EXHIBIT A










                THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE
                   SECURITIES ACT OF 1933, AS AMENDED, OR THE
                      SECURITIES LAWS OF ANY STATE AND MAY
                        NOT BE SOLD OR TRANSFERRED ABSENT
                           REGISTRATION THEREUNDER OR
                               EXEMPTION THEREFROM





                         HOMESTEAD VILLAGE INCORPORATED

                       CONVERTIBLE SUBORDINATED DEBENTURE


                    


<PAGE>



                                TABLE OF CONTENTS

                                                                       Page

ARTICLE ONE DEFINITIONS
  SECTION 1.01. Definitions............................................  2
  SECTION 1.02. Rules of Construction..................................  6

ARTICLE TWO THE DEBENTURES

  SECTION 2.01. Debentures Part of Series...............................  7
  SECTION 2.02. Interest; Payment of Interest...........................  7
  SECTION 2.03. The Register............................................  8
  SECTION 2.04. Registered Holders......................................  8
  SECTION 2.05. Transfers and Exchanges of Debentures...................  8
  SECTION 2.06. New Debentures.......................................... 10
  SECTION 2.07. Cancellation of Debentures.............................. 10

ARTICLE THREE REDEMPTION OF DEBENTURES

  SECTION 3.01. Redemption at the Option of the
                  Company............................................... 11
  SECTION 3.02. Redemption in Part...................................... 11
  SECTION 3.03. Notice of Redemption.................................... 11
  SECTION 3.04. Effect of Notice of Redemption.......................... 12

ARTICLE FOUR COVENANTS

  SECTION 4.01. Payment of Debenture.................................... 12
  SECTION 4.02. Corporate Existence, Etc................................ 12
  SECTION 4.03. Insurance............................................... 12
  SECTION 4.04. Taxes, Claims for Labor and Materials,
                  Compliance with Laws.................................. 13
  SECTION 4.05. Limitation on Dividends and Purchases
                  of Capital Stock...................................... 13
  SECTION 4.06. Reporting............................................... 13


                                       (i)
                  


<PAGE>



ARTICLE FIVE CONVERSION

  SECTION 5.01. Mandatory Conversion ................................... 14
  SECTION 5.02. Conversion of Debenture................................. 15
  SECTION 5.03. Adjustments of Conversion Price;
                  Certain Other Adjustments............................. 16
  SECTION 5.04. Notice of Adjustments of Conversion
                  Price................................................. 22
  SECTION 5.05. Notice of Certain Corporate Action...................... 23
  SECTION 5.06. Company to Reserve Common Stock......................... 24
  SECTION 5.07. Taxes on Conversion..................................... 24
  SECTION 5.08. Covenant as to Common Stock............................. 24
  SECTION 5.09. Registration and Listing of Common
                  Stock................................................. 24
  SECTION 5.10  Notice of Default....................................... 24

ARTICLE SIX DEFAULT AND REMEDIES

  SECTION 6.01. Events of Default....................................... 25
  SECTION 6.02. Acceleration............................................ 26
  SECTION 6.03. Other Remedies.......................................... 28
  SECTION 6.04. Waiver of Past Defaults................................. 28
  SECTION 6.05. Undertaking for Costs................................... 28

ARTICLE SEVEN SUBORDINATION

  SECTION 7.01. Subordination of Debentures to
                  Senior Indebtedness................................... 28
  SECTION 7.02. No Payment on Debenture in Certain
                  Circumstances......................................... 29
  SECTION 7.03. Debenture Subordinated to Prior Payment
                  of All Senior Indebtedness on Dissolution,
                  Liquidation or Reorganization of Company.............. 31
  SECTION 7.04. Holder of Debenture to Be Subrogated
                  to Rights of Holders of Senior
                  Indebtedness.......................................... 33
  SECTION 7.05. Obligations of the Company
                   Unconditional........................................ 33
  SECTION 7.06. Subordination Rights Not Impaired by
                   Acts or Omissions of Company or
                   Holders of Senior Indebtedness....................... 33

                                      (ii)
                    


<PAGE>



  SECTION 7.07. Article Seven Not to Prevent Events
                   of Default........................................... 34

ARTICLE EIGHT AMENDMENTS AND WAIVERS

  SECTION 8.01. With Consent of Holders................................. 34
  SECTION 8.02. Revocation and Effect of Consents....................... 35
  SECTION 8.03. Notation on or Exchange of Debentures................... 35
  SECTION 8.04. Effect of Amendment..................................... 36

ARTICLE NINE MISCELLANEOUS

  SECTION 9.01. Notices................................................. 36
  SECTION 9.02. Consents................................................ 37
  SECTION 9.03. Governing Law........................................... 37
  SECTION 9.04. No Adverse Interpretation of
                   Other Agreements..................................... 37
  SECTION 9.05. No Recourse Against Others.............................. 37
  SECTION 9.06. Successors.............................................. 37
  SECTION 9.07. Severability............................................ 37


                                      (iii)
                    


<PAGE>







                THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE
                   SECURITIES ACT OF 1933, AS AMENDED, OR THE
                      SECURITIES LAWS OF ANY STATE AND MAY
                        NOT BE SOLD OR TRANSFERRED ABSENT
                           REGISTRATION THEREUNDER OR
                               EXEMPTION THEREFROM








                       CONVERTIBLE SUBORDINATED DEBENTURE

                                       DUE

    $_______________           December 31, 1999             No. __-__________


         Homestead Village Incorporated, a Maryland corporation (the "Company"),
for value  received,  hereby  promises to pay to the order of  Security  Capital
Group   Incorporated,   or  its  registered   assigns,   the  principal  sum  of
______________________________  DOLLARS  ($_______________) in U.S. Legal Tender
(as defined  herein) on  December  31, 1999 (the  "Maturity  Date"),  and to pay
Interest (as defined herein) on this Debenture (as defined herein) in accordance
with the  provisions of this  Debenture in U.S.  Legal Tender to the  Registered
Holder (as defined  herein)  hereof,  beginning  to accrue on the Issue Date (as
defined  herein)  and  semi-annually  thereafter  on the last  Business  Day (as
defined  herein) of June and December in each  calendar year (each such date, an
"Interest  Payment  Date") or, in the case of principal  and Interest due on the
Maturity Date, on such Maturity Date. The principal and Interest  payable on any
Interest  Payment  Date will be paid to the Person (as defined  herein) in whose
name this  Debenture is registered  at the close of business on the  immediately
preceding  December  15 or June 15 (each such  December 15 or June 15, a "Record
Date").  Payment of the  principal  of and  Interest on this  Debenture  will be
mailed to the address of the Person  entitled  thereto as such Person's name and
address shall appear in the Register (as defined herein).

                                      - 1 -
                     


<PAGE>



                                   ARTICLE ONE

                                   DEFINITIONS

         SECTION 1.01.  Definitions.  The  following  terms (except as otherwise
expressly  provided or unless the context  otherwise  clearly  requires) for all
purposes of this Debenture and of any amendment hereto shall have the respective
meanings specified in this Section 1.01.

         "Acceleration  Date"  shall have the  meaning  assigned to such term in
Section 6.02.

         "Affiliate"  of any  specified  Person  shall  mean any  other  Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person.  For the purposes of this definition,
"control"  when used with  respect to any  Person  means the power to direct the
management and policies of such Person, directly or indirectly,  whether through
the  ownership of voting  securities,  by contract or  otherwise;  and the terms
"affiliated,"  "controlling" and "controlled"  have meanings  correlative to the
foregoing.

         "Bank Senior  Indebtedness"  shall mean any Senior  Indebtedness of the
Company  owed to any  banks  under  agreements  existing  as of the date of this
Debenture  and  any  deferral,   renewal,   extension,   refunding,   amendment,
modification or supplements thereof.

         "Bankruptcy  Law"  shall  have the  meaning  assigned  to such  term in
Section 6.01.

         "Business  Day" shall mean any day of the year (other than any Saturday
or Sunday) on which the Federal  Reserve  Bank is open for business in New York,
New York.

         "Capital  Stock"  shall  mean,   collectively,   the  Company's  equity
securities of every class, including,  without limitation,  the Company's Common
Stock.

         "Capitalized  Lease  Obligation"  shall mean obligations  under a lease
that  is  required  to  be  capitalized  for  financial  reporting  purposes  in
accordance  with  GAAP,  and the  amount  of  Indebtedness  represented  by such
obligations  shall be the capitalized  amount of such obligations  determined in
accordance with such principles.

         "Closing  Price" shall mean the reported last sale price of a unit of a
security regular way on a given day or, in case no such sale takes place on such
day,  the average of the reported  closing bid and asked prices  regular way, in
each case on the New York Stock Exchange  Composite Tape, or, if the security is
not listed or  admitted  to  trading on such  exchange,  on the  American  Stock
Exchange  Composite  Tape,  or, if the  security  is not listed or  admitted  to
trading on such exchange,  the principal national  securities  exchange on which
the security is listed or admitted to trading, or, if the security is not listed
or admitted to trading on any national  securities  exchange,  the closing sales
price, or, if there is no closing sales price, the  average of  the  closing bid

                                      - 2 -



<PAGE>



and asked prices, in the over-the-counter  market as reported by the NASDAQ, or,
if not so reported, as reported by the National Quotation Bureau,  Incorporated,
or any successor thereof, or, if not so reported, the average of the closing bid
and asked  prices as  furnished  by any member of the  National  Association  of
Securities  Dealers,  Inc.  selected  from time to time by the  Company for that
purpose,  or, if no such  prices are  furnished,  the fair  market  value of the
security as estimated by the Company  using an  identical  valuation  formula to
that used in determining the pricing for the Company's then  most-recent sale of
more than $35 million of similar securities to unaffiliated third parties, or if
no such sale has occurred,  as  determined  in good faith by the Company,  which
estimate  shall be  prepared at the expense of the  Company;  provided  that any
determination of the "Closing Price" of any security hereunder shall be based on
the assumption that such security is freely  transferable  without  registration
under the Securities Act.

         "Commission"  shall mean the Securities and Exchange  Commission or any
other applicable Federal agency at the time administering the Securities Act.

         "Common  Stock" shall mean the Company's  common stock,  $.01 par value
per share.

         "Company" shall mean Homestead Village Incorporated and its  successors
and assigns.

         "Conversion  Price"  shall have the  meaning  assigned  to such term in
Section 5.01(b).

         "Convertible  Securities"  shall have the meaning assigned to such term
in Section 5.03(b).

         "Credit  Agreement" shall mean the Credit Agreement dated June 15, 1998
for up to $200 million with certain banks and Commerzbank AG, acting through its
New York branch as agent for the banks.

         "Custodian" shall have the meaning assigned to  such  term  in  Section
6.01.

         "Debenture" shall have the meaning assigned to  such  term  in  Section
2.01.

         "Debentureholder" shall mean the Registered Holder of a Debenture.

         "Default"  shall mean any event which is, or after notice or passage of
time or both would be, an Event of Default.

         "Default  Notice"  shall  have the  meaning  assigned  to such  term in
Section 7.02(b).

         "Deferral  Period"  shall  have the  meaning  assigned  to such term in
Section 7.02(a).


                                      - 3 -
                     


<PAGE>



         "Event of  Default"  shall have the  meaning  assigned  to such term in
Section 6.01.

         "Exchange  Act"  shall mean the  Securities  Exchange  Act of 1934,  as
amended,  or any similar Federal  statute,  and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

         "Fair  Market  Value"  shall mean (a)if the Common Stock is 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 the date of any determination date hereunder; or (b) if the
Common  Stock is not listed or reported but  published  bid and asked prices are
available  with  respect to the Common  Stock,  the mean between the average per
share closing bid and asked prices during the 20 trading day period  immediately
prior to the date of any determination date hereunder.

         "GAAP" shall mean generally accepted accounting principles as in effect
in the United States of America on the date of this Debenture.

         "Holder,"  "Holder of Debentures,"  "Debentureholder"  or other similar
terms shall mean the Registered Holder of a Debenture.

         "Indebtedness"  shall  mean,  with  respect  to  any  Person,  (i)  any
liability,  contingent  or  otherwise,  of such  Person (A) for  borrowed  money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion  thereof),  (B)  evidenced  by a note,  debenture or
similar  instrument  (including  a  purchase  money  obligation)  or (C) for the
payment of money relating to a Capitalized Lease Obligation;  (ii) any liability
of others of the kind described in the preceding clause (i) which the Person has
guaranteed  or which is  otherwise  its legal  liability;  (iii) any  obligation
secured by a Lien to which the  property or assets of such  Person are  subject,
whether or not the  obligations  secured  thereby  shall have been assumed by or
shall  otherwise  be  such  Person's  legal  liability;  and  (iv)  any  and all
deferrals, renewals, extensions and refundings of, or amendments,  modifications
or  supplements  to, any liability of the kind described in any of the preceding
clauses (i), (ii) or (iii).

