------ prepared, all reports of the Trust required under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and other communications to the holders of the Trust's securities, including, without limitation, proxy solicitation materials, and all tax returns and any other reports or other materials required to be filed with any governmental body or agency, and shall prepare, or cause to be prepared, all materials and data necessary to complete such reports and other materials including, without limitation, an annual audit of the Trust's books of account by a nationally recognized independent accounting firm. 2.14 FINANCING AND SECURITIES ISSUANCES. The REIT Manager shall provide ---------------------------------- services to the Trust in connection with negotiations by the Trust with investment banking firms, securities brokers or dealers and other institutions or investors in connection with the sale of -7- securities of the Trust and the securing of loans for the Trust, provided, -------- however, that the REIT Manager shall not share in any fees paid by the Trust to - ------- third parties for such services. 2.15 ADDITIONAL SERVICES. The REIT Manager shall perform such additional ------------------- services as from time to time may be requested by the Board and agreed to by the REIT Manager, provided, however, that nothing herein shall require the REIT -------- ------- Manager to agree to any such request or to perform any additional services to which it has not previously agreed. 2.16 REIT QUALIFICATION, ETC. In the performance of its duties and ------------------------ responsibilities hereunder, the REIT Manager shall refrain from any action (i) which, in its judgment or in the judgment of the Board of which the REIT Manager has written notice, would adversely affect the qualification of the Trust as a real estate investment trust under the Code, (ii) which would violate any law, rule or regulation of any governmental body or agency having jurisdiction over the Trust or its securities, the violation of which could have a material adverse effect on the Trust or (iii) which would otherwise not be permitted by the Declaration of Trust. 2.17 MORTGAGES AND INSURANCE. The REIT Manager shall use its best ----------------------- efforts to (i) ascertain that any mortgage securing any investment of the Trust shall be a valid lien upon the mortgaged property according to its terms, for which the REIT Manager may rely on mortgagee's policies of title insurance issued by reputable title insurance companies, and that any insurance or guaranty issued by any person upon which the Board relies is valid and in full force and effect and enforceable according to its terms, (ii) cause each Trust Property to be duly insured, to the extent coverage is available on commercially reasonable terms, against loss or damage by fire, with extended coverage, and against such other insurable hazards and risks as is customary and appropriate in the circumstances, provided, however, that if the REIT Manager determines -------- ------- that a type of insurance coverage currently maintained by the Trust is available, but no longer on commercially reasonable terms, the REIT Manager shall so advise the Board and act in accordance with the Board's instructions and (iii) carry out the policies from time to time specified in writing by the Board with regard to the protection of Trust Properties. The REIT Manager shall be entitled to reasonably rely on qualified experts in performing its duties under this Section 2.17. ------------ 2.18 FIDELITY BOND. The REIT Manager shall maintain a fidelity bond with ------------- a responsible surety company in an amount approved by the Board covering all officers and employees of the REIT Manager handling funds of the Trust and any investment documents or papers, which bonds shall protect against all losses of any such property from acts of such officers and employees through theft, embezzlement, fraud and dishonesty. 2.19 LIABILITY LIMITATION. The REIT Manager shall cause to be included -------------------- in any document or agreement prepared for the benefit of, or executed by the REIT Manager on behalf of, the Trust under which substantial obligations are assumed on behalf of the Trust clear and complete provisions pursuant to Article 4, Section 11 of the Declaration of Trust to the effect that the Trustees and the shareholders of the Trust shall not be personally liable thereunder and -8- that all parties concerned shall look solely to the property of the Trust for the satisfaction of any claim against the Trust under any such document or agreement. III. COMPENSATION ------------ 3.1 REIT MANAGEMENT FEE. ------------------- (a) The Trust shall pay the REIT Manager an annual REIT Management Fee equal to the sum of (i) $855,000, plus (or minus, in the case of annual Cash Flow below $4,837,000) 16% of the difference between annual Cash Flow and $4,837,000 and (ii) the product of 0.25% per annum multiplied by the average daily balance of the Trust's Cash Equivalent Investments, measured at the end of each month. All payments of the REIT Management Fee shall be subject to annual adjustment at year end as provided in Section 3.5 hereof. The REIT Management ----------- Fee shall be payable monthly in arrears in such amounts indicated by the annual operating budget approved by a majority of the Board, as revised no more than quarterly to reflect known material changes. (b) Within 50 days following the end of each calendar quarter and within 100 calendar days after the end of each calendar year of the Trust (following the receipt by the Trust of an auditor's report, prepared by a nationally recognized independent accounting firm, with respect to the Trust's financial statements for such year), the REIT Manager shall deliver to the Trust a statement, certified by an officer of the REIT Manager, setting forth the following: (i) the amount of the estimated REIT Management Fee actually paid by the Trust for all months during such quarter or year, as the case may be, (ii) the amount of the REIT Management Fee that should have been paid for such quarter or year, as the case may be, and (iii) the amount, if any, of accrued and unpaid REIT Management Fees. If the annual or quarterly statement, as the case may be, indicates an overpayment by the Trust of the REIT Management Fee, such overpayment shall be offset against the next ensuing estimated REIT Management Fee to become due hereunder, or, if at any time no further REIT Management Fee can become due, the balance of any overpayment shall be paid without interest by the REIT Manager within 15 calendar days after demand therefor by the Trust, such repayment to be due and payable whether or not this Agreement is still in full force and effect. If the annual or quarterly statement, as the case may be, indicates an underpayment by the Trust of the REIT Management Fee with respect to the quarter or year covered thereby, the Trust, within 15 calendar days after receipt of the statement, shall pay to the REIT Manager the amount of such underpayment. The REIT Management Fee for any year shall not be recalculated on the basis of any post-year-end adjustments to the Trust's taxable income arising, directly or indirectly, from an audit by the Internal Revenue Service. 3.2 PAYMENT FOR ADDITIONAL SERVICES. If the Board shall request the ------------------------------- REIT Manager to render services to the Trust other than those required to be rendered by the REIT Manager hereunder, such additional services, if performed, shall be compensated separately on terms to be agreed upon from time to time between the REIT Manager and the Trust, which terms shall -9- not be less favorable to the Trust than either (a) the terms under which the REIT Manager is then performing similar services for other persons, taking into account the full range of services and prices therefor provided by the REIT Manager to such other persons or (b) the terms under which qualified unaffiliated persons are then performing such services for comparable organizations, provided that no separate fee shall be charged to the Trust for any investment banking services provided by any Affiliate of the REIT Manager. 3.3 EXPENSES OF THE REIT MANAGER. Without regard to the amount of ---------------------------- compensation received hereunder by the REIT Manager, the REIT Manager shall bear the following expenses: (a) wages, salaries and other compensation of the REIT Manager's officers and employees, including so-called fringe benefits such as life, disability, medical and health insurance, pension plans, social security taxes and workers' compensation insurance; (b) rent and other overhead expenses of the REIT Manager; and (c) travel and mailing costs pertaining to the REIT Manager's performance of its duties hereunder, except for expenses described in Section 3.4(a) below. -------------- 3.4 REIMBURSABLE EXPENSES. The REIT Manager shall pay, or cause to be --------------------- paid out of the assets of the Trust, the following operating expenses of the Trust and, if the REIT Manager advances money for such expenses, it shall be entitled to reimbursement by the Trust therefor: (a) travel and other out-of-pocket expenses incurred by directors, officers and employees of the REIT Manager in connection with (i) seeking financing (including debt and equity) for the Trust, (ii) evaluating, investigating, negotiating or closing the acquisition, financing, refinancing or disposition of a Trust Property after the Board has approved for investment the market in which such property is located or (iii) attending Board, Board committee or shareholder meetings of the Trust; (b) costs of third-party legal, accounting, tax and similar services rendered for the Trust; (c) all other costs and expenses relating to the Trust's operations, including, without limitation, the costs and expenses of acquiring, owning, managing, protecting, maintaining and disposing of the Trust's investments, including travel, appraisal, reporting, audit and legal fees; (d) all insurance costs incurred in connection with the operation of the Trust; -10- (e) expenses connected with payments of interest or distributions in cash or any other form made or caused to be made by the Board to or on account of holders of securities of the Trust, including, without limitation, expenses incurred in connection with any dividend reinvestment plan; (f) expenses connected with communications to holders of securities of the Trust and the investment community in general (including meetings between Affiliates of the REIT Manager and investors or analysts) and the other bookkeeping and clerical work necessary in maintaining relations with holders of securities and in complying with the continuous reporting and other requirements of governmental bodies or agencies, including the cost of printing and mailing certificates for securities and proxy solicitation materials and reports to holders of the Trust's securities; (g) transfer agent and registrar's fees and charges; and (h) expenses relating to any office or office facilities maintained for the Trust or the Trust Properties separate from the office or offices of the REIT Manager. 3.5 REFUND. In accordance with the Declaration of Trust, with respect ------ to any fiscal year in which a majority of the Independent Trustees do not find such excess justified, the Board may require the REIT Manager either (a) to refund to the Trust, to the extent of any fees received by the REIT Manager during such fiscal year, the amount, if any, by which the Total Operating Expenses of the Trust for such fiscal year exceeded the greater of (i) 2% of the sum for such fiscal year of the Average Invested Assets of the Trust or (ii) 25% of the Net Income of the Trust for such fiscal year or (b) to reduce its fees by the amount of such excess during the balance of the fiscal year next following the fiscal year with respect to which such refund is to be made. 3.6 RESTRICTIONS. ------------ (a) The REIT Manager shall not recommend or consummate any transaction which would involve the acquisition by the Trust of property in which the REIT Manager or any Affiliate thereof has an ownership interest, including any transaction prohibited by Article 1, Section 5(g) of the Declaration of Trust, and neither the REIT Manager nor any Affiliate thereof shall purchase or otherwise acquire from the Trust any Trust Property; provided, however, that the -------- ------- REIT Manager may recommend and consummate transactions which involve the acquisition or disposition by the Trust of property from or to PTR Development Services Incorporated ("PTR Development Services") or in which PTR Development Services has an ownership interest, provided that the Trust owns a substantial majority of the economic interest in PTR Development Services and that a majority of the Board (including a majority of the Independent Trustees) not otherwise interested in such transaction approve the transaction as being fair, competitive and commercially reasonable and no less favorable to the Trust than acquisitions or dispositions between unaffiliated parties under similar circumstances; provided further, that this ---------------- -11- Section 3.6(a) shall not apply to the negotiation, execution, delivery and - -------------- performance under the Merger Agreement and each of the agreements and transactions contemplated thereby. (b) Other than advances of expenses pursuant to Section 3.4 hereof, the ----------- Trust shall not make loans to, or borrow money from, the REIT Manager or any Affiliate thereof, unless a majority of the Board (including a majority of the Independent Trustees) not otherwise interested in such transaction approve the transaction as being fair, competitive and commercially reasonable and no less favorable to the Trust than loans between unaffiliated lenders and borrowers under the same circumstances. (c) The Trust shall not invest in joint ventures with the REIT Manager or any Affiliate thereof, unless a majority of the Board (including a majority of the Independent Trustees) not otherwise interested in such transaction approve the transaction as being fair and reasonable to the Trust and on substantially the same terms and conditions as those received by the other joint venturers. (d) All other material transactions between the Trust and the REIT Manager, or any Affiliate thereof, shall require approval by a majority of the Board (including a majority of the Independent Trustees) not otherwise interested in such transactions as being fair and reasonable to the Trust and on terms and conditions no less favorable to the Trust than those available from unaffiliated third parties. IV. TERMINATION; TERM ----------------- 4.1 TERMINATION. Notwithstanding any other provision to the contrary, ----------- this Agreement (i) may be terminated without Cause by the Trust upon 60 calendar days' written notice to the REIT Manager, or by the REIT Manager upon 60 calendar days' written notice to the Trust, and (ii) may be terminated by the Trust for Cause immediately upon providing written notice to the REIT Manager. Any determination by the Trust to terminate this Agreement shall be made by the vote of a majority of the Independent Trustees or the holders of a majority of outstanding Trust voting shares. The REIT Manager shall immediately notify the Trust of the occurrence of any event described in Sections 1.1(g)(iii) or (iv). ---------------------------- In the event of termination of this Agreement, the REIT Manager will cooperate with the Trust and take all reasonable steps requested to assist the Board in making an orderly transition of the REIT management function. 4.2 RENEWAL TERMS. This Agreement shall continue in force for an ------------- initial term beginning on the date hereof and ending on June 30, 1997, and shall be renewable by the Trust annually, subject to a determination by a majority of the Independent Trustees that the REIT Manager's performance hereunder has been satisfactory and that the compensation payable to the REIT Manager hereunder is fair. Absent written notice of non-renewal as provided in this Section 4.2, this ----------- Agreement shall be automatically renewed for successive one-year terms ("Renewal Terms") upon the expiration of the initial term and each Renewal Term. Notice of non-renewal, if given, shall be given in writing by the Trust to the REIT Manager not less than -12- 60 calendar days before the expiration of the initial term of this Agreement or 60 calendar days before the expiration of any Renewal Term thereof. 4.3 COMPENSATION ON TERMINATION OR NON-RENEWAL. Until liquidation of ------------------------------------------ the Trust, in the event the Trust terminates or fails to renew this Agreement on terms as favorable as those contained in this Agreement or hereafter in a renewal agreement, in either case other than for Cause, the Trust shall pay the REIT Manager all fees then accrued and unpaid as of the year or portion thereof in which the termination occurred. V. ACTION UPON TERMINATION OR CANCELLATION --------------------------------------- 5.1 ACCOUNTING. The REIT Manager shall immediately upon termination of ---------- this Agreement: (a) pay over to the Trust all monies collected and held for the account of the Trust pursuant to this Agreement, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled; (b) deliver to the Trust a full accounting, including a statement showing all payments collected by it and a statement of all monies held by it, covering the period following the date of the last accounting furnished to the Trust; (c) refund to the Trust any amounts due pursuant to Section 3.5 ----------- hereof; (d) deliver to the Trust all property and documents of the Trust then in the custody of the REIT Manager; and (e) cooperate with the Trust and take all reasonable steps requested to assist the Board in making an orderly transition of the REIT management function. VI. LIABILITY AND INDEMNIFICATION OF REIT MANAGER --------------------------------------------- 6.1 LIMITATION ON LIABILITY. The REIT Manager shall have no ----------------------- responsibility other than to render the services and take the actions described herein in good faith and with the exercise of due care and shall not be responsible for any action of the Board in following or declining to follow any advice or recommendation of the REIT Manager. The REIT Manager, except by reason of its own gross negligence, bad faith or willful misconduct, shall not be liable for any action taken, omitted or suffered to be taken by it in good faith and believed by it to be authorized or within its discretion or rights or powers conferred upon it by this Agreement or in reasonable reliance upon the written opinion of counsel of recognized expertise. -13- 6.2 INDEMNIFICATION. --------------- (a) The Trust shall reimburse, indemnify and hold harmless the REIT Manager and its directors, officers, shareholders, agents and employees and each other person or entity, if any, controlling the REIT Manager (an "Indemnified Party"), to the full extent lawful, from and against any and all losses, claims, damages or liabilities of any nature whatsoever with respect to or arising from any acts or omissions of the REIT Manager (including ordinary negligence) in its capacity as such, except with respect to losses, claims, damages or liabilities with respect to or arising out of the REIT Manager's gross negligence, bad faith or willful misconduct. (b) Notwithstanding the indemnification provisions in Section 6.2(a) -------------- above, indemnification will not be allowed for any liability imposed by judgment, and costs associated therewith, including attorneys' fees, arising from or out of a violation of state or federal securities laws associated with the offer and sale of Trust securities. Indemnification will be allowed for settlement and related expenses of lawsuits alleging securities law violations, and for expenses incurred in successfully defending such lawsuits, provided that a court either (i) approves the settlement and finds that indemnification of the settlement and related costs should be made or (ii) approves indemnification of litigation costs if a successful defense is made. If indemnification is unavailable as a result of this Section 6.2(b), the Trust shall contribute to -------------- the aggregate losses, claims, damages or liabilities to which the REIT Manager or its officers, directors, agents, employees or controlling persons may be subject in such amount as is appropriate to reflect the relative benefits received by the Trust and the party seeking contribution and the relative faults of the Trust and the party seeking contribution, as well as any other relevant equitable considerations. (c) Promptly after receipt by an Indemnified Party of notice of the commencement of any action, such Indemnified Party shall, if a claim in respect thereof is to be made against the Trust, notify the Trust in writing of the commencement thereof; but the omission so to notify the Trust shall not relieve it from any liability that it may have to any Indemnified Party pursuant to Section 6.2(a) hereof, unless the failure to so notify would itself constitute - -------------- gross negligence, bad faith or willful misconduct. In case any such action shall be brought against an Indemnified Party and it shall notify the Trust of the commencement thereof, the Trust shall be entitled to participate therein and, to the extent that it shall wish to assume the defense thereof, with counsel satisfactory to such Indemnified Party and, after notice from the Trust to such Indemnified Party of its election so to assume the defense thereof, the Trust shall not be liable to such Indemnified Party under Section 6.2(a) hereof -------------- for any legal expenses of other counsel or any of the expenses, in each case subsequently incurred by such Indemnified Party, unless (i) the Trust and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the Trust and the Indemnified Party and representation of both parties by the same counsel would be inappropriate in the reasonable opinion of the Indemnified Party, due to actual or potential differing interests between them. -14- (d) The obligations of the Trust under this Section 6.2 shall be in ----------- addition to any liability which the Trust otherwise may have. 6.3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF TRUST. -------------------------------------------------- (a) The Trust represents and warrants as of the date hereof that: (i) this Agreement has been duly authorized, executed and delivered on behalf of the Trust; (ii) the Trust is fully authorized under the applicable laws governing the Trust to enter into all of the types of investments and co- investments described in the Investment Policies; (iii) the execution and performance of this Agreement by the Trust will not conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, any agreement or instrument to which the Trust is subject; (iv) the terms of this Agreement are in conformity with the applicable laws governing the Trust; and (v) the assets of the Trust do not constitute "plan assets" within the meaning of the Department of Labor plan asset regulation published at 29 C.F.R. (S) 2510.3-101. (b) The Trust shall promptly advise the REIT Manager in writing of any agreements or changes in any agreements, instruments, governing law, regulations or interpretations thereof affecting the investments of the Trust or the duties, responsibilities, liabilities or obligations of the REIT Manager, and any change or any contemplated change with respect to any of the foregoing or the operation or administration of the Trust that could cause the assets of the Trust to constitute "plan assets" as defined in Section 6.3(a)(v) above. ----------------- VII. MISCELLANEOUS PROVISIONS ------------------------ 7.