June 16, 1998
Homestead Village Incorporated
Xxxxxx Xxxxxxxx
Senior Vice President and Chief Financial Officer
0000 XxxxxXxxx Xxxxxxx
Xxxxxxx, Xxxxxxx 00000
Dear Xx. Xxxxxxxx:
This will confirm our understanding whereby Security Capital Group
Incorporated ("Subscriber") will agree to subscribe for up to $200 million
principal amount of Homestead Village Incorporated ("Homestead") convertible
subordinated debentures ("Subordinated Debentures"), convertible into shares of
Homestead Common Stock, $.01 par value per share (the "Shares"). This
Subscription Agreement is entered into in connection with Homestead entering
into a Credit Agreement dated June 15, 1998 ("Credit Agreement"), for up to $200
million with certain banks ("Banks") and Commerzbank AG, acting through its New
York Branch as agent for the Banks (the "Agent").
1. Documents. Subscriber has received and read (i) the Homestead Form
10-K for 1997, (ii) the Homestead Form 10-Q for the quarter ended March 31,
1998, (iii) the Homestead Proxy Statement for the 1998 Annual Meeting of
Shareholders, (iv) this Subscription Agreement, (v) the Form of Subordinated
Debenture attached hereto as Exhibit A, (vi) the Credit Agreement, and (vii)
Homestead's Articles of Incorporation, as amended (the "Articles of
Incorporation"), and By-laws, as amended (the "By-laws"). The Form 10-K, Form
10-Q, Proxy Statement, Form of Subordinated Debenture, this Subscription
Agreement, Credit Agreement and the Articles of Incorporation and the By-laws of
Homestead are referred to collectively herein as the "Documents."
2. Subscription. On the terms set forth herein, Subscriber hereby
subscribes for up to $200 million principal amount (the "Subscription Amount")
of Subordinated Debentures substantially in the form attached as Exhibit A, at a
price of $1,000 per $1,000 principal amount of Subordinated Debentures at the
time the subscription is called in whole or in part ("Subscription Price"). The
parties acknowledge and agree that the Subscription Amount will be used first,
to repay Homestead's obligations under the Credit Agreement and second, to the
extent necessary, to fund projects under development which are Mortgaged
Properties (as defined in the Credit Agreement). Subscriber hereby agrees that
this subscription is and shall be irrevocable and shall survive and shall not be
affected by the subsequent dissolution, bankruptcy or insolvency of Homestead,
or any defenses, counterclaims or setoffs which Subscriber may at any time have
against Homestead, but that the obligations hereunder will terminate if (a)
Homestead or the Agent does not call the subscription or any part of it for any
reason by June 30, 1999 or (b) 14 days after the Credit Agreement is terminated.
Subscriber acknowledges that Homestead is not obligated to call all or any part
of the Subscription Amount. In addition, Subscriber's obligation to fund the
Subscription Amount will be reduced or terminated to the extent Homestead (i)
issues equity securities, including Shares, to any third party (or to Subscriber
pursuant to a separate offering) before June 30, 1999, as provided in Section 9,
and (ii) uses the proceeds thereof to pay down its obligations under the Credit
Agreement by the amount of net proceeds received by Homestead from the sale of
equity securities and any remaining net proceeds to fund projects under
development which are Mortgaged Properties (as defined in the Credit Agreement).
Subscriber acknowledges and agrees that any issuance of convertible subordinated
debentures in a private offering managed by Xxxxxxx Xxxxx, the proceeds of which
will be used to purchase convertible mortgages of Homestead, shall not reduce or
terminate Subscriber's subscription obligation hereunder. As of the date of this
Subscription Agreement, Subscriber has no knowledge of any claims or offsets
against Homestead.
3. Repayment of Subordinated Debentures. Homestead shall have 90 days
after the date of the initial issuance of Subordinated Debentures under this
Agreement to complete an equity offering to repay Subordinated Debentures issued
to Subscriber. If at the end of such 90 day period Homestead has not completed
an equity offering, then the Subordinated Debentures shall, subject to the
following sentence, automatically be converted into Shares at a conversion price
equal to the lower of the Fair Market Value of the Shares when the Subscription
Agreement is executed by Homestead or the Fair Market Value of the Shares on the
90th day after issuance of the Subordinated Debentures. The Shares issuable upon
conversion of the Subordinated Debentures shall be registered under the
Securities Act of 1933, as amended (the "Securities Act"). If Homestead becomes
in default under the Credit Agreement after the issuance of the Subordinated
Debentures and before the 90th day after issuance, then the Subordinated
Debentures shall become non-convertible and interest shall accrue at 15% per
annum.