         "Interest" shall mean all interest accruing hereunder, as  provided  in
Section 2.02.

         "Interest  Payment  Date" shall mean the last  Business Day of December
and June of each calendar year following the Issue Date.

         "Issue  Date" shall mean the date of issuance of this  Debenture as set
forth above the Company's signature on the last page hereof.


                                      - 4 -
                    


<PAGE>



         "Lien" shall mean any mortgage,  pledge, lien (statutory or otherwise),
security interest,  encumbrance, charge or adverse claim upon or with respect to
any property of any kind, real or personal,  movable or immovable,  now owned or
hereafter acquired.

         "Mandatory  Conversion  Date" shall have the  meaning  assigned to such
term in Section 5.01.

         "Material  Subsidiary" shall mean any Subsidiary in which the aggregate
amount directly or indirectly  invested by the Company,  whether by way of debt,
equity, guaranty or otherwise, and which remains at risk exceeds $10,000,000.

         "Maturity Date" or "Maturity" shall mean December 31, 1999.

         "NASDAQ" shall mean  the National  Association  of  Securities  Dealers
Automated Quotation System.

         "New Debenture" shall have the meaning assigned to such term in Section
2.06.

         "Notice of  Default"  shall have the  meaning  assigned to such term in
Section 6.01.

         "Old Debenture" shall have the meaning assigned to such term in Section
2.06.

         "Person" shall mean any  individual,  corporation,  partnership,  joint
venture,  limited liability company,  association,  joint-stock company,  trust,
unincorporated organization or other private legal entity or government or other
agency or political subdivision thereof.

         "Record Date" shall mean December 15 and June 15 of each year.

         "Redemption Date" shall mean the date fixed for redemption  pursuant to
this Debenture.

         "Redemption  Price"  shall have the  meaning  assigned  to such term in
Section 3.04.

         "Reference  Date"  shall  have the  meaning  assigned  to such  term in
Section 5.03(b)(4).

         "Register" shall have  the  meaning  assigned  to  such term in Section
2.03.

         "Registered Holder" shall mean the Holder of a Debenture as  set  forth
in the Register.

         "Registry  Office"  shall  have the  meaning  assigned  to such term in
Section 2.03.

         "Restricted  Payment"  shall have the meaning  assigned to such term in
Section 4.05.

                                      - 5 -
                  


<PAGE>



         "Securities Act" shall mean the Securities Act of 1933, as amended.

         "Senior Indebtedness" shall mean the principal of, premium, if any, and
interest  (including interest accruing after the filing of a petition initiating
any  proceeding  under  any  Bankruptcy  Law  whether  or not  allowed  in  such
proceeding) on any Indebtedness of the Company,  whether outstanding on the date
of this  Debenture or hereafter  created,  incurred,  assumed,  guaranteed or in
effect guaranteed by the Company (including all deferrals,  renewals, extensions
or refundings of, or amendments,  modifications or supplements to,  Indebtedness
of the kind  described in this clause),  unless,  in the case of any  particular
Indebtedness,  deferral, renewal, extension, refunding, amendment,  modification
or supplement,  the instrument creating or evidencing the same or the assumption
or  guarantee  thereof  expressly  provides  that such  Indebtedness,  deferral,
renewal,  extension,  refunding,  amendment,  modification or supplement is pari
passu  with,   or   subordinate   in  right  of  payment  to,  the   Debentures.
Notwithstanding  anything to the  contrary  in the  foregoing,  however,  Senior
Indebtedness shall not include (a) Indebtedness or amounts owed (except to banks
and other  financing  institutions)  for  goods or  materials  purchased  in the
ordinary course of business, for compensation to employees,  or for services, or
(b) in the case of each Debenture, the other Debentures.

         "Subordinated  Indebtedness" shall mean all unsecured Indebtedness that
by its terms is subordinate in right of payment to the Debentures.

         "Subscription  Agreement" shall mean the Subscription Agreement,  dated
June 15, 1998, between the Company and Security Capital Group Incorporated.

         "Subsidiary"  shall mean a corporation  all of whose capital stock with
voting power, under ordinary  circumstances,  to elect directors is at the time,
directly or indirectly,  owned by the Company, by a Subsidiary of the Company or
by the Company and a Subsidiary of the Company.

         "Trading Day" shall mean each Monday, Tuesday, Wednesday,  Thursday and
Friday,  other than a day on which  securities  are not traded on the applicable
securities exchange or in the applicable securities market.

         "Transfer" shall have the meaning  assigned  to  such term  in  Section
2.05(b).

          "U.S.  Legal  Tender" shall mean such coin or currency of  the  United
States  of  America  as at the time of  payment  shall be legal  tender  for the
payment of public and private debts in the United States.

         SECTION 1.02.     Rules of Construction.  Unless the context  otherwise
requires:


                                      - 6 -
           


<PAGE>



               (1) a term has the meaning expressly assigned to it hereby;

               (2) a technical  accounting  term not  otherwise  defined has the
          meaning assigned to it in accordance with GAAP;

               (3) "or" is not exclusive;

               (4) words in the  singular  include the plural,  and words in the
          plural include the singular;

               (5) provisions apply to successive events and transactions;

               (6) "herein," "hereof" and other words of similar import refer to
          this Debenture as a whole and not to any particular  Article,  Section
          or other subdivision;

               (7)  references  to  statutes,   regulations  and  rules  include
          subsequent  amendments  and  successors  thereto  unless  the  context
          otherwise requires;

               (8) the various  headings of this  Debenture are provided  herein
          for   convenience   only  and  shall  not   affect   the   meaning  or
          interpretation of this Debenture or any provision hereof; and

               (9) if any payment hereunder shall become due on any day which is
          not a Business Day, such payment shall be made on the next  succeeding
          Business Day.


                                   ARTICLE TWO

                                 THE DEBENTURES

         SECTION 2.01.  Debentures Part of Series.  This Debenture is one of the
duly  authorized  issues  of  Debentures  of  the  Company   designated  as  its
Convertible  Subordinated  Debentures  Due December 31, 1999  (together with any
amendments  thereto and substitutions  therefor,  individually a "Debenture" and
collectively the "Debentures"). The Debentures are unsecured debt obligations of
the Company that are  subordinated  to its Senior  Indebtedness.  All Debentures
will be treated  equally and all payments  (whether for  principal,  Interest or
otherwise)  will be made  pro  rata  among  Registered  Holders  based  upon the
aggregate  amount  which the  Company is  obligated  to pay at such time to such
Registered  Holders.  If any  Registered  Holder of any  Debenture  obtains  any
payment (whether voluntary,  involuntary, by application of offset or otherwise)
of  principal  of or  Interest  on any  Debenture  in excess of such  Registered
Holder's pro rata share of payments  obtained by all  Registered  Holders of the
Debentures,  such  Registered  Holder will  return  such  excess  payment to the
Company and the

                                      - 7 -
                


<PAGE>



Company shall pay such excess to the other Registered  Holders of the Debentures
as is necessary  to cause such  Registered  Holders to share the excess  payment
ratably among each of them as provided in this Section 2.01.

         SECTION 2.02. Interest;  Payment of Interest. This Debenture shall bear
Interest for the period from the Issue Date to the Maturity Date (or in the case
of redemption in accordance  with Article Three,  to the Redemption  Date, or in
the case of  conversion  in  accordance  with Article  Five, to the date of such
conversion)  at a rate equal to 25 basis points above the rate on the  Company's
unsecured  line of  credit  dated  April  24,  1998,  between  the  Company  and
Commerzbank  ("Unsecured  Line of Credit"),  per annum,  as such may change from
time to time, on the outstanding  principal amount  hereunder  calculated on the
basis of a 360 day year  consisting  of twelve 30 day months.  If the  Unsecured
Line of Credit is terminated  prior to or while this  Debenture is  outstanding,
Interest on this Debenture shall be calculated  based on the Eurodollar Rate, as
defined in the  Unsecured  Line of Credit,  plus 275 basis  points,  as such may
change from time to time. If the Company is in default under the Unsecured  Line
of Credit at any time while this  Debenture is  outstanding,  the Interest shall
increase  to the  default  rate on the  Unsecured  Line of Credit  plus 50 basis
points.  Unless otherwise provided in Section 5.01, all Interest must be paid in
U.S.  Legal Tender.  Payments of Interest on this  Debenture will be made on the
Interest  Payment  Dates of each  calendar year (except in the case of a special
Record Date) prior to the Maturity Date or  redemption or conversion  and on the
Maturity  Date and  Redemption  Date and the date of conversion to the Holder of
record at the close of  business  on the  immediately  preceding  Record Date as
follows:

                  (a) Payment Upon  Maturity  Date.  At the Maturity  Date,  the
         Holder of this Debenture will be entitled, subject to Article Seven, to
         receive (i) payment of the outstanding  principal amount hereunder plus
         (ii) any accrued and unpaid Interest.

                  (b) Payment Upon Redemption  Date. At the Redemption Date, the
         Holder of this Debenture will be entitled, subject to Article Seven, to
         receive (i) payment of the outstanding principal amount hereunder to be
         redeemed in  accordance  with  Article  Three plus (ii) any accrued and
         unpaid Interest thereon to and including the Redemption Date.

                  (c) Payment Upon Conversion. Upon conversion of this Debenture
         into  Capital  Stock  pursuant  to  Section  5.02,  accrued  and unpaid
         Interest  shall,  subject  to Article  Seven,  be paid as  provided  in
         Section 5.01(a).

Except as  otherwise  provided in this  Debenture,  the Company will not pay any
additional   amount  to  the  Holder  in  respect  of  any  deduction  or  other
governmental  charges of any taxing authority imposed upon or as a result of any
payment of the  principal  of, or  Interest on or any other  payment  under this
Debenture.

                                      - 8 -
              


<PAGE>



         SECTION  2.03.  The  Register.  The Company will keep at its  principal
office  (the  "Registry  Office")  one or more  books (the  "Register")  for the
registration  of the  Debentures  (including  all  transfers)  and the names and
addresses of the  Registered  Holders of the  Debentures.  All  transfers of the
Debentures  and the names and  addresses of the  transferees  of the  Debentures
shall be registered in the Register  under such  reasonable  regulations  as the
Company may prescribe.

         SECTION 2.04.  Registered Holders.  The Company will deem and treat the
Registered Holder of this Debenture as the absolute owner hereof and will not be
affected by any notice to the contrary. Payment of the principal of and Interest
on this Debenture shall be made only to the Registered  Holder hereof.  All such
payments  so made shall be valid and  effectual  to satisfy  and  discharge  the
liability of the Company upon this Debenture to the extent of the sum or sums so
paid.  For the  purpose of any  request,  direction  or consent  hereunder,  the
Company may deem and treat the Registered Holder of this Debenture as the Holder
without production of such Debenture.

         SECTION 2.05.     Transfers and Exchanges of Debentures.

         (a) Subject to Section 2.05(b),  the Registered  Holder hereof may from
time to time assign or transfer in the manner  provided in this  Section 2.05 to
one or more Persons all or any part of this Debenture,  and to the extent of any
such assignment or transfer (unless otherwise stated therein), the transferee of
such assignment or transfer (unless  otherwise  stated therein),  shall become a
Registered  Holder of this  Debenture.  Each transferee so becoming a Registered
Holder  shall be vested  with all rights and powers  under this  Debenture  of a
Registered Holder hereunder and shall take and hold its Debenture subject to the
provisions of this Debenture and to any request made, waiver or consent given or
other  action  taken  hereunder  by  each  previous  Registered  Holder  of this
Debenture.

         (b) No Holder may sell, assign,  transfer, or otherwise dispose of this
Debenture (collectively  "Transfer"),  if the Transfer,  taken alone or together
with all  other  Transfers  of  Debentures,  would (i)  violate,  or result in a
violation of, any provision of the Securities Act,  applicable  state securities
or "blue sky" laws or any other applicable provision of law; or (ii) subject the
Company or an Affiliate of the Company to regulation  as an  investment  company
under the Investment Company Act of 1940, as amended.

         (c)  The  Registered  Holder  may  Transfer  this  Debenture  upon  the
surrender of this Debenture at the Registry  Office,  and no such Transfer shall
be  effective  until  such  surrender  to the  Company  of the  Debenture  to be
transferred  has been made. Upon such surrender the Company shall execute in the
name of the  transferee(s)  a new Debenture or Debentures in  denominations  not
less than $1,000 each and in  aggregate  principal  amount equal to the original
principal amount of the Debenture so surrendered.