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement ---------------- between the parties with respect to the subject matter hereof. Any modification or amendment of this Agreement shall be in writing executed by each of the parties. 7.2 ASSIGNMENT. This Agreement may not be assigned by either party ---------- except in the event of an assignment to a successor organization that takes over the property and carries on the affairs of the assignor, provided that following any such assignment by the REIT Manager, the persons who controlled the operations of the REIT Manager immediately prior thereto shall control the operations of the successor organization, including the performance of its duties -15- under this Agreement. Any such assignment of this Agreement shall bind the assignee hereunder in the same manner as the assignor is bound hereunder. Notwithstanding the foregoing, without the Trust's consent, the REIT Manager may assign all or any part of the compensation due it hereunder and the REIT Manager may assign or subcontract any or all of its rights and duties hereunder with respect to the Trust's corporate efficiency properties to an Affiliate of the REIT Manager, provided that no such assignment or subcontract shall relieve the REIT Manager of its obligations hereunder. 7.3 NO PARTNERSHIP OR JOINT VENTURE. The Trust and the REIT Manager are ------------------------------- not, and shall not be deemed to be, partners or joint venturers with each other. 7.4 SEVERABILITY. If any term or provision of this Agreement or the ------------ application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of that term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. 7.5 POLICY AND FINANCIAL INFORMATION. The Trustees shall keep the REIT -------------------------------- Manager informed in writing concerning the investment and financing policies of the Trust and shall promptly notify the REIT Manager of any intention to make any new investments, to sell or dispose of any existing investments or to enter into any agreement or understanding with any third party. The Trust shall furnish the REIT Manager a certified copy of all financial statements, a signed copy of each report prepared by independent public accountants, a certified copy of each amendment or supplement to the Declaration of Trust, the By-Laws and the Investment Policies and such other information with regard to the Trust's affairs as the REIT Manager from time to time reasonably may request. 7.6 NOTICES. Any notices and other communications to be given by any ------- party hereunder shall be in writing delivered at the address of the respective party set forth on the signature page hereof, or at such other address as a party shall have specified to the other party in writing as the address for notices hereunder. Any such notice or other communication shall be deemed to have been given when personally delivered or one business day after being forwarded by overnight courier or five days after being sent by registered or certified United States mail, postage prepaid. 7.7 HEADINGS. The section headings used herein have been inserted for -------- convenience of reference only and shall not be considered in interpreting this Agreement. 7.8 GOVERNING LAW. This Agreement shall be governed by and construed in ------------- accordance with the laws of the State of Texas, without giving effect to the principles of conflict of laws thereof. -16- 7.9 BOARD ACTION. Whenever action on the part of the Trust or the Board ------------ is contemplated in this Agreement, unless otherwise indicated herein, action by a majority of the Trustees, including a majority of the Independent Trustees, shall constitute the action provided for herein. 7.10 OTHER ACTIVITIES. ---------------- (a) Nothing in this Agreement shall prevent the REIT Manager or any Affiliate thereof from rendering advice to other investors (including other real estate investment trusts), even if such investors are in competition with the Trust or any of the Trust's real estate investments or from managing other investments, including investors and investments advised, sponsored or organized by the REIT Manager. The REIT Manager also may render such services to joint ventures and partnerships in which the Trust is a co-venturer or partner and to the other entities in such joint ventures and partnerships. In addition, nothing in this Agreement shall limit the right of the REIT Manager or any of its subsidiaries or Affiliates to engage in any other business or to render services of any kind (including business activities competitive with those of the Trust) to any corporation, partnership or other entity. The REIT Manager will inform the Trustees of any other advisory contracts or investments (other than purchases of marketable securities or securities which are registered pursuant to Section 12 of the Exchange Act) by the REIT Manager or its Affiliates. When informing the Trustees of any advisory contracts, the REIT Manager need not identify the advised entities by name, but shall provide the Board with sufficient information to permit the Board to evaluate the services performed or to be performed by the REIT Manager under such contract. Nothing in this Agreement shall prevent the Trustees from considering the REIT Manager's activities for itself and for other entities in evaluating the REIT Manager's performance for purposes of deciding whether or not to renew this Agreement. The Trust will maintain the confidentiality of all information provided to the Trust pursuant to this paragraph, subject to disclosure only if required by applicable law or compelled by appropriate legal process. (b) The REIT Manager and its Affiliates, directors, officers, employees, shareholders and subsidiaries shall be free of any obligation to provide the Trust with the right of first refusal to acquire or invest in any investment opportunity that may come to any of them in any capacity, whether or not such investment opportunities are of a character which is within the investment policies of the Trust. Directors, officers, employees and agents of the REIT Manager or any of its Affiliates may serve as Trustees, officers, employees, agents, nominees or signatories of the Trust. When executing documents or otherwise acting in such capacities for the Trust, such persons shall use their respective titles for the Trust. Such persons shall receive from the Trust no compensation for their services to the Trust in any such capacities. 7.11 INDEPENDENT TRUSTEES' APPROVAL. Notwithstanding anything to the ------------------------------ contrary in this Agreement, a majority of the Independent Trustees must approve the Trust's annual strategic plan and operating budget; all property acquisitions, developments, dispositions and unbudgeted (non-emergency) capital expenditures in excess of $50,000; and all Trust financing, including -17- the issuance of public and private debt or equity securities. In addition, to the extent that the Declaration of Trust requires approval of the majority of Independent Trustees with respect to any matter pertaining to this Agreement, such matter shall be submitted for such approval and shall not be pursued until such approval is received. 7.12 LIMITATION OF LIABILITY OF TRUST. ANY OBLIGATION OR LIABILITY -------------------------------- WHATSOEVER OF THE TRUST WHICH MAY ARISE AT ANY TIME UNDER THIS AGREEMENT OR ANY OBLIGATION OR LIABILITY WHICH MAY BE INCURRED BY IT PURSUANT TO ANY OTHER INSTRUMENT, TRANSACTION OR UNDERTAKING CONTEMPLATED HEREBY SHALL BE SATISFIED, IF AT ALL, OUT OF THE TRUST'S PROPERTIES ONLY. NO SUCH OBLIGATION OR LIABILITY SHALL BE PERSONALLY BINDING UPON, NOR SHALL RESORT FOR THE ENFORCEMENT THEREOF BE HAD TO, THE PRIVATE PROPERTY OF ANY OF ITS TRUSTEES, SHAREHOLDERS, OFFICERS, EMPLOYEES OR AGENTS, REGARDLESS OF WHETHER SUCH OBLIGATION OR LIABILITY IS IN THE NATURE OF CONTRACT, TORT OR OTHERWISE. 7.13 DECLARATION OF TRUST GOVERNS. To the extent that any provision in ---------------------------- this Agreement is inconsistent with or contradicts a provision in the Declaration of Trust, as the same may be amended and supplemented from time to time, the Declaration of Trust shall govern and such provision of this Agreement shall be deemed to have been reformed to be consistent with the Declaration of Trust. 7.14 AUTHORITY TO ACT. The Trust shall furnish to the REIT Manager from ---------------- time to time, upon request of the REIT Manager, certified copies of appointments or designations setting forth the names, titles and authorities of the individuals who are authorized to act on behalf of the Trust with respect to the Trust's investments, together with specimen signatures of those individuals who are authorized to act on its behalf with respect to this Agreement. The REIT Manager shall furnish to the Trust from time to time, upon request of the Trust, certificates setting forth the names, titles and authorities of the persons authorized to act on its behalf and provide specimen signatures of those individuals who are authorized to act on its behalf with respect to this Agreement. 7.15 COUNTERPARTS. This Agreement may be executed in any number of ------------ counterparts and by each of the parties hereto on separate counterparts; all such counterparts shall together constitute but one and the same instrument. -18- IN WITNESS WHEREOF, the Trust and the REIT Manager have executed this Agreement as of the day and year first above written. Address for Notice: SECURITY CAPITAL PACIFIC TRUST 7777 Market Center Avenue El Paso, Texas 79912 By: /s/ C. Ronald Blankenship -------------------------- C. Ronald Blankenship Chairman Address for Notice: SECURITY CAPITAL PACIFIC INCORPORATED 125 Lincoln Avenue Santa Fe, New Mexico 87501 By: /s/ Jeffrey A. Klopf --------------------- Jeffrey A. Klopf Secretary -19- EX-10.12 18 PROTECTION OF BUSINESS AGREEMENT EXHIBIT 10.12 PROTECTION OF BUSINESS AGREEMENT -------------------------------- THIS PROTECTION OF BUSINESS AGREEMENT (this "Agreement") is entered into as of October 17, 1996, by and among Security Capital Atlantic Incorporated, a Maryland corporation ("Atlantic"), Security Capital Pacific Trust, a Maryland real estate investment trust ("PTR"), and Security Capital Group Incorporated, a Maryland corporation ("SCG"), and Homestead Village Incorporated, a Maryland corporation ("Homestead"). WHEREAS, on the date hereof the parties are entering into a series of related transactions as described in that certain Merger and Distribution Agreement, dated as of May 21, 1996, among Atlantic, PTR, SCG and Homestead (the "Merger Agreement"), pursuant to which, among other things, PTR, Atlantic and SCG will cause their respective subsidiaries engaged in the conduct of the extended-stay lodging business to be merged with and into Homestead; WHEREAS, Atlantic, PTR and SCG and their respective affiliates will continue to engage in certain businesses after the date hereof; WHEREAS, as a condition to the consummation of the transactions contemplated by the Merger Agreement, the parties hereto desire to enter into certain agreements restricting the activities of Atlantic, PTR and SCG and their respective affiliates; and WHEREAS, pursuant to the Merger Agreement, it is contemplated that securities of Homestead will be distributed by PTR and Atlantic in a public distribution to their respective shareholders. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: Section 1. Definitions. Capitalized terms used herein shall have the ----------- meanings set forth below: "Affiliate" with regard to any Person, means (a) any Person directly or indirectly controlling, controlled by or under common control with such Person, (b) any Person owning or controlling 10% or more of the outstanding voting interests of such Person or (c) any Person of which such Person owns or controls 10% or more of the voting interests. The term "Affiliates" and "Affiliated" shall have correlative meanings. For purposes of this Agreement, the term "Affiliate" shall not include Security Capital U.S. Realty, a Luxembourg corporation, or any Person controlled by Security Capital U.S. Realty and no party hereto shall be deemed to be an Affiliate of any other party hereto. "Extended-Stay Property" means real property that is or is planned to be used primarily for lodging facilities generally offering studio apartments, including cooking facilities, which are generally rented for incremental periods of one week but shall not include any real property that is or is planned to be used primarily as corporate apartments. "Interest" means any kind of right, title or interest (whether legal or beneficial), whether such right, title or interest is held directly or indirectly through an interest in a Person that either directly or indirectly owns such interest, but excluding any interests in Homestead. "Multifamily Property" means real property that is or is planned to be used primarily for garden style multifamily dwellings which are generally leased for six-month to twelve-month periods and require security deposits and also includes real property that is or is planned to be used primarily for master- planned apartment neighborhoods. "Person" means an individual or any corporation, partnership, trust, unincorporated association or any other legal entity; provided, however that, for purposes of Sections 2, 3 and 4 hereof, the term "Person" shall not include an individual. "Restricted Area" means the continental United States. Section 2. Agreement not to Engage in Certain Activities. --------------------------------------------- (a) During the term provided in Section 6 hereof, none of Atlantic, PTR or SCG nor any of their respective Affiliates shall, anywhere within the Restricted Area, directly or indirectly, engage in the ownership, operation, development, management or leasing of any Extended-Stay Property. (b) During the term provided in Section 6 hereof, neither Homestead nor any of its Affiliates shall, anywhere within the Restricted Area, directly or indirectly, engage in the ownership, operation, development, management or leasing of any Multifamily Property. Section 3. Atlantic, PTR and SCG Limitations on Protection of Business. ----------------------------------------------------------- Notwithstanding anything to the contrary contained in this Agreement, each of Atlantic, PTR and SCG and their respective Affiliates may: (a) be an owner of securities of any class of Homestead; (b) be an owner of up to 5% of the outstanding shares of stock of any class of securities of a Person (public or private) primarily engaged in owning, operating, developing, managing or leasing Extended-Stay Properties, so long as Atlantic, PTR and SCG and their Affiliates have no active participation (except to the extent permitted by clauses (c) and (d) below) in the business of such Person; -2- (c) be an owner of any amount of the outstanding shares of stock of any class of securities of a Person (public or private), a majority owned subsidiary, division, group, franchise or segment of which is engaged in owning, operating, developing, managing or leasing Extended-Stay Properties, so long as not more than 5% of such Person's consolidated revenues are derived from the ownership, operation, development, management or leasing of Extended-Stay Properties; and (d) be an owner of the outstanding shares of stock of any class of securities of a Person (public or private) primarily engaged in a business other than owning, operating, developing, managing or leasing Extended-Stay Properties, including a Person primarily engaged in business as an owner, operator or developer of hotel properties, whether or not such Person owns, operates, develops, manages or leases any Extended-Stay Properties. Section 4. Homestead Limitations on Protection of Business. ----------------------------------------------- Notwithstanding anything to the contrary contained in this Agreement, Homestead and its Affiliates may: (a) be an owner of securities of any class of any of Atlantic, PTR or SCG; (b) be an owner of up to 5% of the outstanding shares of stock of any class of securities of a Person (public or private) primarily engaged in owning, operating, developing, managing or leasing Multifamily Properties, so long as Homestead and its Affiliates have no active participation (except to the extent permitted by clause (c) below) in the business of such Person; and (c) be an owner of any amount of the outstanding shares of stock of any class of securities of a Person (public or private), a majority owned subsidiary, division, group, franchise or segment of which is engaged in owning, operating, developing, managing or leasing Multifamily Properties, so long as not more than 5% of such Person's consolidated revenues are derived from the ownership, operation, development, management or leasing of Multifamily Properties. Section 5. Reasonable and Necessary Restrictions. Each of the parties ------------------------------------- hereto acknowledges that the restrictions, prohibitions and other provisions hereof are reasonable, fair and equitable in scope, terms and duration, are necessary to protect the legitimate business interests of each of the other parties hereto, and are a material inducement to such party to enter into the transactions contemplated by the Merger Agreement. Section 6. Term. ---- 6.1 General. Subject to earlier termination pursuant to Section 6.2, this ------- Agreement shall be effective from and after the date hereof and shall continue in effect until the tenth anniversary of the date hereof. -3- 6.2 Change in Control. Notwithstanding anything to the contrary contained ----------------- herein, the provisions of Section 2 of this Agreement shall terminate and be of no further force or effect upon the occurrence of a Change in Control. As used herein, "Change in Control" means the acquisition, directly or indirectly (other than by purchase from PTR, Atlantic or SCG, or any of their respective Affiliates), by any Person (or group of associated Persons acting in concert), other than PTR, Atlantic, SCG, or their respective Affiliates, of 25% or more of the outstanding shares of voting stock of Homestead, without the prior written consent of the Board of Directors of Homestead. Section 7. Specific Performance. Each of the parties hereto acknowledges -------------------- that the obligations undertaken by it pursuant to this Agreement are unique and that the other parties hereto will not have an adequate remedy at law if it shall fail to perform any of its obligations hereunder, and each of the parties hereto therefore confirms that the right of each other party hereto to specific performance of the terms of this Agreement is essential to protect the rights and interests of such party. Accordingly, in addition to any other remedies that any party hereto may have at law or in equity, each such party shall have the right to have all obligations, covenants, agreements and other provisions of this Agreement specifically performed by each other party, and each party shall have the right to obtain preliminary and permanent injunctive relief to secure specific performance and to prevent a breach or contemplated breach of this Agreement by each other party hereto. Section 8. Operations of Affiliated Parties. Each of the parties hereto -------------------------------- agrees that it will refrain from authorizing or permitting any Affiliated party to perform any activities that would be prohibited by the terms of this Agreement if such activities were performed by it. Section 9. Ancillary Agreements. Nothing contained in this Agreement -------------------- shall in any way restrict or impair the obligations and rights of any party under the terms of any agreement entered into in connection with the transactions contemplated by the Merger Agreement, including, without limitation, the foreclosure by PTR or Atlantic under any mortgages secured by the properties of Homestead and the operation of such properties subsequent to such foreclosure. Section 10. Miscellaneous Provisions. ------------------------ 10.1 Interpretation. The parties hereto acknowledge that the fundamental -------------- policies of this Agreement are to protect each other party's interest in its respective business and to eliminate potential conflicts of interest that may exist as a result of actions taken or proposed to be taken by the other parties hereto, and this Agreement shall be construed and enforced in a manner consistent with and in furtherance of these policies. 10.2 Binding Effect. Subject to any provisions hereof restricting -------------- assignment, all covenants and agreements in this Agreement by or on behalf of any of the parties hereto shall -4- bind and inure to the benefit of their respective successors, assigns, heirs, and personal representatives. 10.3 Assignment. None of the parties hereto may assign any of its rights ---------- under this Agreement, or attempt to have any other entity or individual assume any of its obligations hereunder. 