For purposes hereof, "Fair Market Value" shall be:
(a) If the Shares are listed on a national securities exchange
or reported on the NASDAQ National Market System, the average daily
per-Share closing sales price during the 20 trading-day period
immediately prior to any determination date.
(b) If the Shares are not listed or reported but published bid
and asked prices are available with respect to the Shares, the mean
between the average per-Share closing bid and asked prices during the
20 trading day period immediately prior to any determination date.
4. Purchase of Non-Convertible Subordinated Debt.
(a) If Homestead is in default under the Credit Agreement when
it or the Agent calls for payment of any of the Subscription Amount due
under this Subscription Agreement, Subscriber shall purchase
non-convertible subordinated debt of Homestead in satisfaction of its
funding obligations under this Subscription Agreement, which
non-convertible subordinated debt shall have the same terms as the
Subordinated Debentures except they shall bear interest at the rate of
15% per annum and shall not be convertible into Shares.
(b) If the Agent calls for payment of any of the Subscription
Amount due under the Subscription Agreement within eight days of the
termination of the Credit Agreement, Subscriber shall purchase
non-convertible subordinated debt of Homestead in satisfaction of its
funding obligations under this Subscription Agreement, which
non-convertible subordinated debt shall have the same terms as the
Subordinated Debentures except such debt shall bear interest at the
rate of 15% per annum and shall not be convertible into Shares. Within
5 days of issuing such non-convertible subordinated debt, Homestead may
at its option exchange Subordinated Debentures (which shall be
convertible at a price which is 20% less than the Subordinated
Debentures) for the entire principal amount of the non-convertible
subordinated debt issued to Subscriber.
5. Payment of Subscription Amount; Pledge of Subscription.
(a) Subscriber agrees to pay up to the full Subscription
Amount in the manner and on the dates set forth below:
(i) On the date (the "Initial Funding Date")
specified by Homestead or the Agent upon not less than seven
days' prior written notice to Subscriber (the "Initial Funding
Notice"), Subscriber shall pay the amount specified by
Homestead or the Agent, as the case may be, in the Initial
Funding Notice, for the account of Homestead, as indicated
below. Payment shall be made by wire transfer of immediately
available funds to the collateral account maintained by the
Agent specified by Homestead and the Agent (the "Collateral
Account") under the terms of the Security Agreement (as
defined in the Credit Agreement).
(ii) On any subsequent date (any such date as well as
the Initial Funding Date being referred to as a "Funding
Date") specified by Homestead or the Agent upon not less than
seven days' prior written notice (any such notice as well as
the Initial Funding Notice being referred to as a "Funding
Notice") to Subscriber, Subscriber shall pay an amount
specified by Homestead or the Agent, as the case may be (a
"Subsequent Installment") (up to a maximum of $200 million,
less any amounts previously funded by Subscriber under this
Subscription Agreement), by wire transfer of immediately
available funds to the Collateral Account.
(iii) Upon payment by Subscriber pursuant to any
Funding Notice, Homestead shall issue that principal amount of
Subordinated Debentures so purchased.
(iv) Homestead shall not make more than two requests
for funding under this Subscription Agreement.
(b) Subscriber agrees and acknowledges that Homestead may
directly or indirectly borrow against unfunded portions of the
Subscription Amount under the Credit Agreement, which borrowings under
the Credit Agreement may be repaid by calling such subscription.
Subscriber agrees and acknowledges that such borrowings under the
Credit Agreement will constitute binding commitments of Homestead and
that Homestead may pledge its rights under this Subscription Agreement,
including without limitation, the payment obligations of Subscriber
hereunder as security for any such borrowings under the Credit
Agreement; Subscriber further agrees that, if so notified or instructed
by Homestead or the Agent, it will make payments directly to the
Collateral Account. Subscriber agrees, upon the reasonable request of
Homestead, to execute and deliver such further instruments or do or
cause to be done such further acts as may be necessary to be done to
effectuate and confirm the pledge of this subscription as security for
any such borrowing under the Credit Agreement.
(c) A default ("Default") shall occur hereunder if, for any
reason, Subscriber fails to pay the full amount due on any Funding Date
and such failure shall continue unremedied for a period of 5 business
days immediately following written notice of such failure. Subscriber
agrees that if a Default occurs hereunder, Homestead or the Agent, as
the case may be, may exercise any remedy available at law or equity,
provided that Homestead's damages for a Default shall be limited to
receiving the full amount due on such Funding Date plus interest at the
rate equal to the default rate in the Credit Agreement from the Funding
Date. In no event shall Homestead be entitled to consequential damages
for any Default.