                                      - 9 -
            


<PAGE>



         (d) If this  Debenture  is  presented  or  surrendered  for exchange or
Transfer,  it shall be  accompanied  by a written  instrument or  instruments of
assignment  or  transfer,  duly  executed  by  the  Registered  Holder  and  the
transferee or by their  respective  attorneys duly  authorized in writing (which
instrument  shall  contain  appropriate  warranties of the  transferee),  and an
opinion of counsel  addressed to the  Company,  each in form and  substance  and
furnished by counsel reasonably  satisfactory to the Company,  and which opinion
shall state that such Transfer or assignment does not violate,  or result in the
violation of, any provision of the Securities Act,  applicable  state securities
or "blue  sky" laws or any other  applicable  provision  of law,  and as to such
other matters as the Company  reasonably  may request.  The Company shall not be
required to make a transfer or an exchange of this Debenture for a period of ten
Business Days preceding any Interest Payment Date.

         (e) No notarial act shall be necessary  for the Transfer or exchange of
this  Debenture  pursuant to this Section 2.05,  and the Holder of any Debenture
issued as provided in this  Section 2.05 shall be entitled to any and all rights
and privileges granted under this Debenture to a Registered Holder.

         SECTION 2.06.     New Debentures.

         (a) Each new Debenture  ("New  Debenture")  issued  pursuant to Section
2.05 in  exchange  for,  in  substitution  for or in lieu of a  Debenture  ("Old
Debenture")  shall be dated the date of such Old  Debenture.  The Company  shall
mark on each New  Debenture  (i) the date and the extent to which  principal and
Interest  has  been  paid on such  Old  Debenture  and  (ii)  all  payments  and
prepayments of principal made on such Old Debenture  which are allocable to such
New Debenture.  Interest and principal shall be deemed to have been paid on such
New Debenture to the date and to the extent to which  Interest and principal was
paid on such Old Debenture.

         (b) Any New Debenture  issued  pursuant to Section 2.05 in exchange for
or in  substitution  for or in  lieu  of an Old  Debenture  shall  be the  valid
obligation  of the Company  evidencing  the same debt as such Old  Debenture and
shall be entitled to the benefits of this Debenture.  No service charge shall be
made for any exchange or transfer of this Debenture, but the Company may require
payment of a sum sufficient to cover any tax or governmental charge imposed with
respect thereto.

         SECTION  2.07.  Cancellation  of  Debentures.   If  this  Debenture  is
surrendered to the Company for the purpose of payment,  transfer or exchange, it
shall be  canceled by the  Company,  and no  Debentures  shall be issued in lieu
hereof except as expressly required or permitted by this Debenture.


                                     - 10 -
               


<PAGE>




                                  ARTICLE THREE

                            REDEMPTION OF DEBENTURES

         SECTION 3.01.  Redemption at the Option of the Company. The Company may
redeem Debentures  (including this Debenture),  in whole or in part, at any time
after  issuance,  upon not less than 10 days'  and not more than 30 days'  prior
written  notice to the  Holders of the  Debentures  at a price,  payable in U.S.
Legal Tender only,  equal to 100% of the outstanding  principal  amount thereof,
plus the  amount of any  accrued  and  unpaid  Interest  on such  principal  and
Interest  thereon to and including the  Redemption  Date. The Company may redeem
Debentures only from the proceeds of an offering of Common Stock.  Any Debenture
called  for  redemption  prior to the  Mandatory  Conversion  Date  shall not be
convertible into Common Stock.

         SECTION 3.02. Redemption in Part. Debentures may be redeemed in part in
denominations  of  $1,000  or  any  integral  multiple  thereof.  In  case  of a
redemption in part, the Debentures to be redeemed shall be selected pro rata and
there shall be redeemed from each Holder that portion of principal amount of all
Debentures  being redeemed which the outstanding  principal amount of Debentures
held by such  Holder  bears to the total  principal  amount of  Debentures  then
outstanding.

         SECTION 3.03. Notice of Redemption.  At least 10 days but not more than
30 days before a Redemption Date, the Company shall provide notice of redemption
to each  Holder at such  Holder's  latest  address  set  forth in the  Register.
Failure to give notice by mail, or any defect in the notice to the Holder of any
Debenture shall not affect the validity of the proceedings for the redemption of
any other Debentures. The notice shall state:

                  (1)      the Redemption Date;

                  (2)      the Redemption Price;

                  (3) that Debentures  called for redemption must be surrendered
         to the Company to collect the Redemption Price;

                  (4) that, unless the Company defaults in making the redemption
         payment on the  Redemption  Date,  Interest  on  Debentures  called for
         redemption  shall cease to accrue on and after the Redemption  Date and
         the only remaining right of the Holder of such Debentures is to receive
         payment  of the  Redemption  Price  upon  surrender  of the  Debentures
         redeemed to the Company;


                                     - 11 -
                 


<PAGE>



                  (5) if any Debenture is being redeemed in part, the portion of
         the principal  amount of such Debenture to be redeemed and that,  after
         the  Redemption  Date,  and upon  surrender  of such  Debenture,  a new
         Debenture  or  Debentures  in aggregate  principal  amount equal to the
         unredeemed portion thereof will be issued; and

                  (6) if less than the entire  principal amount of Debentures is
         to be redeemed,  the  aggregate  principal  amount of  Debentures to be
         redeemed and the aggregate principal amount of Debentures  estimated to
         be outstanding after such partial redemption.

         SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption
is mailed,  all Debentures  called for redemption in whole or in part become due
and payable only to the extent of the principal amount being redeemed and unpaid
Interest  accrued on such  principal  amount and  Interest  thereon  through the
Redemption  Date (such  principal and Interest  being  referred to herein as the
"Redemption  Price") on the Redemption  Date and at the Redemption  Price.  Upon
surrender to the Company, such Debentures called for redemption shall be paid at
the Redemption Price.






                                  ARTICLE FOUR

                                    COVENANTS

         SECTION  4.01.  Payment of  Debenture.  The Company  shall,  subject to
Article Seven,  pay the principal of and Interest on this Debenture on the dates
and in the manner provided in Article Two, Article Three and Article Five.

         SECTION 4.02. Corporate  Existence,  Etc. The Company will preserve and
keep in force and effect its corporate  existence and all material  licenses and
permits  reasonably  necessary to the proper  conduct of its business;  provided
that  nothing  contained  in this  Section  4.02 shall  prevent the Company from
consolidating  with,  selling all or  substantially  all of its  properties  and
assets to, or being a party to a merger with any other Person if: (i) no Default
exists or would  result  therefrom  and (ii) the  surviving  Person is organized
under the laws of the United States and expressly and unconditionally assumes in
writing the due and punctual performance of all obligations  hereunder and under
the Debentures.

         SECTION 4.03. Insurance.The Company will maintain insurance coverage by
financially  sound and reputable  insurers in such forms and amounts and against
such risks as are reasonable for corporations of established  reputation engaged
in the same or similar business and owning and operating similar assets.


                                     - 12 -
                     


<PAGE>




         SECTION 4.04.  Taxes, Claims for Labor  and Materials,  Compliance with
Laws.

         (a) The Company  will  promptly  pay and  discharge  all lawful  taxes,
assessments and governmental charges or levies imposed upon the Company, or upon
or in respect of all or any part of the property or business of the Company, all
trade accounts  payable in accordance  with usual and customary  business terms,
and all claims for work, labor or materials, which if unpaid would become a lien
or charge upon any property of the Company, the nonpayment of any of which would
have a  material  adverse  effect on the  financial  condition  of the  Company;
provided that the Company shall not be required to pay any such tax, assessment,
charge,  levy,  account payable or claim if (1) the validity,  applicability  or
amount  thereof  is being  contested  in good  faith by  appropriate  actions or
proceedings and (2) the Company shall set aside on its books, reserves deemed by
it to be adequate with respect thereto.

         (b)  The  Company  will  promptly  comply  with  all  applicable  laws,
ordinances  or  governmental  rules and  regulations  to which it is subject the
penalty  for  violation  of which  would  materially  and  adversely  affect the
properties, business, prospects, profits or condition of the Company.

         SECTION 4.05.  Limitation on Dividends and Purchases of Capital  Stock.
The Company will not, directly or indirectly, declare or pay any dividend on, or
make any  distribution  to the holders  of,  Capital  Stock of the Company  with
respect to such Capital  Stock (other than  dividends in Capital Stock or rights
to acquire  Capital  Stock) and  neither  the  Company  nor any  Subsidiary  may
purchase,  redeem,  or otherwise  acquire or retire for value any of the Capital
Stock of the Company  (collectively,  a "Restricted Payment") unless at the time
of such Restricted Payment, (a) no Default exists or would result therefrom, and
(b) immediately before and immediately after giving effect to such payment,  its
consolidated  shareholder's equity,  determined in accordance with GAAP, exceeds
$475 million.

         SECTION 4.06.     Reporting.

         (a) As soon as available, but in any event within 90 days after the end
of each fiscal year of the  Company,  the Company  shall  deliver to each Holder
copies  of the  audited  consolidated  balance  sheet  of the  Company  and  its
Subsidiaries  together  with the related  consolidated  statements of income and
cash flows for such fiscal year  prepared in accordance  with GAAP  consistently
followed  throughout  the period  involved and  presenting  fairly the financial
condition of the Company and its Subsidiaries.

         (b) As soon as available, but in any event within 45 days after the end
of each fiscal quarter of the Company,  the Company shall deliver to each Holder
copies of the unaudited

                                     - 13 -
                 


<PAGE>



consolidated  balance sheet of the Company and its Subsidiaries as at the end of
such fiscal quarter and the related unaudited consolidated  statements of income
and cash flows for such  fiscal  quarter  and the  portion  of the  fiscal  year
through such fiscal quarter.


                                  ARTICLE FIVE

                                   CONVERSION

         SECTION 5.01.     Mandatory Conversion.

         (a) Subject to the last sentence of this subsection,  if within 90 days
of issuance of this Debenture  Homestead has not redeemed this Debenture in full
in  accordance  with Article  Three,  this  Debenture  shall  automatically  and
mandatorily  be  converted  into  Common  Stock on the 90th day  after  issuance
("Mandatory  Conversion  Date").  Prior to the Mandatory  Conversion  Date, this
Debenture  shall not be  convertible  into Common  Stock.  On  conversion of the
entire outstanding  principal amount of this Debenture,  or any portion thereof,
(x) any Interest that is past due on the principal amount of such Debenture that
is being converted shall, subject to Article Seven, be paid in U.S. Legal Tender
and (y) that portion of accrued and unpaid  Interest  attributable to the period
from the most recent Interest Payment Date to the Mandatory Conversion Date with
respect to the principal  amount of this Debenture  that is being  converted and
Interest  thereon shall not be canceled,  extinguished or forfeited,  but rather
shall be deemed to be paid in full to the Holder thereof through the delivery of
the Common Stock in exchange for the Debenture being  converted  pursuant to the
terms  hereof.  If prior to the  Mandatory  Conversion  Date the  Company  is in
default under the Unsecured  Line of Credit or any other  agreement for borrowed
money, this Debenture shall not be mandatorily convertible.

         (b) The total number of shares of Common Stock issuable upon conversion
shall be  determined by dividing the principal  amount of this  Debenture  being
converted by the conversion price then in effect (the "Conversion  Price").  The
Conversion  Price shall be adjusted in certain  instances as provided in Section
5.03.

         (c) The  Conversion  Price  shall be equal to the lower of $13.931  per
share of Common  Stock (the Fair Market  Value of the Common Stock upon the date
of the  Subscription  Agreement  or the Fair Market Value of the Common Stock on
the Mandatory Conversion Date.

         (d)  Nothing  in this  Debenture  shall  grant,  or shall be  deemed to
constitute the incurrence, creation, assumption or sufferance by the Company of,
and the Holder of this Debenture shall not assert, any mortgage,  pledge,  lien,
charge  or other  encumbrance  of any  nature  whatsoever  on the  Common  Stock
deliverable upon conversion of this Debenture.

                                     - 14 -
                   


<PAGE>



         (e) The  Company  covenants  that if, at any time after the  Debentures
become convertible,  the Common Stock is required to be registered under Section
12(b) or Section 12(g) of the Exchange Act, the Company will file a registration
statement  under the  Securities  Act for the Common  Stock to be  reserved  for
issuance  to the  Holders  upon  conversion  pursuant  to this  Article  Five in
accordance with the requirements of such act as promptly as practicable and upon
usual and customary terms and conditions for selling securityholders.

         SECTION 5.02.     Conversion of Debenture

         (a) Immediately after the Mandatory Conversion Date, the Holder of this
Debenture  shall  surrender  this  Debenture,  duly  endorsed or assigned to the
Company  or in blank,  at the  Registry  Office  or any  other  office or agency
designated in writing by the Company to the Holder of this Debenture.