10.4 Severability. If performance of any provision of this Agreement, at ------------ the time such performance shall be due, shall transcend the limit of validity prescribed by law, then the obligation to be performed shall be reduced to the limit of such validity; and if any clause or provision contained in this Agreement operates or would operate to invalidate this Agreement, in whole or in part, then such clause or provision only shall be held ineffective, as though not herein contained, and the remainder of this Agreement shall remain operative and in full force and effect. The parties shall negotiate in good faith a replacement clause or provision as consistent with the ineffective clause or provision as is practicable under law. 10.5 Governing Law. This Agreement, the rights and obligations of the ------------- parties hereto, and any claims or disputes relating thereto shall be governed by and construed in accordance with the laws of the State of Maryland, not including the choice-of-law rules thereof. 10.6 Amendment. Except as otherwise expressly provided in this Agreement, --------- no amendment, modification or discharge of this Agreement shall be valid or binding unless set forth in writing and duly executed by each of the parties hereto. 10.7 Waiver. Any waiver by any party or consent by any party to any ------ variation from any provision of this Agreement shall be valid only if in writing and only in the specific instance in which it is given, and such waiver or consent shall not be construed as a waiver of any other provision or as a consent with respect to any similar instance or circumstance. 10.8 Headings. Section and subsection headings contained in this -------- Agreement are inserted for convenience of reference only, shall not be deemed to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof. 10.9 No Presumption Against Drafter. Each of the parties hereto have ------------------------------ jointly participated in the negotiation and drafting of this Agreement. In the event of an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by each of the parties hereto and no presumptions or burdens of proof shall arise favoring any party by virtue of the authorship of any of the provisions of this Agreement. 10.10 Execution in Counterparts. This Agreement may be executed in one ------------------------- or more counterparts, none of which need contain the signatures of each of the parties hereto and each of which shall be deemed an original. -5- 10.11 Limitation of Liability. Any obligation or liability whatsoever of ----------------------- PTR which may arise at any time under this Agreement or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction or undertaking contemplated hereby shall be satisfied, if at all, out of PTR's assets only. No such obligation or liability shall be personally binding upon, nor shall resort for the enforcement thereof be had to, the property of any of its shareholders, trustees, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort or otherwise. -6- IN WITNESS WHEREOF, each of the undersigned has executed this Agreement, or caused this Agreement to be duly executed on its behalf, as of the date first set forth above. SECURITY CAPITAL ATLANTIC INCORPORATED By: /s/ James C. Potts ------------------ James C. Potts Co-Chairman SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship ------------------------- C. Ronald Blankenship Chairman SECURITY CAPITAL GROUP INCORPORATED By: /s/ Jeffrey A. Klopf -------------------- Jeffrey A. Klopf Senior Vice President HOMESTEAD VILLAGE INCORPORATED By: /s/ David C. Dressler, Jr. -------------------------- David C. Dressler, Jr. Chairman S-1 EX-10.13 19 INVESTOR & REGISTRATION RIGHTS AGRMT. EXHIBIT 10.13 INVESTOR AND REGISTRATION RIGHTS AGREEMENT THIS INVESTOR AND REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is entered into as of October 17, 1996, between Homestead Village Incorporated, a Maryland corporation ("Homestead"), and Security Capital Pacific Trust, a Maryland real estate investment trust ("PTR"). WHEREAS, on the date hereof, the parties are entering into a series of transactions as described in that certain Merger and Distribution Agreement, dated as of May 21, 1996, among Security Capital Atlantic Incorporated ("Atlantic"), PTR, Security Capital Group Incorporated ("SCG") and Homestead (the "Merger Agreement"), pursuant to which, among other things, Homestead will acquire all of PTR's assets relating to its operation of extended-stay lodging facilities; WHEREAS, pursuant to the Merger Agreement, PTR and Homestead are entering to a Funding Commitment Agreement (the "Funding Commitment Agreement"), pursuant to which PTR will agree to make certain loans to Homestead, which loans will be secured by mortgages, and the notes evidencing such loans will be convertible into shares of Common Stock, $0.01 par value per share ("Common Stock"), of Homestead on the terms and conditions described therein; WHEREAS, pursuant to a Warrant Purchase Agreement (the "Warrant Purchase Agreement"), dated as of May 21, 1996, among Homestead, SCG, Atlantic and PTR, Homestead has agreed to issue to PTR warrants to acquire Common Stock; and WHEREAS, the execution of this Agreement is a condition to the consummation of the transactions contemplated by the Merger Agreement, the Funding Commitment Agreement and the Warrant Purchase Agreement. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: Section 1. Board Representation. Until March 31, 1998 and for so -------------------- long thereafter as PTR shall continue to have the right to convert in excess of $20 million in principal amount of loans made pursuant to the Funding Commitment Agreement, Homestead shall not increase the number of members of its Board of Directors to more than seven (7) members and PTR shall be entitled to designate one person for nomination to the Homestead Board of Directors (such person, a "Nominee") and Homestead will use its best efforts to cause the election of such Nominee. The Nominee of PTR may, but need not, include the same person or persons nominated by SCG pursuant to the Investor Agreement of even date herewith between SCG and Homestead or the person nominated by Atlantic pursuant to the Investor and Registration Rights Agreement of even date herewith between Atlantic and Homestead. Section 2. Inspection. Until March 31, 1998 and for so long ---------- thereafter as PTR shall continue to have the right to convert any principal amount of loans made, pursuant to the Funding Commitment Agreement, at any time during regular business hours and as often as reasonably requested of Homestead's officers, Homestead shall permit PTR or any authorized employee, agent or representative of PTR to examine and make copies and abstracts from the records and books of account of, and to visit the properties of, Homestead and to discuss the affairs, finances, and accounts of Homestead with any of its officers or directors; provided, that all costs and expenses of such inspection -------- shall be borne by PTR. Section 3. Registration Rights. ------------------- (a) Demand. At any time prior to the first anniversary of ------ the date on which the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act of 1934, as amended (the "Exchange Act"), PTR may request one registration of all or any part of its Registrable Securities (as defined in sub-section (h) below) under the Securities Act of 1933, as amended (the "Securities Act"), by delivering written notice (which notice shall state that PTR intends to dispose of such securities through a public distribution thereof) to Homestead specifying the number of Registrable Securities that PTR desires to distribute and Homestead shall use its reasonable efforts to effect the registration of such Registrable Securities under the Securities Act in accordance with the further provisions of this Section 3. (b) Shelf Registration. At any time after the first ------------------ anniversary of the date on which the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, PTR may request, on up to three separate occasions, registration of all or any part of its Registrable Securities pursuant to Rule 415 under the Securities Act by delivering written notice (which notice shall state that PTR intends to dispose of such securities through a public distribution thereof) to Homestead and Homestead shall use its reasonable efforts to effect the registration of such Registrable Securities under the Securities Act in accordance with the further provisions of this Section 3. (c) Registration Procedures. If and whenever Homestead is ----------------------- required by any of tmeans (i)he provisions of this Section 3 to use its reasonable efforts to effect the registration of any of the Registrable Securities under the Securities Act, Homestead shall: (i) prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement with respect to such securities and use its reasonable efforts to cause such registration statement to become effective and remain effective for as long as shall be necessary to complete the distribution of the Registrable Securities so registered; (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection -2- therewith as may be necessary to keep such registration statement effective for so long as shall be necessary to complete the distribution of the Registrable Securities so registered and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever PTR shall desire to sell or otherwise dispose of the same within such period; (iii) furnish to PTR such numbers of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement, including any preliminary prospectus, and any amendment or supplement thereto, and such other documents, as PTR may reasonably request in order to facilitate the sale or other disposition of the Registrable Securities; (iv) use its reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as PTR shall reasonably request, and do any and all other acts and things reasonably requested by PTR to assist it to consummate the public sale or other disposition in such jurisdictions of the securities owned by PTR, except that Homestead shall not for any such purpose be required to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified or to file therein any general consent to service of process; (v) otherwise use its reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, beginning with the first fiscal quarter beginning after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; (vi) use its reasonable efforts to list such securities on any securities exchange or quotation system on which any securities of Homestead are then listed, if the listing of such securities is then permitted under the rules of such exchange or quotation system; and (vii) notify PTR, at any time when a prospectus relating to the Registrable Securities is required to be delivered under the Securities Act, of the happening of any event of which it has knowledge as a result of which the prospectus included in such registration statement, as then in effect, contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. -3- (d) Homestead's Ability to Postpone. Homestead shall have the ------------------------------- right to postpone the filing of a registration statement under this Section 3 for a reasonable period of time (not exceeding 60 days) if Homestead furnishes PTR with a certificate signed by the Chairman of the Board or the President of Homestead stating that, in its good faith judgment, Homestead's Board of Directors has determined that effecting the registration at such time would adversely affect a material financing, acquisition, disposition of assets or stock, merger or other comparable transaction or would require Homestead to make public disclosure of information the public disclosure of that would have a material adverse effect upon Homestead. (e) Expenses. All expenses incurred in the registration of -------- Registrable Securities under this Agreement shall be paid by Homestead. The expenses shall include, without limitation, the expenses of preparing the registration statement and the prospectus used in connection therewith and any amendment or supplement thereto, printing and photocopying expenses, all registration and filing fees under Federal and state securities laws, and expenses of complying with the securities or blue sky laws of any jurisdictions, provided, however, that PTR shall be responsible for the fees and disbursements of its own counsel. (f) Indemnification. In the event any Registrable Securities --------------- are included in a registration statement under this Section 3: (i) Indemnity by Homestead. Without limitation of any ---------------------- other indemnity provided to PTR, to the extent permitted by law, Homestead will indemnify and hold harmless PTR and its officers, trustees and any individual, partnership, corporation, trust, unincorporated organization or other entity (a "Person") if any, who controls PTR (within the meaning of the Securities Act or the Exchange Act), against any losses, claims, damages, liabilities and expenses (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, liabilities and expenses (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement (including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto), (ii) the omission or alleged omission to state therein 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, or (iii) any violation or alleged violation by Homestead of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law, and Homestead will reimburse PTR and its officers, trustees and any controlling person thereof for any reasonable legal or other expenses incurred by them in connection with -4- investigating or defending any such loss, claim, damage, liability, expense or action; provided, however, that Homestead shall not be liable in any such case for any such loss, claim, damage, liability, expense or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by PTR or any officer, trustee or controlling person thereof. (ii) Indemnity by PTR. In connection with any ---------------- registration statement in which PTR is participating, PTR will furnish to Homestead in writing such information and affidavits as Homestead reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, will indemnify Homestead, its directors and officers and each Person who controls Homestead (within the meaning of the Securities Act or Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any Violation, but only to the extent that such Violation is contained in any information or affidavit so furnished in writing by PTR; provided, that the obligation to indemnify will be several and not joint and several with any other Person and will be limited to the net amount received by PTR from the sale of Registrable Securities pursuant to such registration statement. (iii) Notice; Right to Defend. Promptly after receipt ----------------------- by an indemnified party under this Section 3(f) of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 3(f), deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, if the indemnifying party agrees in writing that it will be responsible for any costs, expenses, judgments, damages and losses incurred by the indemnified party with respect to such claim, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if the indemnified party reasonably believes that representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section 3(f) only if and to the extent that such failure is prejudicial to its ability to defend such action, and the omission so to deliver written notice to the indemnifying party will not relieve it -5- of any liability that it may have to any indemnified party other than under this Section 3(f). (iv) Contribution. If the indemnification provided for ------------ in this Section 3(f) is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other hand in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relevant fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding the foregoing, the amount PTR shall be obligated to contribute pursuant to this Section 3(f)(iv) shall be limited to an amount equal to the aggregate value of the Registrable Securities distributed by PTR pursuant to the registration statement which gives rise to such obligation to contribute (less the aggregate amount of any damages which PTR has otherwise been required to pay in respect of such loss, claim, damage, liability or action or any substantially similar loss, claim, damage, liability or action arising from the distribution of such Registrable Securities). (v) Survival of Indemnity. The indemnification --------------------- provided by this Section 3(f) shall be a continuing right to indemnification and shall survive the registration and sale of any securities by any Person entitled to indemnification hereunder and the expiration or termination of this Agreement. (g) Limitations on Registration Rights. ---------------------------------- (i) Homestead shall not, without the prior written consent of PTR, include in any registration in which PTR has a right to participate pursuant to this Agreement any securities of any Person other than Atlantic and PTR. (ii) PTR shall not, without the prior written consent of Homestead, effect any public sale or distribution (including sales pursuant to Rule 144 under the Securities Act) of securities of Homestead during any period commencing 30 days prior to and ending 60 days after the effective date any registration statement filed -6- by Homestead on behalf of any Person (including Homestead), other than a registration statement on Form S-8 or any successor form. (h) Registrable Security. The term Registrable Security -------------------- means (i) any shares of Common Stock issuable to PTR pursuant to the conversion of notes issuable pursuant to the terms of the Funding Commitment Agreement or otherwise held by PTR, (ii) any other shares of Common Stock owned by PTR and (iii) any shares of Common Stock or other securities that may subsequently be issued with respect to such shares of Common Stock as a result of a stock split or dividend or any sale, transfer, assignment or other transaction by Homestead involving the shares of Common Stock and any securities into which the shares of Common Stock may thereafter be changed as a result of merger, consolidation, recapitalization or otherwise. As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Securities Act. All Registrable Securities shall cease to be Registrable Securities when all such securities may be sold in any three-month period pursuant to Rule 144, or any successor to such rule, under the Securities Act. Section 4. File Reports. For so long as PTR owns any Registrable ------------ Securities, Homestead shall file on a timely basis all annual, quarterly and other reports required to be filed by it under Section 13 and 15(d) of the Exchange Act, and the rules and regulations of the Commission thereunder, as amended from time to time. Section 5. Miscellaneous. ------------- (a) Survival of Covenants. All covenants contained herein shall --------------------- survive the execution of this Agreement and shall remain in full force and effect until terminated in accordance with this Agreement. (b) Successors and Assigns. This Agreement shall be binding upon, ---------------------- and inure to the benefit of, the parties hereto and their respective heirs, personal representatives, successors, assigns and affiliates. (c) 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): -7- If to Homestead: Homestead Village Incorporated 125 Lincoln Avenue, Suite 300 Santa Fe, New Mexico 87501 Attention: David C. Dressler, Jr. Facsimile: (505) 982-2925 If to PTR: Security Capital Pacific Trust 7777 Market Center Avenue El Paso, Texas 79912 Attention: C. Ronald Blankenship Facsimile: (915) 877-3301 (d) Waiver. No party may waive any of the terms or conditions of this ------ Agreement, except by a duly executed writing referring to the specific provision to be waived. (e) Amendment. This Agreement may be amended only by a writing duly --------- executed by both Homestead and PTR. (f) Severability. Insofar as is possible, each provision of this ------------ Agreement shall be interpreted so as to render it valid and enforceable under applicable law and severable from the remainder of this Agreement. A finding that any such provision is invalid or unenforceable in any jurisdiction shall not affect the validity or enforceability of any other provision or the validity or enforceability of such provision under the laws of any other jurisdiction. (g) Entire Agreement. This Agreement constitutes the entire agreement, ---------------- and supersedes all other prior agreements and understandings, both written and oral, between the parties hereto and their affiliates, with respect to the subject matter hereof. (h) Expenses. Except as otherwise expressly contemplated herein to the -------- contrary, regardless of whether the transactions contemplated hereby are consummated, each party hereto shall pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the transactions contemplated hereby. (i) Captions. The Section and Paragraph captions herein are for -------- convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. -8- (j) Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. (k) Governing Law. This Agreement shall be governed by, and construed and ------------- enforced in accordance with, the laws of the State of Maryland. (l) Limitation of Liability. Any obligation or liability whatsoever of ----------------------- PTR which may arise at any time under this Agreement or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction or undertaking contemplated hereby shall be satisfied, if at all, out of PTR's assets only. No such obligation or liability shall be personally binding upon, nor shall resort for the enforcement thereof be had to, the property of any of its shareholders, trustees, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort or otherwise. * * * * * -9- IN WITNESS WHEREOF, each of the undersigned has executed this Agreement, or caused this Agreement to be duly executed on its behalf, as of the date first set forth above. HOMESTEAD VILLAGE INCORPORATED By: /s/ David C. Dressler, Jr. -------------------------- David C. Dressler, Jr. Chairman SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship ------------------------- C. Ronald Blankenship Chairman S-1 EX-10.14 20 FUNDING COMMITMENT AGREEMENT EXHIBIT 10.14 - ------------------------------------------------------------------------------- FUNDING COMMITMENT AGREEMENT By and Between SECURITY CAPITAL PACIFIC TRUST "PTR" AND HOMESTEAD VILLAGE INCORPORATED "Homestead" PTR HOMESTEAD VILLAGE LIMITED PARTNERSHIP "Partnership Borrower" Dated: October 17, 1996 - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- ARTICLE 1. DEFINITIONS.................................................... 3 Section 1.1. Certain Defined Terms................................... 3 Section 1.2. Other Definitional Provisions........................... 10 ARTICLE 2. THE LOANS...................................................... 11 Section 2.1. The Homestead Loan...................................... 11 Section 2.2. The Partnership Loan.................................... 11 Section 2.3. Future Projects......................................... 11 Section 2.4. Subsidiary Loans........................................ 12 Section 2.5. Duration of Funding Commitment.......................... 13 Section 2.6. Project Specific Funding Commitment..................... 13 Section 2.7. Replacement Projects.................................... 14 Section 2.8. Release of Security Documents........................... 15 ARTICLE 3. REPRESENTATIONS AND WARRANTIES................................. 15 Section 3.1. Existence and Power..................................... 15 Section 3.2. Authorization and Binding Obligations................... 15 Section 3.3. No Legal Bar or Resultant Lien.......................... 16 Section 3.4. No Consent.............................................. 16 Section 3.5. Compliance with Laws.................................... 16 Section 3.6. Litigation.............................................. 16 Section 3.7. Defaults................................................ 17 Section 3.8. Status of Property...................................... 17 Section 3.9. Use of Proceeds......................................... 17 Section 3.10. Real Property Environmental Matters..................... 17 Section 3.11. Financial Condition..................................... 17 Section 3.12. No Condemnation......................................... 18 Section 3.13. No Actions.............................................. 18 Section 3.14. No Adverse Conditions................................... 18 ARTICLE 4. COVENANTS...................................................... 18 Section 4.1. Construction of Improvements............................ 18 Section 4.2. Plans; Project Budgets; Project Schedules and Material Changes................................................. 19 Section 4.3. Inspection and Examination.............................. 19 Section 4.4. Permits and Approvals................................... 19 Section 4.5. Governmental Requirements............................... 19 Section 4.6. Books and Records....................................... 19 Section 4.7. Title to Property and Improvements...................... 20 Section 4.8. Costs and Expenses...................................... 20