6. Representations and Warranties of Subscriber. Subscriber hereby
represents and warrants as follows:
(a) Homestead shall rely upon the representations, warranties,
and agreements of Subscriber contained in this Subscription Agreement
in determining the applicability of certain laws and regulations to the
transactions contemplated hereby and accordingly such representations
and warranties shall survive the closing hereunder.
(b) Subscriber acknowledges that no Federal or state agency
has passed upon the Subordinated Debentures or made any finding or
determination as to the fairness of this investment, the terms of the
offer and the sale of the Subordinated Debentures or Shares issuable
upon conversion of the Subordinated Debentures or the adequacy of the
disclosure made in the Documents.
(c) Subscriber must bear the economic risk of its investment
in the Subordinated Debentures for an indefinite period of time because
(1) the Subordinated Debentures have not been registered under the
Securities Act and, therefore, cannot be sold or transferred unless
either they are subsequently registered under the Securities Act or an
exemption from such registration is available; and (2) the Subordinated
Debentures cannot be sold or transferred unless they are registered
under applicable state securities laws or an exemption from such
registration is available.
(d) The Subordinated Debentures for which Subscriber hereby
subscribes are being acquired for its own account, and not with any
view toward the resale or distribution thereof, or with any present
intention of selling or distributing any of the Subordinated
Debentures, but subject nevertheless to the disposition of the
Subordinated Debentures being at all times within Subscriber's control,
subject to the instruments constituting and governing such Subordinated
Debentures.
(e) Subscriber has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and
risks of an investment in the Subordinated Debentures.
(f) Subscriber has carefully reviewed the Documents and any
other written materials delivered to Subscriber by Homestead, has been
furnished with all materials that it considers relevant to an
investment in the Subordinated Debentures and has had a full
opportunity to ask questions of and receive answers from Homestead or
any person or persons acting on behalf of Homestead concerning the
terms and conditions of an investment in the Subordinated Debentures.
No statement or printed material which is contrary to the Documents has
been made or given by or on behalf of Homestead.
(g) Subscriber is an accredited investor by virtue of the fact
that it is a corporation not formed for the specific purpose of
acquiring the Subordinated Debentures, with total assets in excess of
$5,000,000.
(h) Subscriber is a corporation duly organized, validly
existing and in good standing under the laws of Maryland; (i) has all
requisite power and authority to invest in the Subordinated Debentures
as provided herein; (ii) such investment will not result in any
violation of or conflict with any term of the charter or by-laws of
Subscriber or any other organizational document or instrument by which
it is bound or any law or regulation applicable to it; (iii) such
investment has been duly authorized by all necessary action on behalf
of Subscriber; and (iv) this Subscription Agreement has been duly
executed and delivered on behalf of Subscriber and constitutes a legal,
valid and binding agreement of Subscriber and is enforceable against
Subscriber in accordance with its terms.
7. Representations, Warranties and Covenants of Homestead. Homestead
hereby represents, warrants and covenants as follows:
(a) (i) It is duly organized, validly existing and in good
standing under the laws of the State of Maryland; (ii) it has all
requisite power and authority to sell the Subordinated Debentures and
the Shares issuable upon conversion of the Subordinated Debentures as
provided herein; (iii) such sale will not result in any violation of or
conflict with any term of its Articles of Incorporation or By-Laws or
any other organizational document or instrument by which it is bound or
any law or regulation applicable to it; (iv) such sale has been duly
authorized by all necessary action on its behalf (subject to such
stockholder approval of their issuance as may be required by the New
York Stock Exchange); and (v) this Subscription Agreement has been duly
executed and delivered on its behalf and constitutes its legal, valid
and binding agreement.
(b) All written information which it has provided to
Subscriber concerning itself, including all information contained
herein and in the Documents, is correct and complete in all material
respects as of the date of this Subscription Agreement and may be
relied upon, and if there should be any material change in such
information prior to this subscription being accepted, it will
immediately provide Subscriber with notice of such change.
(c) It will call the subscription (i) first, to repay amounts
outstanding under the Credit Agreement and will borrow funds under the
Credit Agreement using this subscription as collateral only when
required in connection with its normal business operations and for no
other purpose, and (ii) second, and only after all amounts under the
Credit Agreement have been repaid, to fund projects under development
which are Mortgaged Properties (as defined in the Credit Agreement).