         (b) This Debenture  shall be deemed to have been converted  immediately
prior to the close of business on the  Mandatory  Conversion  Date,  and at such
time the rights of the Holder of this Debenture as a Holder shall cease, and the
Person or Persons  entitled to receive the Common Stock issuable upon conversion
shall be treated for all purposes as the record holder or holders of such Common
Stock at such  time.  As  promptly  as  practicable  on or after  the  Mandatory
Conversion  Date,  the Company  shall issue and shall  deliver at its  principal
office or other office or agency which it may designate in writing to the Holder
of this  Debenture or agency a  certificate  or  certificates  for the number of
shares of Common Stock issuable upon  conversion  (which may include  fractional
shares, as applicable).

         SECTION 5.03.     Adjustments   of  Conversion  Price;  Certain   Other
Adjustments.

         (a) In case the Company shall issue or sell any shares of Capital Stock
or is deemed to have  issued or sold such  shares  pursuant  to Section  5.03(b)
(except as provided in Section 5.03(e)) for a consideration  per share less than
94% (or  100% if a  stand-by  underwriter  is used and  charges  the  Company  a
commission) of the Fair Market Value per share of such Capital Stock immediately
prior to such issuance or sale, then immediately after such issuance or sale the
Conversion  Price shall be determined by multiplying (i) the Conversion Price in
effect  immediately  prior  to such  issuance  or sale by (ii) a  fraction,  the
numerator of which shall be the sum of (A) the number of shares of Capital Stock
outstanding  (and  deemed  to  be  outstanding   pursuant  to  Section  5.03(b))
immediately prior to such issuance or sale and (B) the number of shares (rounded
up to the nearest  share) that the Company  could  purchase  with the  aggregate
gross proceeds received from the issuance or sale of such shares at 94% (or 100%
in the case of a stand-by  underwriting)  of the Fair Market  Value per share of
such  Capital  Stock  immediately  prior  to  such  issuance  or  sale  and  the
denominator  of which  shall be the total  number of  shares  of  Capital  Stock
outstanding  (and  deemed  to  be  outstanding   pursuant  to  Section  5.03(b))
immediately  after such issuance or sale. For purposes of this Section 5.03, the
shares of Capital Stock into which the Debentures are  convertible  shall not be
deemed to

                                     - 15 -
                   


<PAGE>



be outstanding.  Notwithstanding the foregoing,  no adjustment of the Conversion
Price shall be required  pursuant to this Section 5.03(a) unless such adjustment
would require a decrease of at least one percent in the Conversion Price but any
lesser  adjustment shall be carried forward and shall be made at the time of and
together  with  the  next  subsequent   adjustment  which,   together  with  any
adjustments so carried forward, shall require a decrease of at least one percent
in the Conversion Price.

         (b) For the purposes of Section 5.03(a),  the following  paragraphs (1)
to (6), inclusive, shall also be applicable:

                  (1) In case the Company  shall grant  (whether  directly or by
         assumption in a merger or  otherwise),  to holders of Capital Stock any
         rights  (including  options  and  warrants)  to  subscribe  for, or any
         rights, options or warrants to purchase,  Capital Stock or any stock or
         other  securities  convertible  into or exchangeable  for Capital Stock
         (such  convertible  or  exchangeable  stock or securities  being herein
         called "Convertible  Securities"),  whether or not such rights, options
         or warrants or the right to convert or  exchange  any such  Convertible
         Securities  are  immediately  exercisable,  and the price per share for
         which  Capital  Stock is issuable  upon the  exercise of such rights or
         options or upon conversion or exchange of such  Convertible  Securities
         (determined  by  dividing  (A) the total  amount,  if any,  received or
         receivable  by the Company as  consideration  for the  granting of such
         rights,  options or  warrants,  plus,  in the case of any such  rights,
         options or warrants which relate to such  Convertible  Securities,  the
         minimum aggregate amount of additional  consideration,  if any, payable
         upon the  issue  or sale of such  Convertible  Securities  and upon the
         conversion  or exchange  thereof,  by (B) the total  maximum  number of
         shares of Capital  Stock  issuable  upon the  exercise of such  rights,
         options or  warrants  or upon the  conversion  or  exchange of all such
         Convertible  Securities  issuable  upon the  exercise  of such  rights,
         options or  warrants)  shall be less than 94% of the Fair Market  Value
         per share of such Capital Stock in effect immediately prior to the time
         of the  granting of such rights,  options or  warrants,  then the total
         maximum number of shares of Capital Stock issuable upon the exercise of
         such rights,  options or warrants or upon conversion or exchange of the
         total maximum amount of such Convertible  Securities  issuable upon the
         exercise of such rights,  options or warrants  shall (as of the date of
         granting  of  such  rights,  options  or  warrants)  be  deemed  to  be
         outstanding and to have been issued for such price per share. Except as
         provided in Section 5.03(d),  no further  adjustments of the Conversion
         Price shall be made upon the actual issue of such  Capital  Stock or of
         such  Convertible  Securities upon exercise of such rights,  options or
         warrants or upon the actual issue of such Capital Stock upon conversion
         or exchange of such Convertible Securities.

                  (2) In case at any  time  the  Company  shall  issue  (whether
         directly or by assumption in a merger or otherwise, but not by way of a
         dividend or other similar type of distribution) or sell any Convertible
         Securities, whether or not the rights to exchange or convert thereunder

                                     - 16 -
             


<PAGE>



          are immediately exercisable, and the price per share for which Capital
          Stock is issuable  upon such  conversion  or exchange  (determined  by
          dividing (A) the total amount received or receivable by the Company as
          consideration  for the issue or sale of such  Convertible  Securities,
          plus the minimum aggregate amount of additional consideration, if any,
          payable to the Company upon the conversion or exchange thereof, by (B)
          the total maximum  number of shares of Capital Stock issuable upon the
          conversion or exchange of all such  Convertible  Securities)  shall be
          less than 94% of the Fair Market Value per share of such Capital Stock
          in effect immediately prior to the time of such issuance or sale, then
          the total  maximum  number of shares of Capital  Stock  issuable  upon
          conversion or exchange of all such Convertible Securities shall (as of
          the  date of the  issue  or sale of such  Convertible  Securities)  be
          deemed to be  outstanding  and to have been  issued for such price per
          share;  provided  that (i) except as provided in Section  5.03(d),  no
          further  adjustments  of the  Conversion  Price shall be made upon the
          actual issue of such Capital Stock upon conversion or exchange of such
          Convertible  Securities  and  (ii) if any  such  issue or sale of such
          Convertible  Securities  is  made  upon  exercise  of  any  rights  to
          subscribe  for or to  purchase  or any  option  to  purchase  any such
          Convertible  Securities for which  adjustments of the Conversion Price
          have been or are to be made  pursuant to other  provisions  of Section
          5.03(b),  no further  adjustment of the Conversion Price shall be made
          by reason of such issue or sale.

                  (3) In case at any time the Company  shall  declare a dividend
         or make any other  distribution  upon any Capital  Stock of the Company
         payable in Capital Stock, any Capital Stock issuable in payment of such
         dividend  or  distribution  shall be deemed to have been issued or sold
         with zero consideration.

                  (4)  Subject to the last  sentence of this  paragraph  (4), in
         case the Company  shall,  by dividend or  otherwise,  distribute to all
         holders of its Common  Stock  and/or any other class of Capital  Stock,
         evidences of its  Indebtedness,  shares of any class of Capital  Stock,
         cash or assets  (including  securities,  but  excluding (x) any rights,
         options  or  warrants  referred  to in  paragraph  (1) of this  Section
         5.03(b),  (y) any dividend or distribution paid exclusively in cash out
         of the  retained  earnings  of the  Company  and  (z) any  dividend  or
         distribution  referred to in paragraph  (3) of this  Section  5.03(b)),
         then, in lieu of the adjustments  provided for in Section 5.03(a),  the
         Conversion  Price  shall be reduced  so that the same  shall  equal the
         price   determined  by  multiplying  the  Conversion  Price  in  effect
         immediately   prior  to  the  effectiveness  of  the  Conversion  Price
         reduction contemplated by this paragraph (4) by a fraction of which the
         numerator  shall be the Fair  Market  Value of the Common  Stock on the
         date of such  effectiveness  less the fair value (as  determined by the
         Company),  on the date of such  effectiveness,  of the  portion  of the
         evidences of indebtedness,  shares of Capital Stock, cash and assets so
         distributed applicable to one share of Common Stock and the denominator
         shall be such current market price per share of the Common Stock on the

                                                     - 17 -
                     


<PAGE>



         date  of  such  effectiveness,   such  reduction  to  become  effective
         immediately  prior to the opening of business on the day  following the
         date fixed for the  determination  of stockholders  entitled to receive
         such distribution (the "Reference Date"). If the Company determines the
         fair value of any  distribution  for purposes of this  paragraph (4) by
         reference  to the actual or when issued  trading  market  value for any
         securities  comprising such distribution,  it must in doing so consider
         the prices in such market over the same  period used in  computing  the
         current  Fair Market Value per share.  For  purposes of this  paragraph
         (4),  any  dividend or  distribution  that  includes  shares of Capital
         Stock, rights,  options or warrants to subscribe for or purchase shares
         of Capital Stock or other  securities  convertible into or exchangeable
         for shares of  Capital  Stock  shall be deemed  instead to be (a) (i) a
         dividend or distribution of the evidences of Indebtedness, cash, assets
         or shares of Capital  Stock  other than such  shares of Capital  Stock,
         such  rights,   options  or  warrants  or  such  other  convertible  or
         exchangeable securities (making any Conversion Price reduction required
         by paragraph (4) of this Section 5.03(b))  immediately followed by (ii)
         in the case of such shares of Capital Stock or such rights,  options or
         warrants,  a dividend  or  distribution  thereof  (making  any  further
         Conversion  Price  reduction  required by paragraph  (1) or (3) of this
         Section  5.03(b),  and any shares of  Capital  Stock  included  in such
         dividend or distribution shall be deemed to be "outstanding" within the
         meaning  of  Section  5.03(a))  or  (b)  in  the  case  of  such  other
         convertible or exchangeable  securities,  a dividend or distribution of
         such number of shares of Capital  Stock as would then be issuable  upon
         the  conversion or exchange  thereof,  whether or not the conversion or
         exchange of such  securities is subject to any  conditions  (making any
         further  Conversion  Price reduction  required by paragraph (3) of this
         Section  5.03(b),  and any shares deemed to constitute such dividend or
         distribution shall be deemed to be "outstanding"  within the meaning of
         Section 5.03(a)).

                  (5) In case  at any  time  any  shares  of  Capital  Stock  or
         Convertible  Securities or any rights,  options or warrants to purchase
         any such Capital  Stock or  Convertible  Securities  shall be issued or
         sold for cash, the  consideration  received therefor shall be deemed to
         be  the  amount  paid  by the  purchaser  therefor,  without  deduction
         therefrom of any expenses  incurred or any underwriting  commissions or
         concessions  or discounts  paid or allowed by the Company in connection
         therewith.  In  case  at any  time  any  shares  of  Capital  Stock  or
         Convertible  Securities or any rights,  options or warrants to purchase
         any such Capital  Stock or  Convertible  Securities  shall be issued or
         sold  for  a   consideration   other  than  cash,  the  amount  of  the
         consideration  other than cash  received by the Company shall be deemed
         to be the fair value of such consideration as determined reasonably and
         in good  faith  by the  Company,  without  deduction  therefrom  of any
         expenses  incurred or any  underwriting  commissions  or concessions or
         discounts  paid or allowed by the Company in connection  therewith.  In
         case any  shares of  Capital  Stock or  Convertible  Securities  or any
         rights,  options or  warrants  to purchase  any such  Capital  Stock or
         Convertible Securities shall be issued in connection  with  any  merger

                                     - 18 -
               


<PAGE>



         of another  corporation  into the Company,  the amount of consideration
         therefor shall be deemed to be the fair value of such  consideration as
         determined  reasonably and in good faith by the Company. In case at any
         time any rights,  options or warrants to purchase any shares of Capital
         Stock or Convertible  Securities shall be issued in connection with the
         issue and sale of other securities of the Company,  together comprising
         one integral transaction in which no consideration is allocated to such
         rights,  options or  warrants  by the  parties  thereto,  such  rights,
         options or  warrants  shall be deemed to have been issued for an amount
         of  consideration  equal  to  the  fair  value  thereof  as  determined
         reasonably and in good faith by the Company.