-i- TABLE OF CONTENTS (CONTINUED)
Page ---- Section 4.9. Use of Advances........................................ 20 Section 4.10. Insurance.............................................. 20 Section 4.11. Environmental Matters.................................. 20 Section 4.12. Selection of Architects; Contractors; Inspecting A/E's........................................21 Section 4.13. Further Assurances..................................... 21 Section 4.14. Quarterly Statements................................... 21 Section 4.15. Continued Existence.................................... 21 Section 4.16. Defaults Under Other Loans............................. 22 ARTICLE 5. ADVANCE CONDITIONS............................................ 22 Section 5.1. Conditions Precedent to First Advance under this Agreement.............................................. 22 Section 5.2. Conditions Precedent to First Advance for New Project.. 24 Section 5.3. Initial Improvement Advance Conditions................. 25 Section 5.4. Additional Improvement Advance Conditions.............. 26 Section 5.5. Final-Advance Conditions............................... 26 ARTICLE 6. PROCEDURE FOR ADVANCES; RESERVES.............................. 27 Section 6.1. General................................................ 27 Section 6.2. Payments to PTR........................................ 28 Section 6.3. Retainage and Contractor's Fee Holdback................ 28 Section 6.4. Interest Reserve....................................... 29 Section 6.5. Owner's Contingency.................................... 29 Section 6.6. Cost Overruns and Savings; Change Order Reserve........ 29 ARTICLE 7. EVENTS OF DEFAULT............................................. 30 Section 7.1. Failure to Pay......................................... 30 Section 7.2. Other Loan Document Defaults........................... 30 Section 7.3. Judgment or Attachment................................. 31 Section 7.4. Violation of Governmental Requirements................. 31 Section 7.5. Insolvency, etc........................................ 31 Section 7.6. Unapproved Transfer.................................... 32 ARTICLE 8. REMEDIES...................................................... 32 Section 8.1. General................................................ 32 Section 8.2. Remedies Cumulative.................................... 34
-ii- TABLE OF CONTENTS (CONTINUED)
PAGE ---- ARTICLE 9. MISCELLANEOUS.................................................. 34 Section 9.1. Survival of Representations, Warranties and Covenants............................................... 34 Section 9.2. Successors and Assigns.................................. 34 Section 9.3. Notices................................................. 35 Section 9.4. Waiver.................................................. 35 Section 9.5. Amendment............................................... 35 Section 9.6. Severability............................................ 35 Section 9.7. Entire Agreement........................................ 36 Section 9.8. Expenses................................................ 36 Section 9.9. Captions................................................ 36 Section 9.10. Governing Law........................................... 36 Section 9.11. No Joint Venture or Partnership......................... 36 Section 9.12. No Third Party Beneficiary Rights Created............... 36 Section 9.13. Incorporation by Reference.............................. 36 Section 9.14. Counterparts............................................ 37 Section 9.15. Scope of Review of Plans................................ 37 Section 9.16. Governmental Regulation................................. 37 Section 9.17. Subordination........................................... 37 Section 9.18. Indemnity............................................... 37 Section 9.19. Limitation of Liability................................. 37
-iii- FUNDING COMMITMENT AGREEMENT THIS FUNDING COMMITMENT AGREEMENT (this "Agreement"), is entered into as of --------- October 17, 1996, among HOMESTEAD VILLAGE INCORPORATED, a Maryland corporation ("Homestead"), PTR HOMESTEAD VILLAGE LIMITED PARTNERSHIP, a Delaware limited --------- partnership (the "Partnership Borrower") and SECURITY CAPITAL PACIFIC TRUST, a -------------------- Maryland real estate investment trust ("PTR"). --- RECITALS A. Prior to the date hereof, PTR agreed to make to PTR Homestead Village Incorporated (the "Prior Corporate Borrower") a loan (the "Corporate Loan"), of ------------------------ -------------- up to a maximum amount of $127,602,594 (the "Maximum Corporate Loan Amount") to ----------------------------- fund, among other things, acquisition and construction costs and expenses incurred in connection with the acquisition and development of Homestead Village extended stay lodging facilities. In connection with agreeing to make the Corporate Loan, PTR and the Prior Corporate Borrower agreed that the Prior Corporate Borrower's repayment obligation for funds advanced in respect of the Corporate Loan would be adjusted by a premium factor of 1.113164866782 (the "Premium Factor"). To evidence the Prior Corporate Borrower's obligation to - --------------- repay the Corporate Loan, at the adjusted rate, the Prior Corporate Borrower has delivered to PTR an Amended and Restated Promissory Note (the "Corporate Note"), -------------- dated May 28, 1996, in the face amount of $142,042,725 (i.e., the Maximum ---- Corporate Loan Amount as adjusted by the Premium Factor) (which note amended and restated a prior promissory note dated January 24, 1996, and delivered by the Prior Corporate Borrower to PTR to evidence the Corporate Loan), and to secure the payment obligations under the Corporate Note and the Partnership Note (as defined below), the Prior Corporate Borrower has, prior to the date hereof, delivered to PTR deeds of trust and mortgages (the "Existing Corporate Security --------------------------- Documents"), creating liens on the existing Homestead Village Projects listed in - --------- Exhibit A hereto which are owned by the Prior Corporate Borrower (the "Existing - --------- -------- Corporate Projects"). (The Corporate Note, the Existing Corporate Security - ------------------ Documents and all other instruments heretofore delivered by the Prior Corporate Borrower in connection therewith to secure the payment of the Corporate Note and the Partnership Note are herein called the "Existing Corporate Loan Documents".) --------------------------------- B. Prior to the date hereof, PTR agreed to make to the Partnership Borrower a loan (the "Partnership Loan") of up to a maximum amount of ---------------- $71,230,145 (the "Maximum Partnership Loan Amount") to fund, among other things, ------------------------------- acquisition and construction costs and expenses incurred in connection with the acquisition and development of Homestead Village 1 extended stay lodging facilities. In connection with agreeing to make the Partnership Loan, PTR and the Partnership agreed that the Partnership Borrower's repayment obligation for funds advanced in respect of the Partnership Loan would be adjusted by the Premium Factor. To evidence the Partnership Borrower's obligation to repay the Partnership Loan, at the adjusted rate, the Partnership Borrower has delivered to PTR an Amended and Restated Promissory Note (the "Partnership Note"), dated May 28, 1996, in the face amount of $79,290,895 - ----------------- (i.e., the Maximum Partnership Loan Amount as adjusted by the Premium Factor) ---- (which note amended and restated a prior promissory note dated January 24, 1996, and delivered by the Partnership Borrower to PTR to evidence the Partnership Loan), and to secure the payment obligations under the Corporate Note and the Partnership Note, the Partnership Borrower has, prior to the date hereof, delivered to PTR those certain deeds of trust and mortgages listed in Part II of ------- Exhibit A hereto (the "Existing Partnership Security Documents"), creating liens - --------- --------------------------------------- on the existing Homestead Village Projects listed in Exhibit A hereto which are --------- owned by the Partnership Borrower (the "Existing Partnership Projects"). (The ----------------------------- Partnership Note, the Existing Partnership Security Documents and all other instruments heretofore delivered by the Partnership Borrower in connection therewith to secure the payment of the Corporate Note and the Partnership Note are herein called the "Existing Partnership Loan Documents"; and the Existing ----------------------------------- Corporate Loan Documents and Existing Partnership Loan Documents are collectively referred to herein as the "Existing Loan Documents".) ----------------------- C. On the date hereof, the parties are entering into a series of transactions as described in that certain Merger and Distribution Agreement, dated as of May 21, 1996, among Security Capital Atlantic Incorporated ("Atlantic"), PTR, Security Capital Group Incorporated ("SCG") and Homestead - ---------- --- (the "Merger Agreement"), pursuant to which, among other things, Homestead is, ---------------- contemporaneously herewith, acquiring all of the stock of PTR's subsidiaries which own, operate or develop PTR's Homestead Village extended-stay lodging facilities. As a consequence of the mergers contemplated under the Merger Agreement, the Prior Corporate Borrower has been merged into Homestead and in connection therewith Homestead has succeeded to and assumed all of the Prior Corporate Borrower's obligations and liabilities, including those under the Corporate Note and the Existing Corporate Loan Documents. D. Upon and subject to the provisions of this Agreement, Homestead, the Partnership Borrower and PTR desire to continue the funding provided for under the Existing Loan Documents, and in consideration of the issuance, pursuant to that certain Warrant Purchase Agreement, dated as of May 21, 1996 among Atlantic, PTR, SCG and Homestead, to PTR by Homestead of warrants to purchase shares of common stock, $0.01 par value per share, of Homestead ("Homestead --------- Common Stock"), PTR is willing to provide funds to Homestead and the Partnership - ------------ Borrower for the costs incurred in connection with performing due diligence investigations, securing required development approvals and otherwise completing the acquisition 2 and development of the proposed future Homestead Village projects listed in Exhibit A (which projects, and any replacement projects approved by PTR pursuant - --------- to the provisions of this Agreement, are herein called the "Future Projects"). --------------- E. The execution of this Agreement is a condition to the consummation of the transactions contemplated by the Merger Agreement. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS Section 1.1. CERTAIN DEFINED TERMS. As used herein, the following terms shall have the following meanings: "Agreement" shall mean this Funding Commitment Agreement. --------- "Acquisition Notice" has the meaning set forth in Section 2.3 of this ------------------ ----------- Agreement. "Architect" means the architect retained by a Borrower to provide --------- architectural services for a Project. "Architect's Agreement" means the agreement for architectural services --------------------- executed by a Borrower and an Architect in connection with the design of a Project, and all exhibits, attachments, riders and addenda thereto. "Architect's Certificate" means a Certificate from the Architect for a ----------------------- Project, in form and substance reasonably acceptable to PTR, wherein the Architect acknowledges the collateral assignment of the Architect's Agreement and the Plans prepared by such Architect from Borrower to PTR pursuant to this Agreement and agrees to perform all of its obligations under the Architect's Agreement in the event PTR takes possession of the subject Project in connection with the exercise of its remedies hereunder or under the Security Documents after an Event of Default. "Atlantic" has the meaning set forth in the Preamble to this Agreement. -------- 3 "Borrower" means Homestead, in its capacity as maker under the Corporate -------- Note, the Partnership Borrower or any Subsidiary, whichever entity is the owner of the subject Project. "Business Day" means any day other than Saturday, Sunday, or any other day ------------ on which commercial banks in New Mexico are not required to be open for business. "Change Order" means a written order executed by a Borrower authorizing a ------------ Contractor to proceed with a change in the work as provided for in the original Plans for a Project, which change has been made in accordance with the applicable provisions of this Agreement. "Completion and Payment Guaranty" means that certain Guaranty of Completion ------------------------------- and Payment of even date herewith from Homestead to PTR in the form attached as Exhibit B. - --------- "Construction Contract" means the contract for construction executed by a --------------------- Borrower and the Contractor in connection with the construction of a Project, and all exhibits, attachments, riders and addenda thereto. "Consultant" means any civil engineer or other material consultant, other ---------- than the Architect, retained directly by a Borrower to provide design or engineering services for a Project. "Consultant's Agreement" means the agreement for engineering or other ---------------------- consultant services executed by a Borrower and a Consultant in connection with a Project, and all exhibits, attachments, riders and addenda thereto. "Consultant's Certificate" means a Certificate from a Consultant for a ------------------------ Project, in form and substance reasonably acceptable to PTR, wherein the Consultant acknowledges the collateral assignment of the Consultant's Agreement and the Plans prepared by such Consultant from Borrower to PTR pursuant to this Agreement and agrees to perform all of its obligations under the Consultant's Agreement in the event PTR takes possession of the subject Project in connection with the exercise of its remedies hereunder or under the Security Documents after an Event of Default. "Contractor" means the general contractor retained by a Borrower to provide ---------- construction services for a Project. "Contractor's Certificate" means a Certificate from the Contractor for a ------------------------ Project, in form and substance reasonably acceptable to PTR, wherein the Contractor acknowledges the collateral assignment of the Construction Contract from Borrower to PTR pursuant to this Agreement and 4 agrees to perform all of its obligations under the Construction Contract in the event PTR takes possession of the subject Project in connection with the exercise of its remedies hereunder or under the Security Documents after an Event of Default. "Corporate Loan" has the meaning set forth in Recital A to this Agreement. -------------- --------- "Corporate Note" has the meaning set forth in Recital A to this Agreement. -------------- --------- "Default" means any condition or event that constitutes an Event of Default ------- or that with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Development Budget" has the meaning set forth in Section 2.3 of this ------------------ ----------- Agreement. "Development Schedule" has the meaning set forth in Section 2.3 of this -------------------- ----------- Agreement. "Environmental Laws" means any and all laws, statutes, ordinances, rules, ------------------ regulations, orders, or determinations of any governmental authority pertaining to health or the environment applicable to a Borrower, or a Property owned by such Borrower, in effect in the jurisdiction in which such Property is located, or where any hazardous substances generated by or disposed of by a Borrower in connection with such Property are located, including but not limited to the Clean Air Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended by the Superfund Amendments and Reauthorization Act of 1986, as amended ("CERCLA"), the Federal Water ------ Pollution Control Act, as amended, the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984, as amended ("RCRA"), the Safe Drinking Water Act, as amended, the Toxic Substances ---- Control Act, as amended, the Hazardous Materials Transportation Act, as amended any analogous state law of the state in which the Property is located and other environmental conservation or protection laws. The terms "hazardous substance," "release," and "threatened release" shall have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have the meanings specified in RCRA; provided, however, that (i) in the event either CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (ii) to the extent the laws of the state in which the Property is located establish a meaning for "hazardous substance," "release," "threatened release," "solid waste," or "disposal" which is broader than that specified in either CERCLA or RCRA, such broader meaning shall apply. 