(d) All Subordinated Debentures issued pursuant hereto, when
paid for as contemplated hereby, shall be valid and binding obligations
of Homestead enforceable in accordance with their terms except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited
by equitable principles of general applicability.
(e) All Shares issued upon conversion of the Subordinated
Debentures shall be duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights or any other claim of
Homestead or any third party except as may have been created by
Subscriber.
(f) It will use the proceeds of any equity offering completed
while the Subscription Agreement is in effect to repay its obligations
under the Credit Agreement.
(g) It will redeem any Subordinated Debentures solely from the
proceeds of an equity offering.
(h) It will promptly deliver to Subscriber copies of all
filings made by it under the Securities Exchange Act of 1934, as
amended (the"Exchange Act"), and the Securities Act prior to the
expiration of this Subscription Agreement.
(i) It will use its best efforts to register the Shares under
the Securities Act prior to the Subordinated Debentures being
converted.
8. Other Issuances of Equity Securities. Except as otherwise provided
in Section 2, Subscribers' obligations to make fundings under this Subscription
Agreement shall be reduced by an amount equal to the net amount received by
Homestead from any equity financing from Subscriber or any third party,
including, but not limited to, any rights offering, underwritten public offering
or private placement of equity securities, including Shares, made prior to June
30, 1999, to the extent that such net amounts are applied to reduce Homestead's
obligations under the Credit Agreement and any remaining net amounts are used to
fund projects under development which are Mortgaged Properties (as defined in
the Credit Agreement).
9. Other Equity Offerings. Nothing contained in this Subscription
Agreement shall prohibit Homestead from conducting any other equity offering,
including a rights offering to all holders of Shares, in which Subscriber will
have an option to participate on a pro rata basis consistent with its existing
shareholder's agreement.
10. Reimbursement Amount. In consideration of Subscriber entering into
this Subscription Agreement and agreeing to provide funding hereunder, Homestead
shall pay Subscriber a reimbursement amount of 30 basis points on the total
Subscription Amount and shall pay all reasonable legal and other expenses
incurred by Subscriber in connection with the preparation and performance of
this Subscription Agreement. The reimbursement amount shall be for reimbursement
of Subscriber's costs in arranging back-up financing for its subscription
obligation. The reimbursement amount shall be paid in three equal installments
beginning on the date of Homestead's execution of this Subscription Agreement
and 30 days and 60 days thereafter.
11. Comfort Letter. Upon execution and delivery of this Subscription
Agreement by Subscriber and acceptance by Homestead, the Comfort Letter dated
April 24, 1998, from Subscriber to Commerzbank AG shall terminate and be of no
further force and effect.
12. Governing Law. This Subscription Agreement shall be construed in
accordance with and governed by the internal laws of the State of Maryland.
13. Entire Agreement; Amendments. This Subscription Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only in a writing which is executed by
Subscriber and Homestead, and agreed to in writing by all Banks to which this
Subscription Agreement will be pledged.
14. Severability. Insofar as possible, each provision of this
Subscription Agreement shall be interpreted so as to render it valid and
enforceable under applicable law and severable from the remainder of this
Subscription 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.
15. Execution in Counterparts. This Subscription Agreement may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed an original. It shall not be necessary in making proof
of this Subscription Agreement to produce or account for more than one
counterpart.
16. Headings. The headings in this Subscription Agreement are for
convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provision hereof.
17. Interpretation. Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the singular
and the plural, and pronouns stated in either the masculine, the feminine or the
neuter gender shall include the masculine, feminine and neuter.
18. Further Assurances. Subscriber, by executing this Subscription
Agreement, agrees that it will take such actions and execute such further
documents as Homestead may reasonably request from time to time in order to
carry out the purposes of this Subscription Agreement.
The foregoing Subscription Agreement is made as of the date stated
below by Subscriber.
Dated: June ___, 1998
SECURITY CAPITAL GROUP INCORPORATED
By: ______________________________
Name: ______________________________
Title: ______________________________
000 Xxxxxxx Xxxxxx
Xxxxx Xx, Xxx Xxxxxx 00000
Homestead hereby accepts the subscription set forth in this
Subscription Agreement.
Dated: June ____, 1998
HOMESTEAD VILLAGE
INCORPORATED
By: ______________________________
Name: Xxxxxx X. Xxxxxxxx
Title: Senior Vice President and
Chief Financial Officer