                  During  the period  beginning  on the Issue Date and ending on
         the Mandatory  Conversion Date, in case the Company shall distribute to
         all  holders of its Common  Stock any  dividend  or  distribution  paid
         exclusively  in cash out of the retained  earnings of the Company in an
         amount per calendar year (based on the  declaration  date) exceeding 5%
         of the Fair  Market  Value of a share  of  Common  Stock on the date on
         which the last such dividend or  distribution  in such calendar year is
         declared,  then,  in lieu of the  adjustments  provided  for in Section
         5.03(a),  the Conversion  Price shall be reduced so that the same shall
         equal the price  determined  by  multiplying  the  Conversion  Price in
         effect  immediately  prior to the effectiveness of the Conversion Price
         reduction contemplated by this paragraph (5) by a fraction of which the
         numerator  shall be the  current  Fair  Market  Value  per share of the
         Common  Stock on the date of such  effectiveness  less the value of the
         portion of the cash so  distributed  applicable  to one share of Common
         Stock and the denominator  shall be such current market price per share
         of the Common Stock on the date of such  effectiveness,  such reduction
         to become effective immediately prior to the opening of business on the
         day  following  the date fixed for the  determination  of  stockholders
         entitled to receive such distribution.

                  (6) In case at any time the Company shall take a record of the
         holders  of Capital  Stock for the  purpose  of  entitling  them (i) to
         receive a dividend or other distribution payable in Capital Stock or in
         Convertible  Securities,  or (ii) to subscribe for or purchase  Capital
         Stock or Convertible Securities,  then such record date shall be deemed
         to be the date of the  issue or sale of the  shares  of  Capital  Stock
         deemed  to have  been  issued  or sold  upon  the  declaration  of such
         dividend  or the making of such other  distribution  or the date of the
         granting of such right of subscription or purchase, as the case may be.

         (c) In case at any time the Company  shall  subdivide  its  outstanding
shares of Capital Stock into a greater number of shares, the Conversion Price in
effect  immediately prior to such subdivision shall be  proportionately  reduced
and conversely,  in case the outstanding  shares of Capital Stock of the Company
shall be  combined  into a smaller  number of shares,  the  Conversion  Price in
effect immediately prior to such combination shall be proportionately increased.

                                     - 19 -
       


<PAGE>





         (d) If the purchase price provided for in any right,  option or warrant
referred  to in  paragraph  (1) of  Section  5.03(b),  or the rate at which  any
Convertible  Securities  referred to in paragraphs (1) or (2) of Section 5.03(b)
are  convertible  into or  exchangeable  for Capital  Stock,  shall  change or a
different purchase price or rate shall become effective at any time or from time
to time (other than under or by reason of provisions designed to protect against
dilution),  then, upon such change becoming effective, the Conversion Price then
in effect hereunder shall forthwith be increased or decreased to such Conversion
Price as would have  obtained  had the  adjustments  made upon the  granting  or
issuance of such right, option, warrant or Convertible Securities been made upon
the  basis  of (1) the  issuance  of the  number  of  shares  of  Capital  Stock
theretofore  actually  delivered  upon the  exercise  of such  right,  option or
warrant or upon the conversion or exchange of such Convertible  Securities,  and
the total consideration  received therefor,  and (2) the granting or issuance at
the time of such  change  of any such  right,  option,  warrant  or  Convertible
Securities then still outstanding for the consideration, if any, received by the
Company  therefor and to be received on the basis of such changed price.  On the
expiration  of any right,  option or warrant  referred  to in  paragraph  (1) of
Section  5.03(b),  or on the termination of any right to convert or exchange any
Convertible  Securities referred to in paragraphs (1) or (2) of Section 5.03(b),
the Conversion  Price shall forthwith be readjusted to such amount as would have
obtained  had the  adjustment  made upon the granting or issuance of such right,
option,  warrant  or  Convertible  Securities  been  made  upon the basis of the
issuance or sale of only the number of shares of Capital Stock  actually  issued
upon the  exercise of such right,  option or warrant or upon the  conversion  or
exchange of such Convertible  Securities.  If the purchase price provided for in
any such  right,  option or warrant,  or the rate at which any such  Convertible
Securities are convertible into or exchangeable for Capital Stock,  shall change
at any time under or by reason of provisions  with respect  thereto  designed to
protect against dilution, then in case of the delivery of Capital Stock upon the
exercise of any such right,  option or warrant or upon conversion or exchange of
any such  Convertible  Security,  the Conversion  Price then in effect hereunder
shall forthwith be decreased to such Conversion Price as would have obtained had
the  adjustments  made upon the  issuance  of such  right,  option,  warrant  or
Convertible  Security been made upon the basis of the issuance of (and the total
consideration received for) the shares of Capital Stock delivered as aforesaid.

         (e) The Company  shall not be required  to make any  adjustment  of the
Conversion Price in the case of:

                  (1) the  issuance  of any shares of Capital  Stock in exchange
         for, or on conversion of (in either case, on a one-for-one  basis), any
         shares of Capital Stock of another  class or series;  provided that the
         only  material  differences  between  (i) the shares of  Capital  Stock
         surrendered in exchange or converted, and (ii) the shares of

                                     - 20 -
                


<PAGE>



         another class or series of Capital Stock thereupon issued, with respect
         to their  relative  powers,  designations,  preferences,  and relative,
         participating, optional or other rights, if any, or the qualifications,
         limitations or restrictions of such powers,  preferences or rights, are
         differences in voting rights;

                  (2) the issuance of any shares of Capital Stock (or securities
         convertible  into  Capital  Stock)  upon  conversion  of the  Company's
         Convertible  Mortgage Notes due 2006 issued to Security Capital Pacific
         Trust or Security Capital Atlantic incorporated.

                  (3) the issuance of Capital Stock  pursuant to the exercise of
         stock options currently  outstanding or thereafter issued to directors,
         officers, employees or service providers of the Company pursuant to any
         employee benefit plan,  agreement or arrangement  approved by the Board
         of Directors.

         (f) In case of any  consolidation or merger of the Company with or into
any other  corporation  or any merger of another  Person into the Company (other
than a merger in which the  Company is the  surviving  Person) or any  statutory
exchange of securities  with another Person or the sale or other  disposition of
all or  substantially  all of the  properties  and assets of the  Company to any
other Person,  there shall be no adjustment of the Conversion  Price pursuant to
Section 5.03, but the Holder of this  Debenture  shall have the right after such
consolidation,  merger,  statutory exchange,  sale or conveyance to convert this
Debenture  into  the kind  and  amount  of  securities,  cash or other  property
receivable  upon  such  consolidation,   merger,  statutory  exchange,  sale  or
conveyance  by a holder of the number of shares of Capital Stock into which this
Debenture  might have been converted  immediately  prior to such  consolidation,
merger, statutory exchange, sale or conveyance (assuming for the purpose of this
sentence  only that this  Debenture  was  convertible  at such time  under  this
Article  Five),  assuming such holder of Capital  Stock  exercises his rights of
election, if any, as to the kind or amount of securities, cash or other property
receivable  upon  such  consolidation,   merger,  statutory  exchange,  sale  or
conveyance  in the same  manner as did the  holders of a  majority  (or if there
shall be no majority,  in the same manner as did the holders of a plurality)  of
the shares of Common Stock in such transaction. The Company shall provide to the
Registered  Holder  at least 30 days'  prior  written  notice  of the  scheduled
occurrence of an event described in this Section 5.03(f).

         The above  provisions of this Section  5.03(f) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales or
other dispositions.


         SECTION 5.04.     Notice of Adjustments of Conversion Price.   Whenever
the Conversion Price is adjusted as herein provided:


                                     - 21 -
                   


<PAGE>



         (a)  the  Company  shall  compute  the  adjusted  Conversion  Price  in
accordance  with  Section  5.03 and shall  prepare a  certificate  signed by the
Secretary of the Company setting forth the adjusted Conversion Price and showing
in reasonable  detail the facts upon which such  adjustment  is based,  and such
certificate shall forthwith be filed in the minute book of the Company;

         (b) a notice  stating that the  Conversion  Price has been adjusted and
setting forth the adjusted Conversion Price shall forthwith be prepared,  and as
soon as  practicable  after it is  prepared,  such notice shall be mailed by the
Company to the Holder at the address appearing in the Register; and

         (c) the  certificate of the Secretary of the Company  setting forth the
adjusted  Conversion  Price shall be conclusive  evidence that the adjustment is
correct absent manifest error.

         SECTION 5.05.     Notice of Certain Corporate Action.  In case:

         (a) the Company shall declare a dividend (or any other distribution) on
its Capital Stock, other than cash dividends payable from current earnings; or

         (b) the Company shall  authorize the granting of all the holders of its
Capital  Stock of (i) rights or warrants to subscribe for or purchase any shares
of Capital Stock of any class, or (ii) any other rights; or

         (c) of any  reclassification of the Capital Stock of the Company (other
than a subdivision or combination of its  outstanding  shares of Capital Stock),
or of any  consolidation or merger to which the Company is a party and for which
approval  of any  stockholders  of the  Company is  required,  or of the sale or
transfer of all or substantially all of the assets of the Company; or

         (d)      of the voluntary or involuntary  dissolution,  liquidation  or
winding-up of the Company;

then the  Company  shall cause to be filed in the minute book of the Company and
shall cause to be mailed to the Holder of this  Debenture at the  Holder's  last
address  appearing  in the  Register,  at least 30 days prior to the  applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the  purpose of such  dividend,  distribution,
rights or warrants, or, if a record is not to be taken, the date as of which the
holders  of  Capital   Stock  of  record  to  be  entitled  to  such   dividend,
distribution,  rights or warrants are to be determined, or (y) the date on which
such  reclassification,  consolidation,  merger,  sale,  transfer,  dissolution,
liquidation  or winding-up is expected to become  effective,  and the date as of
which it is expected that holders of Capital Stock of record shall be entitled

                                     - 22 -
                 


<PAGE>



to exchange their shares of Capital Stock for securities, cash or other property
deliverable upon such reclassification,  consolidation,  merger, sale, transfer,
dissolution, liquidation or winding-up.

         SECTION 5.06. Company to Reserve Common Stock. The Company shall at all
times  reserve  and keep  available,  free from  preemptive  rights,  out of its
authorized  but  unissued  Common  Stock,  for  the  purpose  of  effecting  the
conversion  of the  Debentures,  the full number of shares of Common  Stock then
issuable upon the conversion of all outstanding Debentures, and the Company will
maintain at all times all other rights and privileges sufficient to enable it to
fulfill all its obligations hereunder.

         SECTION  5.07.  Taxes on  Conversion.  The Company will pay any and all
stamp and transfer taxes that may be payable in respect of the issue or delivery
of shares of Common Stock on conversion of this Debenture  pursuant to the terms
hereof. The Company shall not, however,  be required to pay any tax which may be
payable in respect of any transfer  involved in the issue and delivery of shares
of Common  Stock in a name other than that of the  Holder of this  Debenture  or
Debentures to be converted,  and no such issue or delivery  shall be made unless
and until the Person requesting such issue has paid to the Company the amount of
any such tax, or has  established to the  satisfaction  of the Company that such
tax has been paid.

         SECTION 5.08.  Covenant as to Common Stock. The Company  covenants that
all shares of Common Stock which may be issued upon conversion of this Debenture
will  upon  issue  be  duly   authorized,   validly   issued,   fully  paid  and
nonassessable.

         SECTION 5.09.  Registration  and Listing of Common Stock. If any shares
of  Common  Stock  required  to be  reserved  for  purposes  of  conversions  of
Debentures  hereunder require  registration with or approval of any governmental
authority  under any Federal or state law (other than the Securities Act) before
such shares may be issued upon conversion,  the Company will, at its expense and
as expeditiously as possible, use commercially  reasonable efforts to cause such
shares to be duly registered or approved,  as the case may be. If and so long as
the Common  Stock is listed on any  national  securities  exchange,  the Company
will, at its expense,  obtain  promptly and maintain the approval for listing on
each such exchange upon official  notice of issuance,  of shares of Common Stock
issuable upon  conversion of the then  outstanding  Debentures  and maintain the
listing of such shares after their  issuance;  and the Company will also list on
the national securities exchange,  will register under the Exchange Act and will
maintain  such  listing of, any other  securities  that at any time are issuable
upon conversion of the Debentures, if and at the time that any securities of the
same class shall be listed on such national  securities  exchange by the Company
or shall require registration under the Exchange Act.

         SECTION 5.10 Notice of Default.  Within 90 days after the occurrence of
any default  hereunder  with respect to the  Debentures,  the Company shall send
notice of such

                                     - 23 -
               


<PAGE>



default to the Debenture  holders,  unless such default shall have been cured or
waived. For the purpose of this Section 5.10, the term "default" means any event
which is, or after  notice or lapse of time or both  would  become,  an Event of
Default.