5 "Event of Default" means the occurrence of any of the events specified in ---------------- Article 7 hereof. - --------- "Existing Corporate Projects" has the meaning set forth in Recital A to --------------------------- --------- this Agreement. "Existing Corporate Security Documents" has the meaning set forth in ------------------------------------- Recital A to this Agreement. - --------- "Existing Loan Documents" has the meaning set forth in Recital B to this ----------------------- --------- Agreement. "Existing Partnership Loan Documents" has the meaning set forth in Recital ----------------------------------- ------- B to this Agreement. - - "Existing Partnership Projects" has the meaning set forth in Recital B to ----------------------------- --------- this Agreement. "Existing Partnership Security Documents" has the meaning set forth in --------------------------------------- Recital B to this Agreement. - --------- "Existing Projects" means the Existing Corporate Projects and the Existing ----------------- Partnership Projects. "Expiration Date" has the meaning set forth in Section 2.5 of this --------------- ----------- Agreement. "Final Advance" means the final advance of Loan proceeds to a Borrower for ------------- construction of a Project in accordance with the applicable provisions of this Agreement. "Final Completion" means that the requirements of Section 5.5 have been ---------------- ----------- fully satisfied for a Project. "Final CO" means a final unconditional certificate of occupancy for a -------- Project issued by the applicable Governmental Authority. "Force Majeure" means, with respect to any Project, an event entitling a ------------- Contractor to an extension of time in constructing the Improvements as established in the Construction Contract and any act of God, war, riots, unusually severe weather, shortages of labor or materials (but not a shortage of funds), strikes, lock-outs, explosions, the order of any court or governmental authority or unavailability of or delay in issuance of any Permits despite a Borrower's reasonable diligence in securing same, which results in any delay in whole or in part 6 in the design, engineering or construction of a Project, or the duration of any inspection, testing, or remediation related to any environmental condition or aspect of a Project. "Funding Notice" has the meaning set forth in Section 2.3 of this -------------- ----------- Agreement. "Future Project" has the meaning set forth in Recital D to this Agreement. -------------- --------- "Geographic Area" means the States of Arizona, California, Colorado, Idaho, --------------- Kansas, Missouri, Nevada, New Mexico, Oklahoma, Oregon, Texas, Utah and Washington. "Governmental Authority" means any Federal, state, county, municipal or ---------------------- other governmental or quasi-governmental department, commission, board, court, agency or other instrumentality having jurisdiction over a Borrower and any Project. "Governmental Requirement" means any law, statute, code, ordinance, order, ------------------------ rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other direction or requirement (including, without limitation, any of the foregoing that relate to environmental standards or controls, energy regulations and occupational safety and health standards or controls) of any Governmental Authority. "Homestead" has the meaning set forth in the Preamble to this Agreement. --------- "Homestead Common Stock" has the meaning set forth in Recital D to this ---------------------- --------- Agreement. "Homestead Affiliate" means (a) an entity that directly or indirectly ------------------- controls, is controlled by or is under common control with Homestead or (b) an entity at least a majority of whose economic interest is owned by Homestead; and the term "control" means the power to direct the management of such entity through voting rights, ownership or contractual obligations; provided, however, in no event shall PTR, Atlantic, SCG or any wholly-owned subsidiary of any of the foregoing be deemed a Homestead affiliate. "Homestead Security Documents" means the deeds of trust, deeds to secure ---------------------------- debt and/or mortgage instruments, substantially in the forms attached as Exhibit ------- C hereto, to be delivered to PTR by Homestead in connection with the funding of - - any Project acquired by Homestead after the date of this Agreement, as security for the Corporate Note, the Partnership Note and any Subsidiary Note executed and delivered after the date hereof, and any other security instruments delivered by Homestead from time to time as security for the Corporate Note, the Partnership Note and any such Subsidiary Note. 7 "Improvements" means the buildings, structures, and other improvements to ------------ be constructed on the Land as described on the Plans for the subject Project. "Inspecting A/E" means the inspecting architect or engineer retained by a -------------- Borrower to inspect, monitor and administer the progress of construction of a Project. "Land" means the parcel or parcels of land on which a Project is or is to ---- be located, together with all easements, rights of way and other appurtenances thereto. "Lien Waivers" means a waiver of all liens relating to a Project executed ------------ by any and all contractors, subcontractors and/or suppliers of a Borrower who have provided any goods or services relating to Improvements. "Loan" means the Corporate Loan, the Partnership Loan, or any Subsidiary ---- Loan made after the date hereof, as the context may require; and "Loans" means ----- the Corporate Loan, the Partnership Loan, and any Subsidiary Loans made after the date hereof, collectively. "Loan Documents" means this Agreement, the Notes, the Security Documents, -------------- the Completion and Payment Guaranty and any and all other agreements or instruments now or hereafter executed and delivered by a Borrower, Homestead or any other person in connection with, or as security for, the payment or performance of the Notes. "Material Adverse Effect" means any material and adverse effect on the ----------------------- business, operations, properties, assets, condition (financial or other), results of operations or prospects of Homestead and its Subsidiaries, taken as a whole. "Material Change" means any change to the Plans or to a Project which would --------------- result in a material increase or decrease in the number of lodging units in such Project from the number contained in a Prototypical Project, a material increase or decrease in the overall cost of completing a Project above the costs contemplated in the Prototypical Project Budget, or would otherwise result in such Project materially deviating from the product and/or investment concept of a Prototypical Project as set forth in the Prototypical Plans. "Maximum Corporate Loan Amount" has the meaning set forth in Recital A to ----------------------------- --------- this Agreement. "Maximum Loan Amount" means the aggregate of the Maximum Corporate Loan ------------------- Amount and the Maximum Partnership Loan Amount. 8 "Maximum Partnership Loan Amount" has the meaning set forth in Recital B to ------------------------------- --------- this Agreement. "Note" means the Corporate Note, the Partnership Note, or any Subsidiary ---- Note executed and delivered after the date hereof, as the context may require, and "Notes" means the Corporate Note, the Partnership Note, and any Subsidiary ----- Notes executed and delivered after the date hereof, collectively. "Partnership Borrower" has the meaning set forth in the Preamble to this -------------------- Agreement. "Partnership Loan" has the meaning set forth in Recital B to this ---------------- --------- Agreement. "Partnership Note" has the meaning set forth in Recital B to this ---------------- --------- Agreement. "Partnership Security Documents" means the deeds of trust, deeds to secure ------------------------------ debt and/or mortgage instruments, substantially in the forms attached as Exhibit ------- D hereto, to be delivered to PTR by the Partnership Borrower in connection with - - the funding of any Project acquired by the Partnership after the date of this Agreement, as security for the Partnership Note, the Corporate Note and any Subsidiary Note executed and delivered after the date hereof, and any other security instruments delivered by the Partnership Borrower from time to time as security for the Corporate Note, the Partnership Note and any such Subsidiary Note. "Permits" shall mean all permits, licenses, registrations, certificates, ------- authorizations and approvals now or hereafter issued or required to be issued by any governmental or quasi-Governmental Authority for the lawful ownership, construction, use and operation of a Project. "Personalty" means all items of tangible or intangible personal property ---------- owned by a Borrower, or in which a Borrower has any interest, to the extent of such interest, that now are or hereafter may be purchased, prepared, constructed or placed for, upon or in a Project owned by such Borrower. "Plans" means the final plans and specifications for the construction of ----- the Improvements comprising a Project, together with any modifications or additions to the same subsequently permitted under the terms of this Agreement or, to the extent required hereunder, approved by PTR in accordance with the provisions of this Agreement. "Project" means each Existing Project and each Future Project for which an ------- Acquisition Notice has been delivered to PTR prior to the Expiration Date. 9 "Project Budget" means the budget for a Project delivered by a Borrower to -------------- PTR. "Project Schedule" means the schedule for the design and construction of ---------------- the Improvements encompassed within a Project delivered by a Borrower to PTR. "Property" means any property from time to time subject to any of the -------- Security Documents, including the Land and all Improvements now or hereafter located thereon and all Personalty associated therewith. "Proposed Substitute Future Project" has the meaning set forth in Section ---------------------------------- ------- 2.7 of this Agreement. - --- "Prototypical Project Budget" means the due diligence, development --------------------------- approval, land acquisition, design and construction budget for a Prototypical Project heretofore delivered to, and approved by, PTR. "Prototypical Project Schedule" means the due diligence, development ----------------------------- approval, design and construction schedule for a Prototypical Project heretofore delivered to, and approved by, PTR. "Prototypical Plans" means the standard plans and specifications for a ------------------ Homestead Village extended-stay lodging facility heretofore delivered to, and approved by, PTR. "Prototypical Project" means a Homestead Village extended-stay lodging -------------------- facility designed and constructed in substantial accordance with the Prototypical Plans. "PTR" has the meaning set forth in the Preamble to this Agreement. --- "Pursuit Costs" has the meaning set forth in Section 2.3 of this Agreement. ------------- ----------- "Quarterly Statement" has the meaning set forth in Section 4.14 of this ------------------- ------------ Agreement. "Rejected Project" has the meaning set forth in Section 2.7 of this ---------------- ----------- Agreement. "Security Documents" means the Homestead Security Documents, the Existing ------------------ Corporate Security Documents, the Existing Partnership Security Documents, the Partnership Security Documents, and any Subsidiary Security Documents, collectively. 10 "Subcontractor" means all persons performing labor or services, or ------------- providing materials, equipment or furnishings in connection with the construction of Improvements, other than Contractor. "Subsidiary" means any entity now or hereafter in existence including the ---------- Partnership Borrower, all of the outstanding equity securities of which are owned by Homestead. "Subsidiary Loan" means any portion of the Corporate Loan or Partnership --------------- Loan which Homestead may direct PTR to advance to a Subsidiary instead of to Homestead or the Partnership Borrower in accordance with the provisions of this Agreement. "Subsidiary Note" means any promissory note, substantially in the form of --------------- the Partnership Note, which a Subsidiary executes and delivers to PTR after the date hereof to evidence a Subsidiary Loan made by PTR to such Subsidiary. "Subsidiary Security Documents" means the deed of trust or mortgage ----------------------------- instrument to be delivered to PTR by a Subsidiary, substantially in the form of the Homestead Security Documents, in connection with the funding of any Future Project owned by Subsidiary as security for the Corporate Note, the Partnership Note and any Subsidiary Note executed and delivered after the date hereof, and any other security instruments delivered by such Subsidiary from time to time as security for the Corporate Note, the Partnership Note and any such Subsidiary Note. "Title Insurer" means Chicago Title Insurance Company or any other ------------- nationally recognized title insurance company issuing a Title Policy. "Title Policy" means the lender's policy of title insurance for a Property ------------ issued by the Title Insurer for the benefit of PTR and all endorsements thereto, which insures the lien priority of the Security Documents applicable to such Property. "UCC" means the Uniform Commercial Code as in force in the state in which a --- Project is located. Section 1.2. OTHER DEFINITIONAL PROVISIONS. (a) Except as otherwise specified herein, all references herein (i) to any person or entity shall be deemed to include such person's or entity's heirs, legal representatives, successors and assigns, as appropriate, (ii) to any Governmental Requirement defined or referred to herein shall be deemed references to such Governmental Requirement as the same may have been or 11 may be amended or supplemented from time to time and (iii) to any Loan Document or other agreement defined or referred to herein shall be deemed references to such Loan Document or agreement (and, in the case of the Notes or other instruments, any instrument issued in substitution therefor) as the terms thereof may have been or may be amended, supplemented, waived or otherwise modified from time to time in writing. (b) Whenever the context so requires, the neuter gender includes the masculine or feminine, the masculine gender includes the feminine, and the singular number includes the plural, and vice versa. ARTICLE 2. THE LOANS Section 2.1. THE HOMESTEAD LOAN. Subject to the limitations set forth in Sections 2.5, 2.6 and 2.7 below, PTR hereby agrees, upon the terms and - ----------------- --- conditions set forth herein and in the other applicable Loan Documents, to advance to Homestead (or, as Homestead may direct, to any Subsidiary) up to the amount of the Maximum Corporate Loan Amount for the purpose of paying the costs and expenses incurred by Homestead (or by any such Subsidiary, as the case may be) in completing the design and construction of the Existing Projects and in performing its due diligence review, obtaining all Permits required for development of and otherwise acquiring the Land for, and completing the design and construction of, such of the Future Projects hereafter pursued by Homestead or any such Subsidiary as may be funded under the provisions of this Agreement. Principal and accrued interest on the Corporate Note shall be due and payable in accordance with the terms and conditions set forth therein and herein. Section 2.2. THE PARTNERSHIP LOAN. Subject to the limitations set forth in Sections 2.5, 2.6 and 2.7 below, PTR hereby agrees, upon the terms and ----------------- --- conditions set forth herein and in the other applicable Loan Documents, to advance to the Partnership Borrower (or, as Homestead may direct, to Homestead or any Subsidiary) up to the amount of the Maximum Partnership Loan Amount for the purpose of paying the costs and expenses incurred by the Partnership Borrower (or by Homestead or any such Subsidiary, as the case may be) in completing the design and construction of the Existing Projects and in performing its due diligence review, obtaining all Permits required for development of and otherwise acquiring the Land for, and completing the design and construction of the Future Projects hereafter pursued by Homestead, the Partnership Borrower or any other Subsidiary as may be funded under the provisions of this Agreement. Principal and accrued interest on the Partnership Note shall be due and payable in accordance with the terms and conditions set forth therein and herein. 12 Section 2.3. FUTURE PROJECTS. The parties acknowledge and agree that the Future Projects identified in Exhibit A hereto are in differing stages of --------- consideration by Homestead and that, at any point in the process of its due diligence review, the negotiation of definitive acquisition and related documents and its efforts to obtain all Permits required for development of any such Future Project, Homestead may determine, in its sole and absolute discretion, either to proceed with the acquisition of the land for, and development of, any such Future Project or to discontinue its efforts in respect of any such Future Project. Requests for advances of Loan proceeds hereunder may include amounts required to reimburse Homestead for the costs and expenses incurred by Homestead in its due diligence review of any such Future Project, as well as all costs incurred in connection with its efforts to secure the Permits required for development of any such Future Project. Whenever such pursuit costs ("Pursuit Costs") are to be funded with Loan proceeds, prior to the first ------------- advance in respect of a Future Project, Homestead will provided PTR with a notice (a "Funding Notice") identifying the Future Project, together with a -------------- development budget (a "Development Budget") indicating the anticipated costs ------------------ that are likely to be incurred prior to the acquisition of such Future Project by Homestead or a Subsidiary, the amount of such costs to be funded by Loan proceeds, which amount shall in no event exceed $100,000 per Future Project, and a schedule setting forth the anticipated time-frames for completing the due diligence review and obtaining required Permits (a "Development Schedule"). -------------------- If Homestead elects to proceed with a Future Project, then Homestead shall provide PTR at least 10 Business Days' prior written notice (an "Acquisition ----------- Notice") of the anticipated closing date for the acquisition of the subject - ------ Land, the identity of the Borrower for such transaction, and the estimated amount of Loan proceeds that will need to be advanced at such closing. From and after delivery of an Acquisition Notice to PTR, the subject project shall, for all purposes under this Agreement, be deemed a "Project". Notwithstanding anything to the contrary in the foregoing, funding of the first advance of Loan proceeds in respect of any such Project shall require the recordation of Security Documents adding such Project as security for the Loan and the satisfaction of the other conditions set forth in Section 5.2 as to such ----------- Project. In the event, however, that Homestead determines from time to time that any Future Project is unacceptable to it and that Homestead will not expend further efforts with respect to such Future Project, Homestead shall provide written notice to PTR identifying any such Future Project. In such event, any Pursuit Costs theretofore funded with Loan proceeds, together with accrued and unpaid interest thereon due under the terms of the Corporate Note, shall be repaid by Homestead to PTR within 30 days after delivery of such notice to PTR. Section 2.4. SUBSIDIARY LOANS. With respect to any Future Project for which an Acquisition Notice is delivered to PTR in accordance with Section 2.3 ----------- above, Homestead shall have the right to determine, in its sole and absolute discretion, that a Subsidiary acquire the 13 subject Project, in which event, the subject Subsidiary shall, at such time as it acquires the subject Future Project, execute and deliver to PTR Subsidiary Security Documents in connection therewith together with an agreement in form and substance satisfactory to PTR pursuant to which such Subsidiary agrees to be bound by the terms of this Agreement as to such Project. In addition, at the election of Homestead, the subject Subsidiary shall execute a Subsidiary Note in the amount of the Loan determined by Homestead to be allocable to such Project and the Maximum Corporate Loan Amount and/or the Maximum Partnership Loan Amount (as Homestead may elect) shall be decreased by the amount of any such Subsidiary Note. Alternatively, Homestead may elect to have funds advanced with respect to such Project under the Corporate Loan or Partnership Loan and either loan or contribute, or cause the Partnership Borrower to loan or contribute, the funds so advanced to the subject Subsidiary. In the event any Subsidiary executes a Subsidiary Note and/or any Subsidiary Security Documents as contemplated under this Section 2.4, the parties shall, contemporaneously therewith, execute, ----------- deliver, and, if appropriate, record, such amendments to the Loan Documents as may reasonably be necessary or appropriate to properly document any resulting changes in the Maximum Corporate Loan Amount and/or the Maximum Partnership Loan Amount. Section 2.5. DURATION OF FUNDING COMMITMENT. The obligation of PTR to advance Loan proceeds in respect of Future Projects for which an Acquisition Notice has not yet been delivered to PTR shall expire on March 31, 1998 (the "Expiration Date"). Notwithstanding anything to the contrary in the foregoing, - ---------------- PTR shall continue to be obligated, subject to and upon the terms and conditions set forth herein and in the other Loan Documents, to continue to make advances of Loan proceeds after such date for each Project for which an Acquisition Notice has theretofore been delivered to PTR under the terms of this Agreement, but shall not have any obligation to make further advances in respect of Pursuit Costs for any Future Project for which only a Funding Notice has been delivered to PTR. On or before April 30, 1998, Homestead shall repay, or cause to be repaid, to PTR any advances of Loan proceeds in respect of Pursuit Costs (together with accrued and unpaid interest thereon) that have not been repaid pursuant to Section 2.3 hereof as of the Expiration Date. ----------- Section 2.6. PROJECT SPECIFIC FUNDING COMMITMENT. PTR's obligation under this Agreement to make advances of Loan proceeds in respect of a designated Project shall not exceed the lesser of (i) the actual aggregate hard and soft costs incurred by the applicable Borrower in connection with the acquisition, development, design and construction of such Project, or (ii), except as provided in Section 6.6, the amount allocated to such Project in Exhibit A ----------- --------- hereto, and all costs in respect of a Project in excess of the Loan amount allocated to such Project shall, except as provided in such Section 6.6, be ----------- funded by Homestead as and when needed. In addition, PTR's obligation to make advances in respect of a designated Project shall expire on the second anniversary of the date on which the subject Land was acquired by 14 Homestead or the applicable Subsidiary. In the event Final Completion of such Project has not been achieved by such date, PTR shall have no obligation to make any further advances of Loan proceeds in connection with such Project and all costs required to complete such Project shall be funded by Homestead as and when required in order to assure that such Project is completed and placed in operation as soon as is reasonably practicable. If, however, Final Completion of such Project has not been achieved by the date which is 30 months after the date of acquisition of the subject Land, then, at the election of PTR, exercised by delivering written notice to Homestead, Homestead shall repay, or cause the applicable Subsidiary to repay, within 30 days after receipt of such notice the amount of Loan proceeds advanced in respect of such Project (together with accrued and unpaid interest on such amount), and upon receipt of such payment, this Agreement, solely as it relates to such Project, shall terminate and PTR shall cause to be released the Security Documents recorded or filed against such Project. Section 2.7. REPLACEMENT PROJECTS. Homestead agrees that for each Future Project rejected by Homestead pursuant to Section 2.3 (a "Rejected Project"), ----------- ---------------- Homestead will propose to PTR in writing a proposed substitute future project (a "Proposed Substitute Future Project") to take the place of such Rejected ---------------------------------- Project. Any such Proposed Substitute Future Project shall be located within the Geographic Area and, except as specifically noted in writing by Homestead, shall conform, to Homestead's then current knowledge, to the Prototypical Project requirements. Homestead may select a Proposed Substitute Future Project from its then contemplated Homestead Village projects which Homestead is considering pursuing or, if all such contemplated projects are then already included within the list of Future Projects under this Agreement, then Homestead may delay in identifying a Proposed Substitute Future Project until, in the ordinary course of its business, a new site for a contemplated Homestead Village project is identified within the Geographic Area. Homestead shall not, however, be obligated to identify a new potential Homestead Village site solely for the purposes of presenting to PTR a Proposed Substitute Future Project. PTR shall have a period of 20 Business Days after receipt of any such Proposed Substitute Project to approve or reject, in its sole and absolute discretion, any such proposal, and failure of PTR to provide Homestead with written notice within such 20-Business Day period shall be deemed a rejection by PTR of the subject Proposed Substitute Future Project. If PTR timely approves a Proposed Substitute Future Project, then such project shall be substituted in the place and stead of the Rejected Project in Exhibit A hereto, and shall for --------- all purposes under this Agreement thereafter be deemed a Future Project. The maximum amount of Loan proceeds that will be available to fund such Future Project (if Homestead thereafter delivers an Acquisition Notice for such Project) shall be equal to the Loan amount originally allocated to the applicable Rejected Project in Exhibit A. --------- 15 In the event that any Proposed Substitute Future Project is rejected or deemed rejected by PTR, Homestead shall be free to pursue the Proposed Substitute Future Project on its own. For each Rejected Project, Homestead shall be required (subject to the limitations set forth above) to propose to PTR up to a maximum of three (3) Proposed Substitute Future Projects. If PTR rejects all three (3) Proposed Substitute Future Projects submitted by Homestead in respect of a particular Rejected Project, then the Maximum Loan Amount, and PTR's funding commitment hereunder, shall be reduced by the amount allocated to the Rejected Project in Exhibit A hereto. The obligation of Homestead to --------- propose to PTR Proposed Substitute Future Projects shall in any event terminate on the Expiration Date. Section 2.8. RELEASE OF SECURITY DOCUMENTS. The parties acknowledge and agree that the Notes are convertible, in whole or in part, into shares of Homestead Common Stock up to the maximum amount of the unpaid principal amount of such Notes outstanding from time to time and otherwise pursuant and subject to the terms and conditions of such Notes. Any such conversion shall reduce the amount of the debt evidenced by the Notes and secured by the Security Documents by the amount determined in accordance with the conversion provisions of the Notes. In connection with any partial conversion of the Notes, Homestead may request that, in lieu of or in addition to reducing the amount secured by the Security Documents, PTR release any one or more of the Projects then subject to the Security Documents and having a value equivalent to or less than the amount of the debt reduction resulting from such conversion. The release of any Projects from the lien of the Security Documents shall, however, be subject to the approval of PTR, which approval shall not to be unreasonably withheld or delayed. At such time as all amounts owing to PTR under or in respect of any of the Loan Documents have been paid in accordance with the provisions of the Loan Documents or if not paid then, to the extent permitted under the Notes, converted into Homestead Common Stock, and when PTR has no further obligation to make any advance, disbursement or payment of any kind or to extend credit under or with respect to any of the Loan Documents, then this Agreement shall terminate and upon receipt of demand therefor from Homestead, PTR shall execute and deliver to Homestead appropriate instruments of release or reconveyance of any Security Documents then in effect. ARTICLE 3. REPRESENTATIONS AND WARRANTIES To induce PTR to enter into this Agreement, Homestead and each Borrower represents and warrants to PTR (each representation and warranty herein being given as of the date of this 16 Agreement and deemed repeated and reaffirmed on the date of each advance of funds by PTR) as follows: Section 3.1. EXISTENCE AND POWER. Homestead and each Borrower is duly organized, validly existing and in good standing under the laws of the State of its organization and to the extent required is qualified to do business in and is in good standing in each jurisdiction in which it owns property; has full power and authority to own its assets, to conduct the activities in which it is engaged, and to own and develop each Project which it owns. Section 3.2. AUTHORIZATION AND BINDING OBLIGATIONS. The borrowing evidenced by the Notes and the execution, delivery and performance of this Agreement and all other Loan Documents by Homestead and each Borrower (i) are within the power of the subject entity and (ii) have been duly authorized. Each of the Loan Documents executed by Homestead and/or any Borrower, when executed and delivered, will constitute the legal, valid and binding obligations of such entity and are enforceable against such entity in accordance with its respective terms, subject to bankruptcy and insolvency laws, equitable principles, and laws affecting creditors rights generally. Section 3.3. NO LEGAL BAR OR RESULTANT LIEN. None of the (i) execution and delivery of, (ii) fulfillment of the terms and conditions of, or (iii) the consummation of the transactions contemplated by the Loan Documents to which Homestead and/or any Borrower is a party (a) violate any provisions of the articles or certificate of incorporation, bylaws or partnership agreement of such entity, (b) violate or constitute a default under any contract, agreement or instrument, or any law, ordinance, rule or regulation of any Governmental Authority, to which such entity is subject, (c) to such entity's knowledge, violate or constitute a default under any Governmental Requirement so as to create a Material Adverse Effect or (d) to such entity's knowledge, result in the creation or imposition of any lien upon any property of such entity, other than those permitted by this Agreement. Section 3.4. NO CONSENT. The execution, delivery and performance of the Loan Documents to which Homestead and/or each Borrower is a party does not require the consent or approval of any other person, including, without limitation, any financial institution or other creditor of such entity, any trustee, conservator, receiver or administrator, or any regulatory authority or governmental body of the United States of America or any state thereof or any Governmental Authority. Section 3.5. COMPLIANCE WITH LAWS. All Plans, Projects, Properties, Improvements and their intended use presently comply, and throughout the term of this Agreement will continue to comply, in all material respects with all Governmental Requirements and all public 17 and private restrictions or other agreements affecting each such Property, including, without limitation, building codes, special use permits, zoning codes, Environmental Laws, applicable requirements of fire underwriters, restrictive covenants, easements and other agreements affecting the Property. All Permits currently required by Governmental Requirements to be obtained for the Projects now subject to this Agreement have been obtained, and neither Homestead nor any Borrower has any reason to believe that any Permits that subsequently may be required to enable it to construct, occupy, operate, use or sell any of the Property will not be obtained in due course. Section 3.6. LITIGATION. Except as disclosed to PTR in writing, at the date of this Agreement there is no litigation, legal, administrative, or arbitral proceeding, investigation or other action of any nature pending or, to the knowledge of Homestead or any Borrower, threatened against or affecting any Borrower or Homestead that involves the possibility of any judgment or liability (not fully covered by insurance) that would have a Material Adverse Effect. Section 3.7. DEFAULTS. To the knowledge of Homestead and each Borrower, neither Homestead nor any Borrower is in default, and no event or circumstance has occurred that, but for the passage of time or the giving of notice, or both, would constitute a default, in any respect under any agreement of instrument that may have a Material Adverse Effect. No Event Default has occurred hereunder. Section 3.8. STATUS OF PROPERTY. The Borrower delivering any Security Documents to PTR is the fee simple owner of the subject Property free and clear of all restrictions, covenants, easements, liens and encumbrances, including, without limitation, mechanics', materialmen's and suppliers' liens (except liens securing PTR and matters reflected in the Title Policy). To Homestead and each Borrower's knowledge: each Property is a legal lot under applicable laws, statutes, ordinances and regulations of the governing jurisdiction; each Property is carried, or is in the process of being changed so as to be carried, on the tax rolls of the governing jurisdiction as a separate, subdivided parcel; each Property has, or will have upon completion of construction, full access to the public highways and to the services of all utilities, including water, storm sewer, sanitary sewer, electricity and telephone, required to serve the intended use of the Property; each Property under construction or completed is zoned under applicable zoning laws and ordinances so as to permit the construction and development of the Project planned for such Property and the use and occupancy of the Property as contemplated under this Agreement; and each Property under construction or completed currently complies in all material respects with such laws and ordinances and with all private restrictions applicable thereto and any special use permit, variance, exception, or other special zoning authorization applicable thereto; each Property currently complies in all material respects with all Governmental Requirements 18 applicable thereto. To Borrower's knowledge, the liens of the Security Documents executed by it are valid liens covering the subject Properties. Section 3.9. USE OF PROCEEDS. None of the proceeds of the Loans has been or shall be used to purchase or carry, or to reduce or retire or refinance any credit incurred to purchase or carry, any margin stock (within the meaning of Regulations G and U of the Board of Governors of the Federal Reserve System) or to extend credit to others for the purpose of purchasing or carrying any margin stock. Section 3.10. REAL PROPERTY ENVIRONMENTAL MATTERS. To the actual knowledge of Homestead and each Borrower, except as disclosed in the environmental audits prepared for Homestead and/or any such Borrower and delivered to PTR, no hazardous substances or solid waste are located at or on or have been disposed of or otherwise released on or to any of the Properties in violation of any Environmental Laws. Section 3.11. FINANCIAL CONDITION. All financial statements delivered to PTR concerning Homestead and each Borrower fairly and accurately present the financial condition of such entities as of the date of such statements and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, and there are no contingent liabilities not disclosed thereby which would have a Material Adverse Effect. Since the close of the period covered by the latest financial statements delivered to PTR with respect to Homestead's and each Borrower's assets, liabilities, or financial condition, no event has occurred (including, without limitation, any litigation or administrative proceedings) and no change in such entities' financial condition exists or, to the knowledge of Homestead or any Borrower, is threatened, which (i) materially adversely affects a Borrower's ability to perform its obligations under the Loan Documents, (ii) constitutes or which after notice or lapse of time, or both, would constitute a Default hereunder, or (iii) materially adversely affects the validity or priority of the lien of the Security Documents on any Borrower's Property or the financial condition of Homestead or any Borrower. Section 3.12. NO CONDEMNATION. No taking of any Property or any material part thereof, through eminent domain, conveyance in lieu thereof, condemnation or similar proceeding is pending or, to the best of Homestead's and each Borrower's knowledge, threatened by any governmental agency. Section 3.13. NO ACTIONS. There is no action, proceeding or investigation pending or, to the best of Homestead's and each Borrower's knowledge, threatened (or any basis therefor) which questions, directly or indirectly, the validity of this Agreement, the Notes, the Security 19 Documents, or any other Loan Document or any action taken or to be taken pursuant hereto or thereto. Section 3.14. NO ADVERSE CONDITIONS. To the best of Homestead's and each Borrower's knowledge, there are no existing, pending or threatened events which could materially adversely affect any of the Properties or the operation thereof. ARTICLE 4. COVENANTS Each Borrower will, at all times, comply with the covenants contained in this Article 4 from the date hereof and for so long as any part of the Loans is --------- outstanding. Section 4.1. CONSTRUCTION OF IMPROVEMENTS. Each Borrower will proceed with the design, engineering and construction of its Improvements with reasonable diligence and continuity and will endeavor in good faith to complete the design, engineering and construction of its Improvements substantially in accordance with the applicable Project Schedule, subject to Force Majeure, and substantially in accordance with the Plans for such Improvement and applicable Governmental Requirements. Section 4.2. PLANS; PROJECT BUDGETS; PROJECT SCHEDULES AND MATERIAL CHANGES. Prior to the date hereof, Homestead has delivered to PTR and PTR has approved Homestead's Prototypical Plans, Prototypical Project Budget and Prototypical Project Schedule. So long as the Plans and Project Budget (including the Development Budget which is a part of the overall Project Budget) for a given Project do not contain any Material Change and the Project Schedule does not deviate in any material respect from the Prototypical Schedule, no further approval by PTR of the Plans, Project Schedule or Project Budget for a Project shall be required. Borrower shall not, however, make any Material Change in the Plans for any of its Projects or construct any Improvements which are not substantially in accordance with the Prototypical Plans or make any change to any Plans or install any material or equipment which would constitute a Material Change, without Homestead's obtaining in each instance PTR's prior written consent, which consent shall not be unreasonably withheld or delayed. Homestead shall promptly notify PTR in writing of any Material Change desired by a Borrower, which notice shall be accompanied by such plans or other information as may reasonably be necessary for PTR to evaluate the proposed Material Change. PTR shall deliver written notice to Homestead within 10 Business Days after receipt of the requested Material Change stating whether such Material Change has been approved or disapproved by PTR. 20 Section 4.3. INSPECTION AND EXAMINATION. Borrower will permit representatives and agents of PTR to enter each Property owned by such Borrower at all reasonable times to inspect the progress of the construction of the subject Improvements and all materials to be used therein and to examine all detailed plans and shop drawings which are or may be kept at the construction site, and such Borrower will use reasonable efforts to cause the Contractor and all Subcontractors to cooperate with PTR or its representatives in such inspections or examinations. Homestead and each other Borrower shall also permit representatives and agents of PTR to examine their respective books, records and accounting data applicable to the Loans and the subject Projects (and to make extracts therefrom or copies thereof) and, to the extent Homestead or such Borrower has such right, all Contractor's and Subcontractors' books, records and accounting data applicable to the subject Project. Section 4.4. PERMITS AND APPROVALS. Borrower will comply in all material respects with, and keep in full force and effect, all Permits necessary for ownership, development and operation of the Projects owned or operated by it. Section 4.5. GOVERNMENTAL REQUIREMENTS. Borrower will cause all Governmental Requirements and all restrictive covenants affecting its Projects to be complied with in all material respects (except matters contested in good faith by appropriate proceedings). Section 4.6. BOOKS AND RECORDS. Borrower will implement and maintain payment and accounting systems which will assure accurate and complete records of all amounts owed and paid in connection with the completion of each Project. Borrower shall require each Contractor and each Subcontractor having a subcontract in excess of $100,000 to deliver lien waivers or releases as a condition to receiving payments. Contractor lien waivers shall cover the amount paid to the Contractor under its application for payment for the month or other payment period just ending; Subcontractor lien waivers shall cover the amount paid to such Subcontractor pursuant to the Contractor's application for payment for the immediately preceding month or other payment period. Section 4.7. TITLE TO PROPERTY AND IMPROVEMENTS. Neither the legal or beneficial title and ownership of a Borrower in the Property(ies) and Improvements or any portion thereof owned by it will be conveyed, pledged or encumbered in any way other than to Homestead or a Homestead Affiliate without the consent of PTR, which may be granted or denied in PTR's sole and absolute discretion. Borrower will promptly pay and discharge prior to the date when any interest or penalties shall accrue thereon, all taxes, levies, charges, impositions, water and sewer rents, and assessments of every kind or nature, whether foreseen or unforeseen and whether general or special, which are now or shall hereafter be charged or assessed against the Property(ies) or the Improvements owned by it, or any part thereof, or which may become a lien 21 thereon (except matters contested in good faith by appropriate proceedings and for which adequate reserves have been provided). Section 4.8. COSTS AND EXPENSES. Borrower shall pay any out-of-pocket expenses reasonably incurred by PTR in the enforcement or collection of the Loans, including without limitation, attorneys' fees and expenses, records searches, documentary stamps, transfer taxes and recording taxes and court costs. Section 4.9. USE OF ADVANCES. Borrower shall not apply any advances of Loan proceeds to costs other than those incurred in connection with the subject Future Project or Project for which the advance has been made. Borrower shall not apply such advances to the cost of acquiring any additional real property other than a Project. Borrower shall not receive or apply advances of Loan proceeds except to the purposes for which such proceeds have been advanced by PTR, and in accordance with the provisions of the Loan Documents generally. Section 4.10. INSURANCE. Borrower shall keep in full force and effect at all times the policies of insurance applicable to the Property owned by it and required by the Security Documents, and Borrower shall provide PTR with evidence of such insurance upon receipt or request therefor. Section 4.11. ENVIRONMENTAL MATTERS. Borrower shall not, by any act or omission, cause or permit any hazardous substances, solid wastes or other pollutants to exist on or about any Project in violation of Environmental Laws. In the event of a breach of the foregoing provision, Homestead and the subject Borrower shall remove the same (or if removal is prohibited by law, take whatever action is required by law) promptly upon discovery at Homestead's and such Borrower's sole expense. Homestead will promptly notify PTR in writing of any existing, pending or threatened action, investigation or inquiry by any Governmental Authority of which it has knowledge relating to any Property in connection with any Environmental Laws. Section 4.12. SELECTION OF ARCHITECTS; CONTRACTORS; INSPECTING A/E'S. Prior to the date hereof, Homestead has delivered to PTR and PTR has approved, a list of potential Contractors, Architects, Consultants and Inspecting A/E's that Homestead, or any of its Subsidiaries, has or may retain in connection with any Project funded, or to be funded, under this Agreement. Homestead may, from time to time, subject to the prior written approval of PTR, add Contractor, Architect, Consultant and Inspecting A/E names to such list. So long as any Contractor, Architect, Consultant and Inspecting A/E retained by Homestead or a Subsidiary in connection with a Project is on such pre-approved list, no further approval of such hiring by PTR shall be required. If Homestead or any Subsidiary desires to retain a Contractor, Architect, 22 Consultant or Inspecting A/E not on the current pre-approved list, then prior to retaining such individual or entity, Homestead shall be required to obtain the prior written approval of PTR, such approval not to be unreasonably withheld or delayed, and such approval shall be deemed given if PTR does not deliver written notice of objection to Homestead within 10 Business Days after receipt by PTR of a request for approval from Homestead. Section 4.13. FURTHER ASSURANCES. Homestead and each Borrower shall execute such further documents, agreements and instruments, and take all other actions, as may reasonably be necessary to carry out the purposes of the Loan Documents or to protect and enforce the validity and priority of the Security Documents. Section 4.14. QUARTERLY STATEMENTS. Within 20 Business Days after the expiration of each calendar quarter, Homestead shall deliver to PTR a written summary (each, a "Quarterly Statement") containing a status report for each ------------------- Future Project or Project then being funded pursuant to this Agreement, indicating whether and to what extent each such Future Project or Project is proceeding substantially on schedule and on budget or, if not, the amount of any overrun and/or schedule slippage and setting forth in reasonable detail any efforts being undertaken to remedy any noted material problems. Each Quarterly Statement shall also include any pertinent information in respect of Future Projects and the anticipated timing of when any such Future Projects may be acquired and construction commenced and such other information as Homestead may deem appropriate, or PTR may reasonably request, to keep PTR reasonably apprised of the status of the Future Projects. Section 4.15. CONTINUED EXISTENCE. Homestead and each Borrower shall at all times preserve and keep in full force and effect its existence and rights and franchises material to its business and rights and franchises material to its business and properties. Section 4.16. DEFAULTS UNDER OTHER LOANS. Borrower shall notify PTR in writing within fifteen (15) days following Borrower's receipt of notice of a default under any document or instrument governing, evidencing, securing, or otherwise relating to any loan (other than the Loan) made to Borrower. 