                                   ARTICLE SIX

                              DEFAULT AND REMEDIES

         SECTION 6.01.     Events of Default. An "Event of Default" with respect
to this Debenture occurs if:

         (a) the Company  defaults in the payment of Interest on this  Debenture
or any other  Debenture  when the same  becomes  due and payable and the default
continues for a period of 30 days after an Interest Payment Date.

         (b) the  Company  defaults  in the  payment  of the  principal  of this
Debenture  or any other  Debenture  when the same  becomes  due and  payable  at
Maturity, upon redemption or otherwise;

         (c) the  Company  fails to comply  with any of its  covenants  or other
agreements  contained in this Debenture and the default continues for the period
and after the notice specified below;

         (d) there shall be a default under any bond,  debenture,  note or other
evidence of Indebtedness of the Company or any Material  Subsidiary or under any
mortgage,  debenture or other  instrument  under which there may be issued or by
which there may be secured or evidenced any  Indebtedness  of the Company or any
Material  Subsidiary or under any guarantee of the payment by the Company or any
Material Subsidiary of Indebtedness,  whether such Indebtedness or guarantee now
exists  or  shall  hereafter  be  created,  which  default  relates  to (i)  the
obligation  to pay the  principal  of or  interest on any such  Indebtedness  or
guarantee  which default shall have  resulted in such  Indebtedness  becoming or
being  declared  due  and  payable  prior  to its  stated  maturity  or  (ii) an
obligation other than the obligations to pay the principal of or interest on any
such  Indebtedness  and which default  shall have resulted in such  Indebtedness
becoming  or  being  declared  due and  payable  prior to its  stated  maturity;
provided  that no default under this clause (d) shall exist if all such defaults
do not  relate  to such  Indebtedness  or  such  guarantees  with  an  aggregate
principal amount of at least $25,000,000;

         (e) the Company or any  Material  Subsidiary  pursuant to or within the
meaning of any  Bankruptcy  Law (as defined  below) (A) becomes  insolvent,  (B)
fails  generally  to pay its debts as they become due, (C) admits in writing its
inability to pay its debts as they become

                                     - 24 -
             


<PAGE>



due, (D) commences a voluntary case or proceeding,  (E) consents to the entry of
a  judgment,  decree or order for relief  against it in an  involuntary  case or
proceeding, (F) consents to the appointment of a Custodian (as defined below) of
it or for any material  part of its  property,  (G) consents to or acquiesces in
the  institution  of bankruptcy or insolvency  proceedings to or against it, (H)
applies  for,  consents  to or  acquiesces  in  the  appointment  of  or  taking
possession by a Custodian of the Company or any such Material  Subsidiary or for
any material part of the Company's or any such Material  Subsidiary's  property,
or (i) makes a general assignment for the benefit of its creditors;

         (f) a court of  competent  jurisdiction  enters a  judgment,  decree or
order for relief in respect of the  Company  or any  Material  Subsidiary  in an
involuntary  case or proceeding under any Bankruptcy Law which shall (A) approve
as properly filed a petition seeking reorganization,  arrangement, adjustment or
composition in respect of the Company or any Material Subsidiary,  (B) appoint a
Custodian of the Company or any Material  Subsidiary or for any material part of
its property or (C) order the winding-up or liquidation of its affairs, and such
judgment, decree or order shall remain unstayed and in effect for a period of 90
consecutive  days; or any warrant of attachment is issued against any portion of
the  property of the Company or any  Material  Subsidiary  which is not released
within 90 days of service; or

         (g)  uninsured  final  judgments  for the payment of money which in the
aggregate  at any one time  exceed  $25,000,000  shall be  rendered  against the
Company or any Material  Subsidiary  by a court of competent  jurisdiction,  and
shall remain  undischarged  for a period  (during which  execution  shall not be
effectively   stayed)  of  30  days  after  such  judgment   becomes  final  and
nonappealable.

         The term  "Bankruptcy  Law" means Title 11 of the United States Code or
any similar federal or state law for the relief of debtors. The term "Custodian"
means any  receiver,  trustee,  assignee,  liquidator,  sequestrator  or similar
official under any Bankruptcy Law.

         A Default under clause (c) is not an Event of Default until the Holders
of at least a majority in  aggregate  principal  amount of the then  outstanding
Debentures  (excluding  any  Debentures  held  by  the  Company  or  any  of its
Affiliates)  notify the Company of the Default and the Company does not cure the
Default within 30 days after receipt of the notice.  The notice must specify the
Default,  demand that it be  remedied  and state that the notice is a "Notice of
Default." When a Default is cured, it ceases.

         SECTION 6.02. Acceleration. If an Event of Default (other than an Event
of Default  specified in Section 6.01(a),  Section  6.01(b),  Section 6.01(e) or
Section 6.01(f)) occurs and is continuing, the Holders of at least a majority in
aggregate  principal  amount of the Debentures then  outstanding  (excluding any
Debentures held by the Company or any of its  Affiliates)  may, by notice to the
Company,  declare  all unpaid  principal  and  accrued  Interest  to the date of
acceleration on the Debentures then outstanding (if not then due and payable) to
be

                                     - 25 -
                 


<PAGE>



due and payable on the "Acceleration Date," which shall be the first to occur of
(x) an acceleration of any Senior  Indebtedness in an aggregate amount in excess
of $500,000,  or (y) the fifth  Business Day after the receipt of notice of such
declaration  by the Company;  provided  that, in the event the condition  giving
rise to such Event of Default  shall have ceased to exist or payment  shall have
been  made  prior  to  the  Acceleration   Date,  such   declaration   shall  be
automatically  rescinded and such amounts shall no longer become due and payable
pursuant hereto.  If an Event of Default specified in Section 6.01(a) or Section
6.01(b) occurs and is continuing,  (i) any Holder may, by notice to the Company,
declare all unpaid principal and accrued Interest to the date of acceleration on
its  Debenture  (if not  then  due and  payable)  to be due and  payable  on the
Acceleration Date; provided that, in the event the condition giving rise to such
Event of  Default  shall have  ceased to exist or  payment  shall have been made
prior  to  the  Acceleration  Date,  such  declaration  shall  be  automatically
rescinded  and such  amounts  shall no longer  become due and  payable  pursuant
hereto and (ii) the Holders of at least 25% in aggregate principal amount of the
Debentures then  outstanding  may, by notice to the Company,  declare all unpaid
principal and accrued  Interest to the date of  acceleration  on the  Debentures
then  outstanding  (if not then due and  payable)  to be due and  payable on the
Acceleration Date; provided that, in the event the condition giving rise to such
Event of  Default  shall have  ceased to exist or  payment  shall have been made
prior  to  the  Acceleration  Date,  such  declaration  shall  automatically  be
rescinded  and such  amounts  shall no longer  become due and  payable  pursuant
hereto.  If an Event of Default  specified in Section 6.01(e) or Section 6.01(f)
occurs,  all unpaid  principal  and  accrued  Interest  on this  Debenture  then
outstanding shall become  immediately due and payable without any declaration or
other act on the part of any Person.  Upon payment of such principal  amount and
Interest, all of the Company's obligations under this Debenture shall terminate.
The Holders of a majority in aggregate  principal amount of the then outstanding
Debentures  (excluding  any  Debentures  held  by  the  Company  or  any  of its
Affiliates)  by  notice to the  Company  may  rescind  an  acceleration  and its
consequences if (i) all existing  Events of Default,  other than the non-payment
of the  principal  of the  Debentures  which  has  become  due  solely  by  such
declaration of acceleration,  have been cured or waived,  (ii) to the extent the
payment of such interest is lawful, interest on overdue installments of interest
and overdue  principal,  which has become due otherwise than by such declaration
of acceleration,  has been paid and (iii) the rescission would not conflict with
any  judgment or decree of a court of  competent  jurisdiction.  It is expressly
understood  and  agreed  that the  decision  so to waive any  Default  and so to
rescind  and annul any  consequences  thereof  is within the sole  judgment  and
control of the Holders and such Holders shall be under no obligation to do so.

         Notwithstanding  the foregoing,  if a declaration of acceleration shall
have occurred because of an Event of Default specified in Section 6.01(d),  such
declaration  shall be automatically  rescinded if the  Indebtedness  that is the
subject  of such Event of Default  shall  have been paid or  discharged  or such
Event of Default shall have been  rescinded,  cured or waived in accordance with
the terms of any agreement governing or evidencing such Indebtedness and written
notice of such payment, discharge, rescission, cure or waiver, as the

                                     - 26 -
                  

<PAGE>



case may be,  shall have been  given to the  Holders  of the  Debentures  by the
Company or by the requisite holders of such  Indebtedness or the trustee,  agent
or other  representative  of such holders within 60 days after such  declaration
and no other Event of Default  shall have occurred and be continuing on the date
of receipt of such notice.

         SECTION 6.03.  Other  Remedies.  If an Event of Default with respect to
this  Debenture  occurs and is  continuing  and,  except in the case of Defaults
under Sections 6.01(e) and 6.01(f), the Indebtedness represented hereby has been
declared due and payable  pursuant to Section 6.02, the Holder hereof may pursue
any available remedy by proceeding at law or in equity to collect the payment of
principal of or Interest on this Debenture or to enforce the  performance of any
provision of this Debenture.

         A delay or omission by the Holder of this  Debenture in exercising  any
right or remedy  accruing  upon Event of  Default  shall not impair the right or
remedy or  constitute a waiver of or  acquiescence  in the Event of Default.  No
remedy is exclusive of any other remedy.  All available  remedies are cumulative
to the extent permitted by law.

         SECTION  6.04.  Waiver of Past  Defaults.  The Holders of a majority in
aggregate  principal  amount of the then outstanding  Debentures  (excluding any
Debentures  held by the  Company  or any of its  Affiliates)  on  behalf  of the
Holders  of all the  Debentures,  including  this  Debenture,  by  notice to the
Company, may waive an existing Default or Event of Default and its consequences;
except a Default or an Event of Default in the  payment of the  principal  of or
Interest on any Debenture, or in respect of a covenant or provision hereof which
under  Article  Eight  cannot be modified or amended  without the consent of the
Holder  of each  outstanding  Debenture  affected.  When a  Default  or Event of
Default is waived,  it is cured and ceases;  but no such waiver  shall extend to
any subsequent default or impair any right consequent thereon.

         SECTION 6.05. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Debenture,  a court in its discretion may require
the filing by any party  litigant in the suit of an undertaking to pay the costs
of the suit,  and the  court in its  discretion  may  assess  reasonable  costs,
including  reasonable  attorneys' fees,  against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party  litigant.  This  Section 6.05 does not apply to a suit by a Holder or
Holders of more than 10% in aggregate  principal  amount of the then outstanding
Debentures.


                                  ARTICLE SEVEN

                                  SUBORDINATION

         SECTION  7.01.    Subordination of Debentures to  Senior  Indebtedness.
The Company,  for itself and its  successors,  and the Holder,  by acceptance of
this  Debenture  agree that the payment of the  principal  and  Interest on this
Debenture  is  subordinated,  to the extent and in the manner  provided  in this
Article Seven, to the prior payment in full of all Senior Indebtedness.

                                     - 27 -
                  


<PAGE>





         This Article Seven shall  constitute a continuing  offer to all Persons
who, in reliance upon such  provisions,  become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness, and such holders are made obligees hereunder and they or
any of them may enforce such provisions.

         The expressions "prior payment in full," "payment in full" and "paid in
full" and any other  similar term or phrase when used in this Article Seven with
respect to Senior  Indebtedness  shall mean the  payment in full in cash or cash
equivalents  of the  principal of and premium,  if any, and interest  (including
post-petition interest on such Senior Indebtedness to the extent and only to the
extent, that such post-petition interest is an allowed claim against the Company
which is enforceable  against the Company in a bankruptcy case under Title 11 of
the United States Code) on such Senior Indebtedness.

         SECTION 7.02.     No Payment on Debenture in Certain Circumstances.

         (a) No payment  shall be made on account of principal of or Interest on
this Debenture or any of the Debentures,  or to acquire this Debenture or any of
the Debentures for cash or property other than Capital Stock of the Company,  or
on account of the  redemption  provisions  contained in this Debenture or any of
the Debentures (I) upon the maturity of any Senior  Indebtedness in an aggregate
amount in excess of $500,000 by lapse of time, acceleration or otherwise, unless
and until all principal thereof and interest thereon shall first be paid in full
in cash or cash  equivalents,  or such payment is duly  provided for in a manner
satisfactory to the holders of a majority in aggregate  principal  amount of the
then outstanding Senior Indebtedness or (ii) in the event that the Company shall
default in the payment of any principal of, premium,  if any, or interest on any
Senior  Indebtedness in an aggregate  amount in excess of $500,000 when the same
becomes due and payable,  whether at maturity or at a date fixed for  prepayment
or by  declaration  or otherwise,  unless and until such default shall have been
cured or waived or shall have ceased to exist or payment has been made; provided
that  clause  (ii) of this  paragraph  (a) shall not  prevent  the making of any
payment for more than 179 days after the  Default  Notice (as defined in Section
7.02(b))   ("Deferral   Period")   shall  have  been  given  unless  the  Senior
Indebtedness  in respect of which such event of default exists has been declared
due and payable in its entirety, in which case no such payment may be made until
such  acceleration has been rescinded or annulled (by cure of the default giving
rise thereto or otherwise) or such Senior Indebtedness has been paid in full. In
the event that such  payments  in respect of  principal  of or  Interest on this
Debenture or any other  Debenture are or were suspended  pursuant to clause (ii)
of this  paragraph  (a),  such  payments may not be  suspended  again under this
paragraph  (a) until 360 days after the date of the Default  Notice which caused
the next preceding Deferral Period unless the Senior Indebtedness in respect of

                                     - 28 -
                   


<PAGE>



which such event of default  exists  has been  declared  due and  payable in its
entirety,  in which case no payment on account of  principal  of or  interest on
this Debenture or any other  Debenture may be made until such  acceleration  has
been  rescinded  or  annulled  (by cure of the default  giving  rise  thereto or
otherwise) or such Senior  Indebtedness  has been paid in full.  Notwithstanding
the  foregoing,  no event of default which existed or was continuing on the date
of any Default Notice shall be made the basis for the giving of a second Default
Notice.

         (b)  Upon the  happening  of an  event  of  default  (or if an event of
default  would result upon any payment with respect to this  Debenture or any of
the Debentures)  with respect to any Senior  Indebtedness in an aggregate amount
in excess of  $500,000,  as such event of  default is defined  therein or in the
instrument  under which it is outstanding,  permitting the holders to accelerate
the maturity  thereof upon written  notice  thereof  given to the Company by any
holders of such Senior Indebtedness or their authorized representative ("Default
Notice"),  then, unless and until such event of default shall have been cured or
waived  by  the  holders  of  such  Senior   Indebtedness  or  their  authorized
representative  or shall have  ceased to exist,  no direct or  indirect  payment
shall be made by the Company  with  respect to the  principal  of or Interest on
this  Debenture or any of the  Debentures or to acquire or redeem this Debenture
or any of the  Debentures on account of the redemption  provisions  contained in
this Debenture or any of the Debentures;  provided that this paragraph (b) shall
not  prevent  the making of any payment for more than 179 days after the Default
Notice shall have been given unless the Senior  Indebtedness in respect of which
such event of default  exists has been declared due and payable in its entirety,
in which  case no such  payment  may be made until  such  acceleration  has been
rescinded or annulled (by cure of the default  giving rise thereto or otherwise)
or such Senior Indebtedness has been paid in full. In the event that payments in
respect of principal of or Interest on this Debenture or any other Debenture are
or were  suspended  pursuant to this  paragraph  (b),  such  payments may not be
suspended  again under this  paragraph  (b) until 360 days after the date of the
Default Notice which caused the next preceding Deferral Period unless the Senior
Indebtedness  in respect of which such event of default exists has been declared
due and  payable  in its  entirety,  in which  case no  payment  on  account  of
principal of or Interest on this  Debenture or any other  Debenture  may be made
until such  acceleration  has been rescinded or annulled (by cure of the default
giving rise thereto or otherwise) or such Senior  Indebtedness  has been paid in
full.  Notwithstanding  the foregoing,  no event of default which existed or was
continuing  on the date of any  Default  Notice  shall be made the  basis of the
giving of a second Default Notice.

         (c)  So  long  as  any  Bank  Senior   Indebtedness   is  committed  or
outstanding,  payment on account of the Debentures may not be  accelerated,  and
the  Holders of the  Debentures  shall not  exercise  or  enforce  any remedy in
respect of any Default as to the  Debentures  or any  insolvency  of the Company
(including, without limitation, commencing, or joining with another to commence,
any insolvency or liquidation proceeding), during any Deferral Period unless (1)
payment of any Indebtedness in an aggregate  principal amount exceeding $500,000
has been  accelerated  and  remains  unpaid  and (2) the  provisions  of Section
7.02(b) are applicable. So long

                                     - 29 -
              


<PAGE>



as any Bank Senior Indebtedness is committed or outstanding,  the Holders of the
Securities  shall give the agent  under the Credit  Agreement  thirty (30) days'
prior  notice of any  proposed  acceleration  with  respect to the notice of any
proposed  acceleration with respect to the Debentures (which notice may be given
during a Deferral  Period  provided that the proposed  acceleration is not to be
effective until the expiration of such Deferral Period).

         (d) In  furtherance  of the  provisions  of Section  7.01, in the event
that, notwithstanding the foregoing provisions of this Section 7.02, any payment
on  account  of  principal  of or  Interest  on  this  Debenture  or  any of the
Debentures  or on  account  of  redemption  of  this  Debenture  or  any  of the
Debentures  shall be made by or on behalf of the  Company  and  received  by the
Holder of this  Debenture or any of the Debentures or money for any such payment
shall  be  segregated  and  held in  trust,  at a time  when  such  payment  was
prohibited by the provisions of this Section 7.02,  then,  unless and until such
payment is no longer prohibited by this Section 7.02, such payment shall be held
in trust for the benefit of and shall upon demand be  immediately  paid over to,
the holders of Senior Indebtedness or their authorized  representative,  ratably
according to the aggregate  amount  remaining unpaid on account of the principal
of and interest on the Senior  Indebtedness  held or  represented  by each,  for
application to the payment of all Senior  Indebtedness  remaining  unpaid to the
extent  necessary to pay all Senior  Indebtedness in full in accordance with its
terms in cash or cash  equivalents  or such  payment is duly  provided  for in a
manner  satisfactory  to the holders of such Senior  Indebtedness,  after giving
effect to any concurrent payment or distribution or provision therefor to or for
the holders of Senior Indebtedness. The Company shall give prompt written notice
to the Holder of this  Debenture and the Holders of all other  Debentures of any
default or failure to make  payments  of  principal  or  interest on such Senior
Indebtedness  or a default  which  results in the  acceleration  of such  Senior
Indebtedness,  under any Senior  Indebtedness or under any agreement pursuant to
which  Senior  Indebtedness  may have been  issued.  Failure to give such notice
shall not affect the subordination of this Debenture or any of the Debentures to
the Senior Indebtedness as provided in this Article Seven.

         SECTION  7.03.  Debenture  Subordinated  to Prior Payment of All Senior
Indebtedness on Dissolution,  Liquidation or Reorganization of Company. Upon any
payment or distribution of assets of the Company upon any  dissolution,  winding
up,  liquidation  or  reorganization  of the  Company  (whether  in  bankruptcy,
insolvency or receivership proceedings or upon any assignment for the benefit of
the creditors or otherwise):

         (a) the holders of all Senior  Indebtedness  shall first be entitled to
receive  payment in full (or to have such payment duly  provided for) in cash or
cash  equivalents of the principal and interest due thereon before the Holder of
this  Debenture or the Holder of any other  Debenture is entitled to receive any
payment on account of the  principal of or Interest on this  Debenture or any of
the Debentures (for such purpose,  Senior  Indebtedness  shall be deemed paid in
full if all amounts due thereon have been  recovered (x) in cash, or (y) in cash
equivalents;


                                     - 30 -
               


<PAGE>



         (b) any payment or distribution of assets of the Company of any kind or
character,  whether in cash, property or securities, to which the Holder of this
Debenture or the Holders of any of the Debentures  would be entitled  except for
the provisions of this Article Seven (except similarly subordinated  securities)
shall be paid by the liquidating  trustee or agent or other Person making such a
payment or distribution, directly to the holders of Senior Indebtedness or their
authorized  representative,  to the extent  necessary to make payment in full of
all Senior  Indebtedness  remaining unpaid determined in accordance with Section
7.03(a),  after  giving  effect to any  concurrent  payment or  distribution  or
provision thereof to the holders of such Senior Indebtedness;  provided that, in
the event that a  determination  in accordance  herewith is made that the Senior
Indebtedness  has been paid in full based on the  receipt by the  holders of the
Senior  Indebtedness of any property (other than cash),  stock or obligations or
any  combination  thereof with or without cash,  then any payment or delivery of
cash by the  Company to the Holder of this  Debenture  or to the  Holders of any
other Debentures shall be paid to the holders of the Senior  Indebtedness  until
such time as the holders of the Senior  Indebtedness shall have received payment
in full  solely in cash and,  in  exchange  therefor,  the holders of the Senior
Indebtedness  shall pay over to the  Holders  of the  Debentures  an  equivalent
value, as determined by the independent third party selected by mutual agreement
of the  holders  of a  majority  in  aggregate  principal  amount  of  the  then
outstanding  Senior  Indebtedness  and the  Holders of a majority  in  aggregate
principal amount of the then outstanding Debentures,  of such property, stock or
obligations as the holders of the Senior  Indebtedness  shall have received from
the Company such payment of equivalent  value to be allocated  among the Holders
of the  Debentures  pro rata  according  to their share of  aggregate  principal
outstanding under the then outstanding Debentures; and provided, further, that,

                  (i) in the event that  payment or  delivery  by the Company of
         such  property,  cash,  stock  or  obligations  to the  Holders  of the
         Debentures  is  authorized  by an order or decree  giving  effect,  and
         stating  in  such  order  or  decree  that  effect  is  given,  to  the
         subordination of the Debentures to Senior  Indebtedness,  and made by a
         court of competent  jurisdiction in a  reorganization  proceeding under
         any applicable bankruptcy or reorganization law, no payment or delivery
         by the Company of such property (other than cash), stock or obligations
         payable or deliverable with respect to such Debentures shall be made to
         the holders of Senior Indebtedness; and

                  (ii) no such  delivery  shall  be made to  holders  of  Senior
         Indebtedness of stock or obligations which are issued in respect of the
         Debentures pursuant to reorganization  proceedings, or upon any merger,
         consolidation, sale, lease transfer or other disposal not prohibited by
         the provisions of this Debenture by the Company, as reorganized,  or by
         the corporation succeeding to the Company or acquiring its property and
         assets,  if such stock or  obligations  are  subordinate  and junior at
         least to the extent provided in this Section 7.03 to the payment of any
         stock or obligations  which are issued in exchange or substitution  for
         any Senior Indebtedness then outstanding;


                                     - 31 -
                


<PAGE>



         (c) in the event that,  notwithstanding  the foregoing,  any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities  shall be received by the Holder of this Debenture or any
such payment or distribution  shall be segregated or held in trust on account of
principal of or Interest on this  Debenture  before all Senior  Indebtedness  is
paid in full, or provision  made for its payment,  such payment or  distribution
shall be received and held in trust for and shall be paid over to the holders of
the Senior Indebtedness remaining unpaid or provided for (pro rata as to each of
such holders on the basis of the respective  amount of Senior  Indebtedness held
by them) or their authorized  representative,  for application to the payment of
such Senior Indebtedness until all such Senior Indebtedness shall have been paid
in full,  after  giving  effect to any  concurrent  payment or  distribution  or
provision therefor to the holders of such Senior Indebtedness.

         The  Company  shall give  prompt  written  notice to the Holder of this
Debenture and all other Holders of the  Debentures of any  dissolution,  winding
up,  liquidation or  reorganization of the Company or assignment for the benefit
of creditors.  Failure to give such notice shall not affect the subordination of
this Debenture or any other Debenture to the Senior  Indebtedness as provided in
this Article Seven.

         SECTION 7.04. Holder of Debenture to Be Subrogated to Rights of Holders
of Senior  Indebtedness.  Subject  to the  indefeasible  payment  in full of all
Senior  Indebtedness,  the Holder of this Debenture and all other Holders of the
Debentures  shall  be  subrogated  to  the  rights  of  the  holders  of  Senior
Indebtedness  to receive  payments  or  distributions  of assets of the  Company
applicable to the Senior  Indebtedness until all amounts owing on this Debenture
and all other  Debentures  shall be paid in full,  and for the  purpose  of such
subrogation  no  such  payments  or  distributions  to  the  holders  of  Senior
Indebtedness  by or on behalf of the Company or by or on behalf of the Holder of
this Debenture and the Holders of all other Debentures by virtue of this Article
Seven  which  otherwise  would  have been made to the  Holder of this  Debenture
shall, as between the Company and the Holder of this Debenture,  be deemed to be
payment by the  Company to or on  account of the Senior  Indebtedness,  it being
understood that the provisions of this Article Seven are and are intended solely
for the purpose of defining the relative  rights of the Holder of this Debenture
and the  Holders of all other  Debentures,  on the one hand,  and the holders of
Senior Indebtedness, on the other hand.