23 ARTICLE 5. ADVANCE CONDITIONS Section 5.1. CONDITIONS PRECEDENT TO FIRST ADVANCE UNDER THIS AGREEMENT. PTR shall not be obligated to advance funds pursuant to this Agreement until each of the following conditions is fulfilled: (a) Receipt by PTR of each of the following: (i) a fully executed copy of this Agreement; (ii) duly executed copies of each of the Notes from any Subsidiaries owning Projects for which a Funding Notice or Acquisition Notice has been delivered to PTR and Security Documents for any Land then owned or to be acquired with such initial funding by Homestead or any Subsidiary for which the subject Project is to be financed with Loan proceeds, the Completion and Payment Guaranty and all other Loan Documents PTR may reasonably require to be executed and delivered in connection with the first advance hereunder; (iii) Title Policies for all Properties then subject to Security Documents or to be made subject to Security Documents contemporaneously with the first advance of Loan proceeds (or an irrevocable commitment to issue each such Title Policy), effective as of the date of the Notes, in form and substance satisfactory to PTR in its reasonable judgment, confirming the first priority status and validity of the lien of the Security Documents on the Property to secure the obligations under the Notes, the Security Documents and the other Loan Documents; (iv) for each Project then subject to this Agreement, a survey of the subject Land, and a geotechnical report and environmental audit, satisfactory to PTR, in its reasonable judgment; (v) opinions of counsel reasonably satisfactory to PTR addressing the following matters: (A) each Borrower then executing and delivering any Loan Documents is duly organized and validly existing, and in good standing and 24 authorized to do business in each state in which it owns a Project, with power and authority to own its Projects and to perform its obligations under the Loan Documents to which it is a party and to carry on its business as it is now being conducted; (B) the execution, delivery and performance of the Loan Documents delivered by each such Borrower have been duly and validly authorized by all necessary action of such Borrower; and (C) the Loan Documents executed by each such Borrower constitute valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their respective terms, except as such enforcement may be limited by applicable bankruptcy laws and other customary exceptions; (vi) for each Project then under construction or completed, certificates of insurance confirming the existence of all insurance required by Section 4.9 hereof; ----------- (vii) Copies of the Plans, Project Budget and Project Schedule for each Project then under construction or then being added to this Agreement; and (viii) Certification from Homestead that any Property(ies) then being added to this Agreement either contain no Material Changes or any Material Changes have previously been approved by PTR. (b) The Title Insurer shall have been paid all title insurance premiums, filing fees, recording fees and taxes required for proper recording of the Security Documents to be recorded at such time and any other Loan Document to be filed or recorded at such time. (c) There shall not have occurred and be continuing any Default. (d) There shall be no actual or threatened condemnation of all or any portion of the Land comprising any Property then subject to any of the Security Documents. (e) Neither Homestead nor any Borrower shall be the subject of any bankruptcy or similar proceeding. 25 (f) There shall not have occurred and be continuing beyond any applicable cure or grace period any default under any of the Prior Loan Documents. (g) The representations and warranties set forth in Article 3 hereof shall --------- be true and correct in all material respects with respect to each Project then subject to the Security Documents. Section 5.2. CONDITIONS PRECEDENT TO FIRST ADVANCE FOR NEW PROJECT. PTR shall not be obligated to advance funds in respect of a new Future Project for which Pursuit Costs are to be funded or for any Project to be acquired by Homestead or any Subsidiary until each of the following conditions is fulfilled: (a) The conditions precedent set forth in Section 5.1 shall remain ----------- satisfied. (b) Receipt by PTR of each of the following for each Future Project for which Pursuit Costs are to be funded: (i) a Funding Notice for the subject Future Project; (ii) if applicable, a fully executed copy of any agreement to be delivered by a Subsidiary in connection with such Future Project whereby such Subsidiary agrees to be bound by the terms of this Agreement with respect to the subject Future Project; and (iii) a Development Budget and Development Schedule for the subject Future Project. (c) Receipt by PTR of each of the following for each Project: (i) an Acquisition Notice for the subject Project; (ii) if applicable, a fully executed copy of any agreement to be delivered by a Subsidiary in connection with such Project whereby such Subsidiary agrees to be bound by the terms of this Agreement with respect to the subject Project; (iii) duly executed copies of any Homestead Security Documents, Partnership Security Documents or Subsidiary Security Documents, any Subsidiary 26 Note, and any other Loan Documents which PTR may reasonably require to be executed and delivered in connection with such Project; (iv) an opinion of counsel addressing, as to the subject Borrower and the Loan Documents then being executed by such Borrower, the matters set forth in Section 5.1(a)(viii) above; -------------------- (v) the Title Policy for the subject Property (or irrevocable commitment to issue such Title Policy), effective as of the date of the first advance in respect of such Project, in form and substance satisfactory to PTR in its reasonable judgment, confirming the first priority status and validity of the lien of the Security Documents on the Property to secure the obligations under the Notes, the Security Documents and the other Loan Documents; (vi) a survey of the subject Land, and a soils report, geotechnical report and environmental audit of the Land, satisfactory to PTR, in its reasonable judgment; and (vii) Copies of the Plans, Project Budget and Project Schedule for the subject Project. (d) With respect to each Project, the Title Insurer shall have been paid all title insurance premiums, filing fees, recording fees and taxes required for proper recording of the Security Documents to be recorded at such time and any other Loan Document to be filed or recorded at such time. (e) There shall not have occurred and be continuing any Default. (f) There shall be no actual or threatened condemnation of all or any portion of the Land comprising the Property. (g) The Completion and Payment Guaranty shall be in full force and effect. Section 5.3. INITIAL IMPROVEMENT ADVANCE CONDITIONS. PTR's initial obligation to advance any of the Loan proceeds to a Borrower for construction of Improvements is conditioned upon the conditions precedent set forth in Sections -------- 5.1 and 5.2 remaining satisfied and, if requested by PTR, receipt of the - --- --- following: 27 (a) Evidence of the issuance of all Permits required by any Governmental Authority as a condition to the commencement of construction of the subject Improvements. (b) A copy of the Construction Contract, Architect's Agreement and any Consultants' Agreements for the subject Project. (c) Certificates of insurance and other certificates or information in form and substance reasonably satisfactory to PTR confirming the existence of all insurance required by Section 4.9 hereof. ----------- (d) An executed Contractor's Certificate, Architect's Certificate and Consultants' Certificates from the Contractor, Architect and Consultants performing services to the subject Project. (e) Such further financing statements and security agreements, executed and acknowledged by the subject Borrower, relating to construction materials for the subject Project as PTR may reasonably require. (f) Evidence of the availability of utilities and access to and from the subject Project sufficient for its intended use. Section 5.4. ADDITIONAL IMPROVEMENT ADVANCE CONDITIONS. After the initial advance, additional advances made for the purpose of constructing any subject Improvements shall be subject to the following conditions: (a) The conditions precedent set forth in Sections 5.1, 5.2 and 5.3 shall ------------ --- --- remain satisfied. (b) All Permits required under Governmental Requirements for construction of the subject Improvements shall be legally valid and in force and effect. (c) The subject Property and Improvements shall not have suffered any damage or deterioration without provision for arrangements satisfactory to PTR for the restoration and replacement of the damage or deterioration to such Property or Improvements. Section 5.5. FINAL-ADVANCE CONDITIONS. PTR's obligation to advance any of the Loan proceeds to a Borrower for the Final Advance for the Improvements comprising a Project is conditioned upon the following and, if requested by PTR, receipt by PTR of evidence reasonably satisfactory to PTR that such conditions have been satisfied: 28 (a) The completion of all Improvements in substantial accordance with the Plans. (b) Receipt by the Borrower of all Final CO's issued by the appropriate Governmental Authorities for the Improvements and all other Permits necessary for use of the subject Improvements and Property. (c) The Inspecting A/E for the Project shall have executed a certificate of final completion with respect to all of the Improvements required under the applicable Construction Contract. (d) The Contractor, all Subcontractors and other parties (including Architects and Consultants, if applicable) who performed work for the subject Project have been paid (or with the application of the final advance of Loan proceeds for such Project, will have been paid) in full, except for amounts which the Borrower in good faith disputes and/or amounts which Homestead and/or the subject Borrower intends to pay with its own funds provided any liens filed against the Project have been released or bonded over. (e) Receipt by Borrower of an as-built survey showing the location of all Improvements, including parking areas, streets and the location of all utilities and other easements, encroachments and building set back lines, if any, together with delivery to PTR of an endorsement to the Title Policy removing any exception for matters of survey. (f) All remaining punchlist items have been completed by the Contractor and approved by the Borrower. (g) All conditions precedent to the "Final Payment" required under the Construction Contract shall have been satisfied. (h) The Project is otherwise ready for immediate occupancy by guests. ARTICLE 6. PROCEDURE FOR ADVANCES; RESERVES Section 6.1. GENERAL. PTR will disburse the proceeds of the Loans on a monthly basis for the cost categories set forth in the applicable Development Budgets and Project Budgets. Homestead shall submit a written request for advance in a form approved by PTR by the 25th day of each month and, provided PTR determines that all conditions precedent to the advance 29 have been satisfied, disbursements will be made by the 1st day of the immediately following month. Each request for advance shall set forth, on a Project-by-Project basis, Homestead's reasonable estimate of the hard and soft costs and expenses incurred during the month just ending and for which reimbursement is being sought. With each request for advance after the first, Homestead shall also provide a reconciliation indicating the amount by which the immediately preceding advance made by PTR exceeded the actual hard and soft costs for the period covered by such advance and the amount by which the request for advance for the month just ending has been adjusted on account of any over- or underpayment by PTR for the preceding month. With respect to the final advance of Loan proceeds in respect of a Project, if the final reconciliation submitted in the month following such advance reflects that Loan proceeds in excess of actual costs were advanced, such overpayment (together with accrued and unpaid interest thereon) shall be repaid by Borrower to PTR within 15 days after such reconciliation is delivered to PTR. Any additional Loan proceeds owing to Borrower on the basis of such final reconciliation shall be advanced by PTR with the balance of the monthly advance made by PTR under this Section 6.1. ----------- All disbursements with respect to any request for an advance submitted other than on the 25th day of a month will be made within ten (10) business days after the later of (i) receipt by PTR of a written request for an advance from Homestead in a form approved by PTR and (ii) PTR's determination that all conditions precedent to the advance have been satisfied. All disbursements shall be made in accordance with any instructions contained in the Homestead request for advance. Section 6.2. PAYMENTS TO PTR. Notwithstanding any other provisions of this Agreement, PTR may, at it's option and without notice or authorization by Homestead or any Borrower, use any Loan proceeds to pay, as and when due, any interest on the Loans. The parties acknowledge that the Loans provide for interest reserves in amounts sufficient to pay all interest due and payable in respect of each Project through completion of same, and Homestead and each Borrower specifically authorizes PTR to advance portions of such interest reserves to pay interest on the Loans as and when the same comes due. Section 6.3. RETAINAGE AND CONTRACTOR'S FEE HOLDBACK. The parties acknowledge that PTR shall retain, and Homestead shall not request disbursement, of any retainages provided for under any Construction Contract, which amounts shall be retained by PTR to secure full and complete performance of all construction obligations hereunder (hereinafter, the "Retainage Holdback"). ------------------ Provided no Default exists hereunder, PTR shall disburse the Retainage Holdback in accordance with the provisions of the applicable Construction Contract as requested by Homestead in its requests for advances. Upon the occurrence of a Default hereunder, PTR shall 30 have no obligation to make further disbursements from the Retainage Holdback, and no Borrower shall be entitled to any such disbursements, until such Default is cured. Upon the occurrence of an Event of Default hereunder, PTR may apply the Retainage Holdback against any of the obligations secured by the Security Documents as PTR sees fit or, in PTR's discretion, to the completion of any incomplete Improvements. Subject to the foregoing terms and provisions, to the extent not theretofore disbursed, PTR will disburse the amounts in the Retainage Holdback in respect of a Project concurrently with the Final Advance for such Project. Section 6.4. INTEREST RESERVE. PTR shall, on the date hereof, withhold from the proceeds of the Loans available for distribution the amount of Seven Million, Nine Hundred Five Thousand, Four Hundred Sixty-Six Dollars ($7,905,466) (the "Interest Reserve"). Provided no Default exists hereunder, the Interest ---------------- Reserve shall be disbursed for the payment of interest on the Loans as such interest becomes due and payable. Upon the occurrence of a Default hereunder, PTR shall have no obligation to make further disbursements from the Interest Reserve, and no Borrower shall be entitled to any such disbursements, until such Default is cured. Should interest payable on the Loans exceed the amount of the Interest Reserve, the Borrowers shall promptly pay such amounts. Upon the occurrence of an Event of Default, PTR may apply any undisbursed portion of the foregoing reserve against any of the obligations secured by the Security Documents as it sees fit or, at PTR's discretion, to the completion of and incomplete Improvements. Section 6.5. OWNER'S CONTINGENCY. The parties acknowledge that each Project Budget shall contain an owner's contingency (an "Owner's Contingency") ------------------- equal to no less than 2% of Project hard and soft costs contained within the Project Budget. Provided no Default exists hereunder, the Owner's Contingency for a Project shall be disbursed by PTR to the subject Borrower to cover unanticipated Project costs, costs associated with change orders and hard and soft cost overruns (before such Borrower or Homestead, as guarantor under the Completion and Payment Guaranty, shall be required to cover such additional costs pursuant to the provisions of Section 6.6 hereinbelow or the Completion ----------- and Payment Guaranty) as and when such payments are due and payable. Requests for disbursement of portions of the Owner's Contingency shall be made with Homestead's monthly requests for advance of Loan proceeds. Upon the occurrence of a Default hereunder, PTR shall have no obligation to advance any portion of the Owner's Contingency until such Default is cured. Upon the occurrence of an Event of Default, PTR may apply the Owner's Contingency against any of the obligations secured by the Security Documents as PTR sees fit, or at PTR's option, to the completion of any incomplete Improvements. Section 6.6. COST OVERRUNS AND SAVINGS; CHANGE ORDER RESERVE. In the event that the costs to acquire and complete any Project in its entirety, including, without limitation, the 31 furnishing thereof, exceed the amount of Loan proceeds available for the subject Project (including the applicable Owner's Contingency), then the subject Borrower shall with its own funds pay all costs and expenses which may be required to complete the subject Project as and when such costs and expenses become due and payable. In the event the costs to acquire and complete any Project are less than the amount of Loan proceeds allocated to the subject Project, then the unapplied portion of the Loan proceeds (including any unexpended portion of the applicable Owner's Contingency and amounts required to be refunded by Borrower under Section 6.1 for any overpayments of Loan proceeds ----------- made in the final advance for a Project) shall be retained by PTR as a reserve for Change Orders on other Projects which are made in accordance with the requirements of this Agreement (the "Change Order Reserve"). Provided no -------------------- Default exists hereunder, the Change Order Reserve shall be disbursed by PTR to any Borrower from time to time to cover the costs of Change Orders to the extent any such Change Order results in Project costs exceeding the Project Budget, including the Owner's Contingency, for such Project (before such Borrower or Homestead, as guarantor under the Completion and Payment Guaranty, shall be required to cover such additional costs pursuant to the provisions of this Section 6.6 or the Completion and Payment Guaranty). Requests for disbursement - ----------- of portions of the Change Order Reserve shall be made with Homestead's monthly requests for advance of Loan proceeds. Upon the occurrence of a Default hereunder, PTR shall have no obligation to advance any portion of the Change Order Reserve until such Default is cured. Upon the occurrence of an Event of Default, PTR may apply the Change Order Reserve against any of the obligations secured by the Security Documents as PTR sees fit or, at PTR's option, to the completion of any incomplete Improvements. ARTICLE 7. EVENTS OF DEFAULT The occurrence of any one or more of the following shall constitute an Event of Default under this Agreement: Section 7.1. FAILURE TO PAY. The failure by a Borrower to pay when due any sums required to be paid under the Notes, the Security Documents, this Agreement or any other Loan Documents, and such failure is not cured within 10 days after receipt of written notice from PTR. Section 7.2. OTHER LOAN DOCUMENT DEFAULTS. To the extent any such failure, breach or inaccuracy has, or would have, a Material Adverse Effect, the failure by a Borrower or Homestead to perform or observe, as and when required, any covenant, agreement, obligation 32 or condition required to be performed or observed under this Agreement or under any of the other Loan Documents other than as set forth elsewhere in this Article 7 (for which no additional grace or cure period is given by this Section - --------- ------- 7.2, or the existence of any breach or inaccuracy in any of the representations, - --- covenants or warranties set forth in this Agreement or in any of the other Loan Documents, provided, however, that (i) no Event of Default shall exist hereunder on account of a breach of any representation, warranty or covenant set forth in any of the other Loan Documents (other than this Agreement) until Homestead or such Borrower, as applicable, shall have failed to cure such breach within any applicable notice and cure period therein provided; and (ii) no Event of Default shall exist hereunder on account of a breach of any representation, warranty or covenant contained herein unless and until PTR shall provide written notice of such breach to Homestead or such Borrower and such entity shall fail to cure the same within 30 days after receipt of such notice, provided if such breach is of such a nature that it cannot be cured within such 30 day period, it shall not constitute an Event of Default hereunder so long as Homestead or such Borrower, as applicable, commences its cure of such breach within such 30 day period and thereafter diligently and continuously proceeds with the curing of same within a reasonable period of time not to exceed 180 days. Section 7.3. JUDGMENT OR ATTACHMENT. The entry by any court of a final judgment in excess of $500,000 against Homestead or a Borrower that is not satisfactorily stayed or discharged within 30 days from the date thereof, or any attachment of any of the Properties or any of the proceeds of the Loans that shall not be released, stayed or otherwise provided for to PTR's satisfaction within 30 days after the occurrence thereof; provided that in the case of a stay, Homestead or the subject Borrower, as applicable, shall have reserved for the full amount thereof. Section 7.4. VIOLATION OF GOVERNMENTAL REQUIREMENTS. The institution of any judicial or administrative proceeding alleging that any of the Improvements violate any Governmental Requirements if such violation gives rise to a Material Adverse Effect and the failure to have such proceeding dismissed or such violation corrected within 30 days after the institution thereof, except that Homestead or the applicable Borrower shall have the right to contest any such proceeding beyond such 30 day period, provided that PTR is satisfied that the prosecution of such proceeding will neither have any Material Adverse Effect nor materially impair PTR's security. Section 7.5. INSOLVENCY, ETC. The occurrence of any of the following: (a) Homestead or any Borrower shall generally not pay its debts as they become due or shall admit in writing its inability to pay its debts, or shall make a general assignment for the benefit of creditors; 33 (b) Homestead or any Borrower shall commence any case, proceeding or other action seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property; (c) Homestead or any Borrower shall take any corporate action to authorize any of the actions set forth above in paragraphs (a) or (b); or -------------- --- (d) Any case, proceeding or other action against Homestead or any Borrower shall be commenced seeking to have an order for relief entered against it as debtor, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such case, proceeding or other action (i) results in the entry of an order for relief against it which is not fully stayed within 15 Business Days after the entry thereof or (ii) remains undismissed for a period of 60 days. Section 7.6. UNAPPROVED TRANSFER. Any sale, conveyance, transfer, disposition, alienation, hypothecation, leasing (except in the ordinary course of business) or further encumbrancing of a Project, or any portion thereof or any interest therein, by any Borrower, other than any conveyance of a portion of the unimproved land associated with such Project which is in excess of what is needed for such Project (which conveyance is permitted), or a sale, conveyance, transfer, disposition, alienation, hypothecation or encumbrancing of any legal or equitable interest in a Borrower or Homestead in violation of the Loan Documents shall be an Event of Default as of the date of such transfer, without any right to cure. In the case of a permitted conveyance of excess land, as hereinbefore provided, Lender shall, upon request of Homestead, execute a partial release, releasing the lien of any Security Documents applicable to such excess land. ARTICLE 8. REMEDIES Section 8.1. GENERAL. Upon the occurrence of any Event of Default an defined in Article 7 of this Agreement, PTR, at its option, shall have the --------- following rights and remedies: 34 (a) PTR may declare any one or more of the Notes to be immediately due and payable, whereupon the Notes shall become forthwith due and payable without presentment, demand, protest or further notice of any kind. (b) PTR may bring a foreclosure action with respect to the Security Documents, take possession of any one or more of the Properties or exercise any other remedy provided for in the Security Documents. (c) PTR shall be entitled to proceed simultaneously, or selectively and successively, to enforce its rights and remedies under the Notes, the Security Documents, the Completion and Payment Guaranty or this Agreement, and to exercise any or all other rights and remedies available to PTR at law or in equity. (d) In the event PTR shall elect to enforce its rights selectively under any one or more of the Loan Documents, such action shall not be deemed a waiver or discharge of any lien or encumbrance securing payment of the Notes until such time as PTR shall have been paid in full all sums due under the Notes or secured by the Security Documents, including any sums advanced or disbursed pursuant to this Agreement. The foreclosure of any lien provided pursuant to this Agreement or the Security Documents, without the simultaneous foreclosure of all such liens, shall not merge the liens granted which are not foreclosed with any interest which PTR might obtain as a result of such selective and successive foreclosure. (e) PTR shall have the right, but not the obligation, to take possession of any one or more of the Properties and proceed to complete the Improvements thereto according to the applicable Plans. For this purpose, each Borrower hereby conditionally assigns to PTR as additional security for the repayment of the Loans all of each such Borrower's rights to the Plans for the Projects owned by it, any contracts pertaining to the Project owned by such Borrower, whether for construction, sale or otherwise, and any Permits pertaining to the subject Property(ies); provided, PTR shall, upon occurrence of an Event of Default, have the option to exercise this assignment, but shall not be obligated to accept this assignment or to assume any liability of any Borrower under any such Plans, contracts or Permits. Furthermore, each Borrower hereby constitutes and appoints PTR as its true and lawful attorney-in-fact with full power of substitution to complete, or cause to be completed, the Improvements owned by such Borrower in the name of such Borrower and hereby empowers said attorney or attorneys as follows: (i) to use any funds of Borrower, including any balance that may be held in escrow and any funds which may remain unadvanced hereunder, for the purpose of completing the Improvements being built by such Borrower; (ii) to make such additional changes and corrections in the Plans for such Improvements as may reasonably be necessary or desirable to complete such Improvements in substantially the manner contemplated by the Plans for such 35 Improvements and in a good and workmanlike manner; (iii) to employ such contractors, subcontractors, agents, architects and inspectors as shall be required for said purposes; (iv) to pay, settle or compromise all existing bills and claims that are or may become liens against the subject Property(ies) or any part thereof or may be necessary or desirable for the completion of the subject Improvements or the clearance of title; (v) to execute all applications and certificates in the name of Borrower which may be required by law or by any contract relating to the subject Improvements; and (vi) to do any and every act with respect to the applicable Property(ies) which such Borrower may do in its own behalf. It is understood and agreed that this power of attorney shall be deemed to be a power coupled with an interest which cannot be revoked. PTR, as attorney-in-fact, shall also have the power to defend, to the extent PTR reasonably deems necessary, at such Borrower's cost, all actions or proceedings in connection with the subject Improvements and Property(ies). At the time PTR takes possession of a Property(ies), or any part thereof, all materials on such Property owned by Borrower shall become the property of PTR for the purpose of completing the subject Improvements. In addition, any materials or equipment paid for with the proceeds of the Notes but stored at a location other than the subject Property(ies) shall become the property of PTR when it takes possession of the subject Property(ies). Such Borrower shall pay PTR the cost of completion. Each Borrower hereby authorizes PTR to add such costs to the indebtedness of the Borrowers to PTR, which costs shall be secured by the Security Documents. Any of the foregoing actions by PTR shall not relieve the Borrowers of their responsibility to repay the Notes. The foregoing provision shall not be construed as creating any third party beneficiary contract and nothing in the foregoing shall be construed as giving or conferring any rights or benefits whatsoever to or upon any other person or entities other than the parties to this Agreement. Homestead shall indemnify, defend and hold harmless PTR from and against any and all claims, liabilities, loss, damages, suits, actions, expenses (including reasonable attorneys' fees) and costs arising from any actions taken by PTR in accordance with the power of attorney herein granted except to the extent attributable to the gross negligence or willful misconduct of PTR. (f) PTR shall not have any obligation to make any advances under the Notes pursuant to this Agreement after the occurrence and during the continuance of an Event of Default and at any time during such period, may unilaterally elect to terminate any obligation of PTR to make any future advances under the Notes pursuant to this Agreement. Section 8.2. REMEDIES CUMULATIVE. No failure or delay by PTR in the exercise of any rights or remedies available to it under the Loan Documents or at law or in equity shall operate as a waiver thereof, nor shall any single or partial exercise by PTR of any such right or remedy preclude any further exercise thereof or of any other right or remedy. The remedies provided in the Loan Documents or available at law or in equity are cumulative and not alternative. 36 ARTICLE 9. MISCELLANEOUS Section 9.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All representations, warranties and covenants contained herein shall survive the execution of this Agreement, the making of the Loans and the delivery of the Notes and other Loan Documents and the release of any portion of the liens of the Security Documents, and shall remain in full force and effect until the termination of this Agreement in accordance with Section 2.8 hereof. ----------- Section 9.2. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, personal representatives, successors, assigns and affiliates, but shall not be assignable by any party hereto without the prior written consent of the other party hereto; provided that Homestead and/or the Partnership Borrower may assign its rights hereunder in whole or in part to a Homestead Affiliate or Subsidiary. Other than to a Homestead Affiliate or Subsidiary, no Borrower shall, without the prior written consent of PTR, which consent PTR may withhold in its sole discretion, directly or indirectly assign, transfer or convey (i) this Agreement or any of the other Loan Documents, (ii) any of Borrower's rights or obligations under any of the Loan Documents, (iii) any portion of the proceeds of the Notes, (iv) any legal or equitable interest in the Property or (v) any legal or equitable interest in such Borrower. Section 9.3. NOTICES. Any notice or other communication provided for herein or given hereunder to a party hereto shall be in writing and shall be given by delivery, by telex, telecopier or by mail (registered or certified mail, postage prepaid, return receipt requested) to the respective parties as follows: If to Homestead: Homestead Village Incorporated 125 Lincoln Avenue, Suite 300 Santa Fe, New Mexico 87501 Attention: David C. Dressler, Jr. Facsimile: (505) 982-2925 37 If to PTR: Security Capital Pacific Trust 7777 Market Center Avenue El Paso, Texas 79912 Attention: C. Ronald Blankenship Facsimile: (915) 877-3301 or to such other address with respect to a party as such party shall notify the other in writing. Section 9.4. WAIVER. No party may waive any of the terms or conditions of this Agreement, except by a duly executed writing referring to the specific provision to be waived. Section 9.5. AMENDMENT. This Agreement may be amended only by a writing duly executed by both Homestead and PTR. Section 9.6. SEVERABILITY. Insofar as is possible, each provision of this Agreement shall be interpreted so as to render it valid and enforceable under applicable law and severable from the remainder of this Agreement. A finding that any such provision is invalid or unenforceable in any jurisdiction shall not affect the validity or enforceability of any other provision or the validity or enforceability of such provision under the laws of any other jurisdiction. Section 9.7. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, among the parties hereto and their affiliates, with respect to the subject matter hereof. The provisions of this Agreement supersede any provisions set forth in the Existing Loan Documents relating to the disbursement of Loan proceeds for the Projects. Section 9.8. EXPENSES. Except as otherwise expressly contemplated herein to the contrary, regardless of whether the transactions contemplated hereby are consummated, each party hereto shall pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the transactions contemplated hereby. Section 9.9. CAPTIONS. The Article, Section and Paragraph captions herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. Section 9.10. GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New Mexico. 38 Section 9.11. NO JOINT VENTURE OR PARTNERSHIP. Nothing contained in this Agreement or in any of the other Loan Documents and no other aspect of the relationship between Homestead or any Borrower and PTR shall be construed as creating a partnership, joint venture, or other relationship of or between Homestead or any Borrower and PTR other than the lending relationship of lender and borrower. All rights and obligations granted to or undertaken by either of the parties hereto shall be construed as incidents of such lending relationship. Section 9.12. NO THIRD PARTY BENEFICIARY RIGHTS CREATED. The parties hereto expressly declare that it is their joint and mutual intention that this Agreement and the transactions contemplated hereby shall not be construed as creating a third party beneficiary contract, and neither this Agreement nor any of the other Loan Documents shall be construed as giving or conferring any rights or benefits whatsoever to or upon any other persons or entities other than Homestead, any Borrower and PTR. Section 9.13. INCORPORATION BY REFERENCE. This Agreement, the Notes and the Security Documents are intended to be construed as part of the same transaction, and all of the covenants, agreements, conditions, terms and provisions contained in any one of the Loan Documents shall be deemed to be included in each of the other Loan Documents with the same force and effect as though set forth in full therein. In the event any of the provisions of this Agreement are in conflict with or inconsistent with the provisions of the Security Documents, this Agreement shall govern and control. Section 9.14. COUNTERPARTS. This Agreement may be executed in counterpart copies, each of which shall constitute an original, and all of which together shall constitute one and the same document. Section 9.15. SCOPE OF REVIEW OF PLANS. Neither the approval of the Plans nor any subsequent inspections or approvals of the Improvements during construction shall constitute a warranty or representation by PTR or any of its agents, representatives or designees as to the technical or legal sufficiency, adequacy or safety of the structures or any of their component parts, including without limitation fixtures, equipment or furnishings, nor shall such approvals or inspections constitute such a warranty or representation as to the subsoil conditions involved in the Property or any other physical condition or feature pertaining to the Property. All acts, including any failure to act, relating to the Property by any agents, representatives or designees of PTR are performed solely for the benefit of PTR to assure repayment of the Loans and are not for the benefit of Borrower or any other person, including without limitation purchasers, guests or other occupants. 39 Section 9.16. GOVERNMENTAL REGULATION. Anything contained in this Agreement to the contrary notwithstanding, PTR shall not be obligated to extend credit to Borrower in an amount in violation of any limitation or prohibition provided by any applicable governmental statute or regulation. Section 9.17. SUBORDINATION. Each Borrower hereby subordinates all rights, liens and claims for any of the proceeds and advances under the Notes to the liens, operation and effect of the Security Documents. Section 9.18. INDEMNITY. Homestead and each Borrower agree to indemnify, defend and hold PTR harmless from and against any and all claims, injuries, damages and liabilities that may be asserted or claimed against PTR by any person as a result or by reason of, or that may be incurred or suffered by PTR as a result or by reason of, the construction contemplated herein or the operation of the ownership or Encumbered Property or any part thereof. Section 9.19. Limitation of Liability. Any obligation or liability whatsoever of PTR which may arise at any time under this Funding Commitment Agreement or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction or undertaking contemplated hereby shall be satisfied, if at all, out of PTR's assets only. No such obligation or liability shall be personally binding upon, nor shall resort for the enforcement thereof be had to, the property of any of its shareholders, trustees, officers, employees or agents, regardless of whether such obligation or liability is in the nature of contract, tort or otherwise. 40 IN WITNESS WHEREOF, each of the undersigned has executed this Agreement, or caused this Agreement to be duly executed on its behalf, as of the date first set forth above. HOMESTEAD VILLAGE INCORPORATED By: /s/ David C. Dressler, Jr. -------------------------- David C. Dressler, Jr. Chairman SECURITY CAPITAL PACIFIC TRUST By: /s/ C. Ronald Blankenship ------------------------- C. Ronald Blankenship Chairman S-1 EX-12.1 21 COMP. OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 SECURITY CAPITAL PACIFIC TRUST COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLAR AMOUNTS IN THOUSANDS)
TWELVE MONTHS ENDED DECEMBER 31, ----------------------------------------- 1996 1995 1994 1993 1992 -------- -------- ------- ------- ------- Net earnings from operations.......... $ 94,089 $ 81,696 $46,719 $23,191 $ 9,037 Add: Interest expense.................... 35,288 19,584 19,442 3,923 3,147 -------- -------- ------- ------- ------- Earnings as adjusted.................. $129,377 $101,280 $66,161 $27,114 $12,184 ======== ======== ======= ======= ======= Fixed charges: Interest expense.................... $ 35,288 $ 19,584 $19,442 $ 3,923 $ 3,147 Capitalized interest................ 16,941 11,741 6,029 2,818 989 -------- -------- ------- ------- ------- Total fixed charges............... $ 52,229 $ 31,325 $25,471 $ 6,741 $ 4,136 ======== ======== ======= ======= ======= Ratio of earnings to fixed charges.... 2.5 3.2 2.6 4.0 2.9 ======== ======== ======= ======= =======
EX-12.2 22 RATIO OF EARNINGS TO FIXED CHARGES & PREF. SHARE D EXHIBIT 12.2 SECURITY CAPITAL PACIFIC TRUST COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS (DOLLAR AMOUNTS IN THOUSANDS)
TWELVE MONTHS ENDED DECEMBER 31, ----------------------------------------- 1996 1995 1994 1993 1992 -------- -------- ------- ------- ------- Net earnings from operations......... $ 94,089 $ 81,696 $46,719 $23,191 $ 9,037 Add: Interest expense................... 35,288 19,584 19,442 3,923 3,147 -------- -------- ------- ------- ------- Earnings as adjusted................. $129,377 $101,280 $66,161 $27,114 $12,184 ======== ======== ======= ======= ======= Combined fixed charges and preferred share dividends: Interest expense................... $ 35,288 $ 19,584 $19,442 $ 3,923 $ 3,147 Capitalized interest............... 16,941 11,741 6,029 2,818 989 -------- -------- ------- ------- ------- Total fixed charges.............. 52,229 31,325 25,471 6,741 4,136 Preferred share dividends (a)...... 24,167 21,823 16,100 1,341 -- -------- -------- ------- ------- ------- Combined fixed charges and preferred share dividends..................... $ 76,396 $ 53,148 $41,571 $ 8,082 $ 4,136 ======== ======== ======= ======= ======= Ratio of earnings to combined fixed charges and preferred share dividends........................... 1.7 1.9 1.6 3.4 2.9 ======== ======== ======= ======= =======
- -------- (a) PTR had no preferred shares in any of the historical periods presented prior to 1993. EX-21 23 SUBSIDIARIES OF PTR Exhibit 21 The registrant has 14 consolidated wholly owned subsidiaries carrying on the same line of business and operating in the United States. EX-23 24 CONSENT OF PEAT MARWICK EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Trustees and Shareholders of Security Capital Pacific Trust: We consent to incorporation by reference in registration statements No. 33- 25317 (Form S-8), No. 333-4455 (Form S-4), and No. 333-12885 (Form S-3) of Security Capital Pacific Trust of our report dated January 29, 1997, except as to Note 13 which is as of March 10, 1997, relating to the balance sheets of Security Capital Pacific Trust as of December 31, 1996 and 1995, and the related statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, and the related schedule, which report appears in the December 31, 1996 annual report on Form 10-K of Security Capital Pacific Trust. KPMG Peat Marwick LLP Chicago, Illinois March 13, 1997 EX-27 25 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Form 10-K for the twelve months ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 5,643 0 193,987 0 0 0 2,153,363 97,574 2,282,432 0 797,188 75,511 0 267,374 924,623 2,282,432 322,046 326,246 0 128,122 0 0 35,288 106,544 0 107,414 0 (870) 0 106,544 1.46 1.46
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