         SECTION  7.05.  Obligations  of  the  Company  Unconditional.   Nothing
contained  in this Article  Seven or  elsewhere  in this  Debenture or any other
Debenture is intended to or shall impair,  as between the Company and the Holder
of  this  Debenture,  the  obligation  of the  Company  which  is  absolute  and
unconditional,  to pay to the  Holder of this  Debenture  the  principal  of and
Interest on this  Debenture as and when the same shall become due and payable in
accordance with the terms hereof, or is intended to or shall affect the relative
rights of the Holder of this  Debenture  and creditors of the Company other than
the holders of the Senior  Indebtedness,  nor shall  anything  herein or therein
prevent the Holder of this  Debenture  from  exercising  all remedies  otherwise
permitted by applicable law upon default under this Debenture,

                                     - 32 -
                 


<PAGE>



subject to the rights, if any, under this Article Seven of the holders of Senior
Indebtedness in respect of cash,  property or securities of the Company received
or receivable  upon the exercise of any such remedy.  Upon any  distribution  of
assets of the Company  referred to in this  Article  Seven,  the Company and the
Holder of this Debenture shall be entitled to rely upon any order or decree made
by any court of competent  jurisdiction in which such  dissolution,  winding up,
liquidation or reorganization  proceedings are pending,  or a certificate of the
liquidating  trustee or agent or other  Person  making any  distribution  to the
Holder of this Debenture for the purpose of ascertaining the Persons entitled to
participate in such  distribution,  the holders of the Senior  Indebtedness  and
other  indebtedness of the Company,  the amount thereof or payable thereon,  the
amount or amounts  paid or  distributed  thereon and all other  facts  pertinent
thereto or to this Article Seven.

         SECTION 7.06. Subordination Rights Not Impaired by Acts or Omissions of
Company  or Holders of Senior  Indebtedness.  No right of any  present or future
holders of any Senior  Indebtedness to enforce  subordination as provided herein
shall at any time in any way be  prejudiced  or impaired by an act or failure to
act on the part of the  Company or by any act or failure to act,  in good faith,
by any such  holder,  or by any  noncompliance  by the Company with the terms of
this  Debenture,  regardless of any knowledge  thereof which any such holder may
have or with which such holder  otherwise may be charged.  The holders of Senior
Indebtedness  may  extend,  renew,  modify  or amend  the  terms  of the  Senior
Indebtedness  or any  security  therefor  and  release,  sell or  exchange  such
security and otherwise deal freely with the Company,  all without  affecting the
liabilities and obligations of the parties to this Debenture.

         SECTION  7.07.  Article  Seven Not to Prevent  Events of  Default.  The
failure  to make a payment  on  account  of  principal  of or  Interest  on this
Debenture  or any of the other  Debentures  by reason of any  provision  of this
Article Seven shall not be construed as preventing the occurrence of an Event of
Default under Article Six.


                                  ARTICLE EIGHT

                             AMENDMENTS AND WAIVERS

         SECTION  8.01.  With  Consent of  Holders.  The  Company,  when  having
provided at least 15 days' prior written notice to all Holders, with the written
consent of the Holder or Holders of at least a majority in  aggregate  principal
amount of the then outstanding  Debentures (excluding any Debentures held by the
Company  or any of its  Affiliates)  may  amend or  supplement  such  Debentures
(including  this  Debenture).  The Holder or Holders of a majority in  aggregate
principal amount of the then outstanding  Debentures may waive compliance by the
Company with any  provision of such  Debentures  as it relates to such Holder or
Holders;  provided that such Holder or Holders  provide  written  notice to each
other Debentureholder.

                                     - 33 -
            

<PAGE>



However, without the consent of each Debentureholder,  no amendment,  supplement
or waiver, including a waiver pursuant to Section 8.04 may:

                  (1)  reduce  the  principal  amount of such  Debentures  whose
         Holders  must  consent  to an  amendment,  supplement  or waiver of any
         provision of any Debenture;

                  (2)  reduce the rate of Interest on any Debenture;

                  (3)  reduce the principal amount due on any Debenture;

                  (4)  change  the  Maturity  Date of  Debentures  or alter  the
         redemption  provisions with respect thereto in a manner adverse to such
         Holder;

                  (5) make any  changes in Section  6.04 or this  Section  8.01,
         except to increase any such percentage or to provide that certain other
         provisions of this  Debenture  cannot be modified or waived without the
         consent of the Holder of each Debenture affected thereby;

                  (6) make the principal of any Debenture  payable with anything
         other than U.S. Legal Tender and the Interest payable in anything other
         than U.S. Legal Tender or, in the case of conversion, Common Stock; or

                  (7) modify the  provisions of Article Five or Article Seven in
         a manner adverse to any Holder of any Debenture.

         It shall not be necessary  for the consent of the Holders of Debentures
under  this  Section  8.01  to  approve  the  particular  form  of any  proposed
amendment,  supplement  or waiver,  but it shall be  sufficient  if such consent
approves the substance thereof.

         After an  amendment,  supplement  or waiver  under  this  Section  8.01
becomes effective, the Company shall provide notice, pursuant to Section 9.01 to
the Holders affected thereby setting forth the amendment,  supplement or waiver.
Any failure of the Company to give such  notice,  or any defect  therein,  shall
not, however, in any way impair or affect the validity of any amendment.

         Notwithstanding the foregoing, an amendment under this Section 8.01 may
not make any change that adversely  affects the holder of any Senior  Indebtness
unless such holder shall have consented to such change.

         SECTION 8.02. Revocation and Effect of Consents.  Until an amendment or
waiver  becomes  effective,  a  consent  to it by a Holder of a  Debenture  is a
continuing  consent by such Holder and every subsequent Holder of such Debenture
or portion of such Debenture that evidences  the  same  debt  as  the consenting

                                     - 34 -
        


<PAGE>



Holder's  Debenture,  even  if  notation  of  the  consent  is not  made  on any
Debenture.  However, any such Holder or subsequent Holder may revoke the consent
as to his  Debenture  or  portion  of a  Debenture.  Such  revocation  shall  be
effective only if the Company receives the notice of such revocation  before the
date on which the  Company  receives  the  consent of  Holders of the  requisite
principal  amount  of  the  then  outstanding   Debentures  to  such  amendment,
supplement or waiver.

         The Company may,  but shall not be obligated  to, fix a Record Date for
the purpose of determining the Holders of the Debentures  entitled to consent to
any  amendment,   supplement  or  waiver.  If  a  Record  Date  is  fixed,  then
notwithstanding the last two sentences of the immediately  preceding  paragraph,
those  Persons who were Holders of the  Debentures at such Record Date (or their
duly designated  proxies),  and only those Persons,  shall be entitled to revoke
any consent previously given, whether or not such Persons continue to be Holders
after such Record Date.

         After an amendment,  supplement or waiver becomes  effective,  it shall
bind every Holder of the Debentures,  unless it makes a change  described in any
of clauses  (1)  through  (7) of  Section  8.01,  in which  case the  amendment,
supplement  or  waiver  shall  bind  only each  Holder  of a  Debenture  who has
consented  to it and every  subsequent  Holder of a  Debenture  or  portion of a
Debenture that evidences the same debt as the consenting Holder's Debenture.

         SECTION 8.03.  Notation on or Exchange of Debentures.  If an amendment,
supplement or waiver  changes the terms of a Debenture,  the Company may require
the Holder of this Debenture to deliver it to the Company. The Company may place
an appropriate  notation on the Debenture  about the changed terms and return it
to the Holder.  Alternatively,  if the Company has so determined, the Company in
exchange for this  Debenture may issue a new Debenture that reflects the changed
terms.

         SECTION 8.04. Effect of Amendment.  Upon the execution of any amendment
pursuant to the provisions  hereof,  this Debenture shall be and be deemed to be
modified  and  amended  in  accordance  therewith  and  the  respective  rights,
limitations  of rights,  obligations  and duties  under  this  Debenture  of the
Company  and the  Holders of this  Debenture  shall  thereafter  be  determined,
exercised and enforced  hereunder subject in all respects to such  modifications
and amendments,  and all the terms and conditions of any such amendment shall be
and be deemed to be part of the terms and  conditions of this  Debenture for any
and all purposes.



                                      - 35 -
       


<PAGE>


                                 ARTICLE NINE

                                 MISCELLANEOUS



         SECTION 9.01. Notices. Any notices or other communications  required or
permitted hereunder shall be in writing, and shall be sufficiently given if made
by hand delivery,  by telecopier by a nationally  recognized  express courier or
registered  or  certified  mail,  postage  prepaid,  return  receipt  requested,
addressed as follows:

         if to the Company:  Homestead Village Incorporated
                             2100 RiverEdge Parkway
                             Atlanta, Georgia 30328
                             Attn.:  Robert C. Aldworth, Senior Vice President
                                     & Chief Financial Officer

         if to the initial Holder  Security Capital Group Incorporated]
          of this Debenture:       125 Lincoln Avenue
                                   Santa Fe, New Mexico 87501
                                   Attn: Jeffrey A. Klopf, Senior Vice President
                                         & Secretary]


         Any  notice  or  communication  to the  Company  or the  Holder of this
Debenture shall be deemed to have been given or made as of the date so delivered
if personally delivered;  when receipt is acknowledged,  if telecopied;  one day
(three days in the case of international deliveries) after dispatch if sent by a
nationally recognized express courier for overnight delivery;  and five calendar
days (seven days in the case of international  deliveries) after mailing if sent
by registered or certified mail (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).

         Where this Debenture  provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly  provided)
if in writing and mailed by first-class mail, postage prepaid to such Registered
Holders  as their  names  and  addresses  appear  in the  Register.  Where  this
Debenture  provides  for  notice in any  manner,  such  notice  may be waived in
writing by the person  entitled to receive such notice,  either  before or after
the event,  and such waiver shall be the  equivalent of such notice.  Waivers of
notice by Holders shall be filed with the Company,  but such filing shall not be
a condition  precedent to the validity of any action taken in reliance upon such
waiver.  In any case  where  notice to  Holders  is given by mail,  neither  the
failure  to mail such  notices  nor any  defect  in any  notice so mailed to any
particular  Holder shall affect the  sufficiency  of such notice with respect to
other  Holders,  and any notice  which is mailed in the manner  herein  provided
shall be conclusively presumed to have been duly given.

         SECTION 9.02. Consents. Failure to respond to any notice given pursuant
to the  terms of this  Debenture  shall not be deemed  consent  to any  proposed
action described in such notice.

                                     - 36 -
              


<PAGE>



         SECTION 9.03.  Governing Law.  This Debenture and the Debentures of any
series shall be governed and construed in accordance  with the laws of the State
of Maryland without regard to principles of conflicts of law.

         SECTION 9.04.  No Adverse  Interpretation  of  Other  Agreements.  This
Debenture may not be used to interpret any debenture,  loan or debt agreement of
the  Company  or any of its  Subsidiaries.  Any  such  debenture,  loan  or debt
agreement may not be used to interpret this Debenture.

         SECTION  9.05.  No  Recourse  Against  Others.  A  director,   officer,
employee,  stockholder or  incorporator,  as such, of the Company shall not have
any liability for any  obligations  of the Company under this Debenture or under
any other  Debenture  or for any claim  based on, in  respect of or by reason of
such  obligations.  The Holder of this  Debenture,  by accepting this Debenture,
waives and releases all such liability.  Such waiver and release are part of the
consideration for the issuance of the Debentures.

         SECTION 9.06. Successors.  All agreements of the Company in this Deben-
ture shall bind its successor.

         SECTION 9.07.  Severability.  In case any  provision in this  Debenture
shall  be  invalid,  illegal  or  unenforceable,   the  validity,  legality  and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired  thereby,  and a Holder shall have no claim therefor  against any party
hereto.  This Debenture shall be construed to give economic effect to the intent
of the parties hereto.  Without limiting the foregoing,  in the event and to the
extent that payment of any portion of Interest  shall at any time be unlawful or
unenforceable, such portion of such Interest (including, without limitation, any
Interest as to which interest thereon is payable  hereunder) as may be necessary
to give economic effect to the intent of the parties hereto,  shall be deemed to
be principal.

                                     - 37 -
       


<PAGE>



         IN WITNESS  WHEREOF,  the Company has caused this  Debenture to be duly
executed,  and its corporate seal to be hereunto affixed and attested, all as of
the date first written above.

The principal amount of this Debenture is $_______________.

Dated as of __________ ___, 199__

                                       HOMESTEAD VILLAGE INCORPORATED



         (SEAL)                        By:  __________________________
                                            Robert C. Aldworth
                                            Senior Vice President &
                                            Chief Financial Officer

ATTEST:



__________________________
Assistant Secretary

                                     - 38 -